Carradine says that banks eager to sell their REO homes will drop prices if they don’t move quickly. “I’ve seen lenders reduce prices by about 3% every 15 days or so. On a $200,000 house, that’s more than $5,000 every two weeks. Buyers have to be careful though. Once a house reaches an attractive price, multiple buyers might come in and top your bid.”
Peace suggests some negotiating techniques. “Find out the prices of comparable recent sales in that area,” he says. “If a bank has priced a house at $300,000 but you can show that similar houses are selling for $280,000, the bank might come down to $280,000. Another tactic is to offer the seller the asking price, but on the condition the seller pays the closing costs. “Closing costs can be 5% to 6% of the sales price,” says Peace. “Having the seller pay can save you thousands of dollars of cash upfront—money you can use after buying a house that needs work.”
The next six months should be an especially attractive time for first-time homebuyers to close the deal. As part of President Obama’s stimulus plan, people who have not owned a home they used as a principal residence in the last three years can get a 10% tax credit, up to $8,000 ($4,000 if married, filing separately), if they buy a place before Dec. 1. This tax credit reduces your federal income tax bill by $8,000 and can be claimed on either 2008 or 2009 returns. “That credit is refundable,” says Carradine. In other words, if your federal tax obligation is only $5,000, for example, that obligation would be wiped out and you’d get a $3,000 refund from the IRS.
However, government intervention won’t be wholly positive for bargain-seekers. “This will probably dampen the decline of housing prices somewhat,” says Lance Freeman, associate professor of urban planning at Columbia University and noted housing expert. “Fewer homes will go into foreclosure and foreclosed homes typically sell at a dramatic discount. Moreover, foreclosed properties lower property values of surrounding homes.” How much will such a slowdown in foreclosures affect housing prices? “I don’t believe anyone can estimate that accurately,” says Freeman. “However, house prices in many metro areas are still inflated by historical standards. This suggests we have not reached the bottom yet.”
Trying to find the bottom of the housing market is akin to locating the bottom of a bear market in stocks: difficult if not impossible. “At today’s interest rates,” says Carradine, ”paying $10,000 less for a home will save you only $40 or $50 a month. At the lower price, you might not get the best selection. If you see a house that you like and you can afford, buy it now.”
This story originally appeared in the May 2009 issue of Black Enterprise magazine.