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Traditional 'Rules' of Home Buying Return

Rachel Koning Beals

Depending on the location, house hunters may find themselves in a strange, transitional real estate market that's emerging from historic lows.

Advantage: Buyer? Yes, in many areas, that's still the case.

[See 10 Reasons to Buy Instead of Rent.]

But buyers have guidelines for success in this type of market, too. They need to show that they're serious if they hope to secure their dream house amid stiff deal-sniffing buyer competition or sellers so frustrated they may be willing to hold out for a stronger market turnaround. Professionalism and realistic expectations can go a long way toward ensuring a smooth and timely closing transaction, which is important to buyers and sellers alike.

There are deals to be found, but playing hardball with lowball offers that are out of sync with comparable local sales can be time-consuming. Time can mean money.

There may be wiggle room with seller concessions (covering closing costs, tossing in repair credits), so entering into a prospective deal armed with local market knowledge and respectful consideration of the seller's position can go a long way toward getting a great deal on a great property.

Here are a few tips for buyers to consider, culled from National Association of Realtors data and independent brokerage sites:

-- Save yourself and all involved the delay and headache of financial surprises by researching your own credit report. You should also consider securing a preapproved loan or at least let a bank determine the range you'll likely qualify for. This will help set realistic expectations for your search.

-- Short sales, foreclosed properties, or rent-to-own dwellings shouldn't be ruled out as part of a wide and comprehensive home search. But these types of sales may take more time and involve more financial hoops, so be prepared.

[See More Foreclosures Yet to Come?]

-- With your agent or on your own, thoroughly study the comparable nearby sales. But limit that search to recent transactions--no older than six months if such data is available. Extend the timeframe if you need to. Price isn't all that matters; find out how long properties are staying on the market, on average. This stat can also help inform how far below the asking price you might consider for an opening bid.

-- Speaking of negotiations, they're back and have been for a few years. Gone (in most but not all markets) are the bidding wars where would-be buyers didn't stand a chance unless they came in above the asking price from the start. Ironically, tough competition has cropped up in some instances, thanks to the weak housing market. If buyers are going for a foreclosure, for instance, all-cash offers from property developers and other buyers are edging out bank-financed offers. Again, be prepared and know your own financial situation in advance.

-- Keep in mind that real estate health is not only a "local" market story (you can essentially ignore national sales statistics), but it can change street by street. Maybe the property you desire is near a prestigious hospital, university, large government employer, or vibrant restaurant and shopping district. That's good for your long-term investment, but it also means the seller has a pricing advantage at the outset and could care less about macro-pricing trends. Competition may be tight; if the economy remains spotty, other buyers will look for this kind of neighborhood stability.

-- It's perfectly acceptable to ask how firm the seller is with the price. You or your agent can pose this question to the seller's agent. Semantics are important: Ask "How flexible are they on the price?"Avoid: "How much less will they take?" Consult with your agent for their opinion on the likelihood of the success of a lowball offer. You have the right to go in at whatever level you want, but keep in mind that a lowball number may turn off the seller and close down any chance at negotiation. You may have to bid on several properties (dozens, perhaps) before you get a seller to jump. Of course, this tactic might work on your first try. Try to check your emotions at the door.

-- You can always ask for reasonable incentives. Some ideas: seller pays closing costs, a property-tax installment, or condo/homeowners association fees. Maybe a seller upgrades the appliances or provides a cash credit toward remodeling or repairs. At the extreme end of the spectrum, sellers might be willing to front a few months of mortgage payments. During the market's lows, some sellers creatively tossed in new bikes if, for instance, the home is near bike paths or they purchased local gym memberships for buyers. How far might sellers go to move the property? Buyers and agents armed with local market knowledge will know how to negotiate incentives. The seller is also likely to let the buyer determine the length of the closing, within reason.

[See 3 Recession Home Remodeling Trends Likely to Stick Around.]

-- Incentives are great, but buyers may still be responsible for closing costs and should plan on this expense well ahead of house-hunting. The average amount of closing costs and prepaid items needed to cover your closing are approximately 4 percent of your loan amount. Buyers may also have to put up "earnest" or "good faith" money, which is essentially a deposit before moving into the offer/contract phase.

-- Regardless of market conditions, there are a few basics to add to the checklist. These can be a jumping-off point for negotiations. Buyers should hire a title company to check the house for liens and tax arrearages; hire their own inspector, not the seller's (have your inspector also check for any potentially unpermitted work, such as an addition) and keep in mind that some states have specific rules about disclosures; and verify property line accuracy by requesting a seller-secured survey, or buyers may have to buy their own survey. Be respectful as you talk with sellers and their agents about these needs. Sellers should also be accommodating, as these steps show that a buyer is serious about the property.

Bottom line: Savvy buyers should know what they're up against and what opportunities abound, as another traditional springtime home-buying season ramps up--this one as market traffic and pricing are on the rise.

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