Getting the best deal. It's only fair.

Thats all true as far as it goes, but it misses how that market clearing price is actually set.

CMA will work fine in a non-volatile market. In a volatile market, art comes in.

And of course, markets as a whole may tend toward rationality, but any given seller may sell irrationally low or high depending on their particular circumstances.

Which is normal. And that's why buyers need to have a reasonable idea of value, as they do with cars.

A useful way is to add rent/own comparisons, salary multiples, and location trends to CMA.

Its not that CMA is inherently bad - that's effectively what the stock market price of say XOM is. Its that real estate is a thinly traded market, albeit thicker than many, so CMA is a rougher approximation in many cases. Especially in the northeast where we have fewer fungible housing developments.

How well do past prices predict future prices in a falling market? If CMAs always set the price, markets would never rise or fall, except very slowly. Clearly this is not the case.

Imagine using Blue Book value to determine the price of a used SUV right about now.

Problem is, most buyers and sellers have no idea of the numbers that actually do reflect a home's value--its price/rent ratio, and the ratio of price to income. So negotiations are conducted in the dark about these supposedly obscure data points that, over the long run, really do determine the price of a house.

I get better deals by not using a realtor when I buy.

Because the seller's agent doesn't have to split commission with a buyer's agent, I've been able to negotiate healthy credits back at closing--which were paid for by the realtor and not the sellers--to address any problems that were discovered during the inspection.

In one such example, the realtor gave me a check after closing for $2500 to pay for a new water main. In another case, the realtor funded the repair of a retaining wall for $1900.

Yes, I know it's "illegal" in the eyes of NAR. But it's done.

Either way, it became painfully obvious when negotiating the P&S for these properties that the seller's weren't going to pony-up any cash for these costly repairs. And seeing that the agent was earning double the commission (since I was unrepresented), I was able to appeal to the agent's sense of reason, making it clear that I would walk if he/she didn't fund the fixes. In short, the agent realized its better to receive a reduced commission than none at all.

A "fair" deal- This may not be happen if the market for the commodity is collapsing (ie like the current SUV market; manufacturers are shutting down the plants) due to macro economic forces that have nothing to do with the net intrinsic value of the item for sale. Then, the price of the item may be driven by "out of control" economic forces. Irrational fears can fuel price declines in the same way that irrational exhuberance fueled the housing "boom". In certain parts of the country we are seeing some of this now. We will start to see this in the Massachusetts housing market, if the price of oil continues to rise due to speculation, the stock market continues to fall (in part due to the weak dollar), and the wealthier buyers who are currently buying the homes in the "desireable" suburbs have less disposable income.

Rona has made a good point and one that I think is being missed. The discussion is the art of the negotiation. Home prices are falling because of time on market without a bite. However, at the point the house hits a list price that meets buyer expectations, negotiation kicks in.

"If CMAs always set the price, markets would never rise or fall, except very slowly."

This is the starting point for setting a price. It is not necessarily where the list price is when the seller will get an offer. Market dynamics force that and in turn it is later reflected in the CMA for the next comp.

Why would a seller not try to get the most for their house? Why ask for less when the market will bare more? If you know that someone is going to offer less, you consider that in your asking price. It's a way to start the negotiation. As long as it is within a range of reason to a buyer, the back and forth to make a deal will happen.

I think it is ludicrous to think that a seller will price their house today 30% below a CMA just because people are speculating (based on research or gut) that the market will fall to that shortly and won't buy anything until it does. “Bottoming Out” speculators will continue to wait. Realistically, a seller knows they aren't their customer. They aren't marketing to them. A seller is marketing to someone that is truly interested in buying a home now at today's prices.

We recently made an offer to a condo (in a 2-family house) in a town close to Boston. After several rounds of negotiation, the seller accepted our offer. Our inspector found two major defects that we did not know before the offer: the leaky porch requires immediate repair and the curling roof (due to poor ventillation and installation) needs to be replaced asap. We got a quotation for $25k (8k for porch and 17k for roof). So, our agent suggested that we should ask the seller to give us credit. To make the long story short, the deal failed right before P&S. Although after a couple rounds of negotiation, the seller agreed to give us 10k credit, the seller decided to give us $5k only after we asked the seller to pay some of our closing cost. So, we made a painful decision to walk away.

In our case, we made an offer assuming the condo is in good condition. Both seller's agent and our agent thought we asked too much credit from the seller. The reason is that our agents insisted that we got a good deal because the accepted offer was below market value. The strange thing is that the condo went
under agreement a few days after we walked away without back on market. We feel betrayed. We are the first time homebuyers and the offer was our first attempt to make an offer. We still don't know what went wrong and our agents has not talked to us after the failed deal. Now, we feel betrayed and totally hopeless. Adding salt to the wound, now we have to find a place to live in a month because we decided not to renew 1-year lease with our current landlord who asks us to pay 1-year rent penalty if we break the lease. Any comments? How can renters in Boston area buy a house without paying "commission" to their landlord first?

Many sellers have a threshold price beyond which they cannot negotiate.
I can see property which is languishing on the market for two years or
more. Some of these aren't tumbled down but have been recently refurbished.
These sellers are waiting for that fabled recovery or it's wicked stepsister,
foreclosure. Accumulating taxes and maintenance costs would indicate the
need for a clearance sale. It's not in the cards because the flippers were
living large on their "investments"and ignored the coming storm. Your example
of the $450,000 house doesn't consider the $23,000 commision which further
adds to the sellers dilemma. Many sellers just can't face the prospect of selling
at any loss much less a years salary. So they wait ... for the end.

I say, do your research and make an offer. Start the dialogue. I see too many buyers trying to get inside the seller's head and figure out how they will respond to their offer.

Forget that! It's a waste of time and energy. Make your offer based on what you want to pay and what the market is telling you.

If you make an offer on a short sale or foreclosed property, then you're having to wait for the lender to accept your offer. With a short sale you actually have to get your inspection done and sign a P&S for the bank to even consider your offer. Then you wait and wait.

Sellers should absolutely get the most money possible - they aren't charities.

Nonetheless, some pricing strategies are more likely to make money than others. I see a lot of sellers "chasing the market", ie they price a little too high, because they want more. Then the place doesn't sell, so they lower. But in the meantime the market has moved lower, so they still are above the market price. And then it repeats, with the sellers often ending up selling for less money than if they had priced correctly in the first place.

Inasmuch as prices fell year over year buy 15% per the latest numbers, the people truly interested in buying a house are by definition also not interested in buying it at todays prices.... Or the market would be flat, not steadily dropping.

Ken Lyons #3,

"And seeing that the agent was earning double the commission (since I was unrepresented), I was able to appeal to the agent's sense of reason, making it clear that I would walk if he/she didn't fund the fixes. In short, the agent realized its better to receive a reduced commission than none at all."

Your statement is misleading. The agent is not earning *double* the commission, they are earning the commission they negotiated with the seller and set in a contract.

And I can't imagine any seller's agent giving a portion of their commission to a buyer unless the property has been on the market a very long time *and* the agent and seller have an agreement as such.

Buyers today are assuming prices will be lower in the future and are trying to incorporate that into their offers I believe.

It's the same thing they were doing 3 and 4 years ago, but back then they were assuming prices would rise (indefintely???), and they would pay more than they really could have or should have. "hey it's going up 10% a year, so buy the most expensive one we can qualify for"..mentality.

This works both ways and we are seeing the reverse now, and likey will for the forseeable future.

Good point Brian. That's exactly what we did as first-time homebuyers. We recently made an offer on a third home we were interested in and the offer was accepted. However, prior to this offer we made offers that included future depreciation. Apparently the sellers didn't agree:) Oh well.

As a current renter and prospective buyer I guess I'm not the most qualified to comment on how to get the best deal yet but the stategy my wife and I have utilized has been to initially set a price that we can comfortably afford and will not go over regardless of the property. Next we analyze the current properties on the market in our price range and slightly over. When we are interested in a particular property we run the comps on our own. We adjust the comps for the cost of money at the time of agreement. We look at the property's sales history. We also use ratios such as p/sq ft, % of assessment and asking p/sales p for the area. We create a number that we feel the property was worth at the time of the comps which is generally within the past year. We discount that number by 5% to come up with what we believe the property is worth in todays market assuming the seller can wait indefinitely. We then set our number which is generally 5% less than our cma which we will not stretch over except in the rare case where we are overwhelmed by the property. We have begun to negotiate on a couple of occasions which one party or the other has backed away for a number of reasons. We realize that many sellers will not sell at a "discounted" rate and we are fine w/ that. We are qualified, have 20%, have no obligations to our current living situation and are not in a rush to leave it. We know that the property will be worth less 6 months after we purchase it and are taking 100% of the risk. The sticking point for us has been that houses are coming on in our market at the same price or slightly higher than the comps did a year ago even though sales prices are down. Somewhere during the bubble seller's perspectives of their house value went from shock to expectation. Until it and broker's opinions come to realization the market will lag in terms of volume of sales.

Davis -

What you experienced is not uncommon, even for experienced buyers and sellers. You should not feel betrayed since you made a decision with all known information. If you felt strongly enough about the place, then you could have accepted the deal with the extra 10K reduction. Only you can decide what price is right for you - always keep in mind that the your interests are best served by yourself. Unless, of course, you have a broker who is a dear friend or relative.

My view is always to walk away from a deal that can potentially be a liability, than get caught up in emotional buying. There will always be another home that will suit your needs equally; but once bought, you have essentially bought everything that comes with it. So always be comfortable with your purchase and aware that there is always a risk; never regret walking away if you feel at all uncomfortable.

very well put MK. why would you feel betrayed? that does not make sence. This happens all the time. The house accross the street from me, the buyer went to the morning walk through and then never showed up at the signing. Now thats betrayed, LOL.

I would think if the house were overpriced by 20k it wouldn't be that much of a comfort zone breach. Saddly quite a few houses on the market are 100k over what comps are selling/ have sold for.

still waiting - that's a good approach, and attitude. You'll do well with it.

Seller expectations have yet to reset, which is normal at this point in the market cycle - we haven't reached capitulation yet.

And though this is a guesstimate, I think capitulation will happen after the failure of the 2009 spring market. 2 bad spring markets will kill the optimism.

Prices won't go up until after capitulation btw - standard market behaviour.