McClelland Minute - June 20,2010

House Hunting in a Buyers’ Market

In the last few weeks we have seen considerably more interest in real estate than this region has experienced since mid 2008.  However, along with increased buyer activity have come some new twists that can make the house hunting process quite a bit more stressful than it needs to be.

It is true that the market value of houses has adjusted downward; reflecting the fact that current supply exceeds demand.  At the present rate of completed weekly sales, there is almost a one year inventory of homes available within some areas, and that is without the impact of additional properties being listed for sale on a daily basis.

What some buyers don’t realize is that if the value of their target property has moderated from the peak, likely so has the worth of the home they currently live in.  The first reasonable step in considering trading up is to get an Opinion of Value from either a Realtor or an appraiser. 

The next step is to discuss that valuation with your bank, and compare it to what the payout of the current mortgage would be.  The difference, less brokerage and legal fees, is your equity therefore providing you with an estimated down payment available for the next home.

The third step is to obtain pre-approval for the price range in which you feel comfortable in searching.  Two cautions here; there is a tendency for some of today’s home buyers to look at houses in a range above what they can afford believing they can negotiate the owner to their level.  One of my colleagues uses the concept of the mirror to explain this rationale - in other words what you see is what you are likely to get – if you count on beating down opposition during an offer process so you can afford their property – so will the prospective buyer of your home. 

The second caution is that you and your spouse may have taken on additional consumer debt, changed jobs, added a child to the family, or gone into self-employment, since the last time you sought mortgage financing.  This may lead to significant changes in disposable income. In fact, the bank, being the cautious folks they are today, may see you as a higher risk than before, even if you have demonstrated an ability to service all your debt.

The fourth step and last step is to ask your Realtor to review with you four or five recent sales within the target budget and property specifications.  Look to see what you can get at that price point.  Does it suffice, or should you wait until personal circumstances improve?  Be honest with your self, and your Realtor.  The time is right to make a change when you can look for a new home without hesitation, worrying about making ends meet, or suffering “buyers’ remorse”.

Trading up houses is not the same as going into the neighbourhood car dealership.  The owner of the home you want will not take your present accommodation as part payment plus give you easy financing for the difference.  They will negotiate with someone who has obviously done their homework and is in a position to complete an accepted offer in the promised time frame.

Vern McClelland is associate broker with RE/MAX of Lloydminster.  If you have questions or comments on this article or other real estate matters, he can be reached at 780.808.2700 or through the McClelland Group website www.mcclelland.ca

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