We're House Shopping

Several months ago, I detailed my real estate investing plan for the housing decline. Since then I've been watching house prices in my target area of the city as well as general trends around western Michigan. Well, it looks like prices are getting just about where I want them. In addition, my wife and I would like to be closer to our church, closer to several friends, have a bit more land, and live in a bit of a better neighborhood. Put all this together, and we're off to races -- house shopping.

For us this means we need to sell our current house and buy a new one -- and manage all of the ga-zillion tasks associated with each of them. We took the first step last week when we met with a realtor to get his perspective on the housing market (FYI, we got him referred from a good friend in the business, so we figured he could do the job. After talking to him and seeing his sales accomplishments, we were sure of it.) Here are our initial learnings/thoughts from our meeting with him as well as our own thoughts on the move:

• The agent said that currently for every 10 homes on the market, one is sold. Ouch. That hurts us on the selling end. On the buying end, it helps us as people are much more willing to negotiate. (BTW, I just read in Money magazine that Grand Rapids home sales are down -22.7% from the previous year, so there are bound to be lots of motivated sellers and extreme competition on the buying side for us.)

• On the selling end, we are in an excellent position compared to many others. We own our house outright and we aren't locked into a specific number we "have" to have in order to meet a bank's obligations. We can look at the market and set a fair price -- not one dictated by finances that are stretched too thin because of a huge house mortgaged to the hilt.

• We have a decent amount of savings that will allow us to get into the new house without having to sell the old house. Of course, we'd prefer to sell the old house first, but if it doesn't work out that way, we can put at least a 20% downpayment on the new house without selling the old house.

• We'd be trading up in home values, which has a couple advantages. First, there are less buyers in this range, making sellers much more willing to negotiate. Second, even if they don't negotiate off going rates, the 15% price decline seen in the market overall will work to our advantage as we'll gain more on a house we buy than we'll lose on the house we sell. Look at it this example: a house that was worth $200,000 two years ago is now worth $170,000 -- we'll "lose" $30,000 if we sold such a house. But a house purchased for $350,000 today, was a house worth $412,000 two years ago -- we'd "gain" $62,000 in "worth" on the new house. I know this is fake math -- we'd still sell for the selling price and buy for the buying price, but you get the point: if there's an across-the-board 15% decline, then more-expensive homes are down more and thus "better values" in absolute dollars.

• That said, now a bigger portion of our net worth will be dedicated to real estate -- not something I'm particularly excited about. But there are some quality-of-life issues that make it worth it for now.

• The agent is willing to negotiate his commission. I'll write more on this in detail later, but since we are both a buyer and a seller, we can structure our deal with him so he still makes thousands of dollars but most of it won't be paid by us. ;-)

• We'll need to move ourselves -- not a pleasant task. The last time we move within a city was 15 years ago -- before kids, before tons more stuff, and before bad backs. ;-) It should be interesting as we balance cost versus convenience. We'll probably have movers take the big stuff and move the rest ourselves (with the help of friends.)

I'll be sharing more and more details of this move as we progress (including a few surprises for why we're moving) as time goes on. For now I wanted to tell you the basics and inform you all we're on the hunt. ;-)

Comments

[MoleOnABull]

FMF himself is buying a house... cool.

Looking forward to hearing about the progress!

[Patrick]

-- The agent is willing to negotiate his commission. I'll write more on this in detail later, but since we are both a buyer and a seller, we can structure our deal with him so he still makes thousands of dollars but most of it won't be paid by us. ;-)

I'm really interested to read about how you are working this angle. My wife and I are considering moving and agent fees are going to be expensive! If we can find a way to lessen the impact on us, I think it will make the decision to move an easier one to make!

[Matthew]

Did you consider buying and selling without using an agent's services? If so, why didn't you decide to handle the process on your own?

[FMF]

Patrick --

Stay tuned -- more to come on this.

Matthew --

Yes, we've considered this -- and may do it. We're in the initial stages of simply investigating the market, what's out there, what are the alternatives, etc. I'll certainly keep you all updated as we go through the process.

[Ciji]

I can't help but wonder: in your rush to "own the house outright" did you kind of shoot yourself in the foot? I am under the impression that you've accelerated your mortgage payments using one technique or another. This had to have been a financial 'push' for you and your family. If that money had to put towards other investments or in savings, you'd have more cash in your pocket. I'm assuming you don't need a cash downpayment, since you are selling your own home. Wouldn't it be nice to have all those extra payments in your own pocket since you are selling that house anyway? Just curious about your philosophy here...

Personally, I'm not too concerned about paying down a mortgage fast because I know I'm going to 'ladder up' eventually. Why give them extra payments when I'm going to get a new loan in 3-7 years anyway? Plus, those extra/doubled-up payments I can afford to make (because I live on a portion of my income) can go into a account so I can make other investments. I just like to have as much as my money doing what I want it to do. Extra payments to the bank just give them room to do what they like to do (which is loan money).

Side note: can't you structure your mortgage so that your new home payment isn't due until you sell your old home? Or do they not do that anymore?

[Lord]

Does it make sense to lease your present home until the market improves? It could take years though and you may not wish to tie up your money that long. If you negotiate a lower fee, you should take the difference off the asking price to motivate the buyer. In a buyers market they will end up with it anyway and it will move faster.

[FMF]

Ciji --

Actually, since I paid off my mortgage several years ago and have kept saving at a strong rate ever since, I have enough for a good downpayment with no problem. (BTW, the paying off the mortgage may have been a push for us when we did it, but that was a decade ago.) If I wanted, I could liquidate some investments and pay for the new house outright -- while still owning the old house outright. I'm not too excited about that, though, so I'm looking at other alternatives.

Best option for us is to sell the current house and use the proceeds and some cash/investments to buy the new house outright for cash.

Lord --

Good idea. I'll keep that in mind as we enter negotiations.

All --

There's still a long way to go. We went looking at homes this weekend and we may even need to build the home we want. Lots of options, but time is on our side -- I don't think the market is going to jump up overnight.

[Mortgage refinancing]

I think thats correct to take the difference off the asking price to motivate the buyer.Mortgage refinancing do add to financial issues and concerns.

[Teri]

Interesting.

We have been loving this down market too, as a possible time to move. We already bought our "dream home", but over time have changed some of our idea of what we want in a house, and have a few other reasons to move to. Anyway, in our area land is usually very expensive and these days not fetching much of a premium, so we would love to jump on some land while it is a bargain, plus an ideal time to buy and lock in lower property taxes since in Cali you kind of lock them in when you buy, and it was getting so crazy even if we could move the property taxes were getting insane. Prices have dropped and things have settled a bit lately though.

However, being unwilling to own 2 homes at once (we have once before and decided never again - not with 2 mortgages anyway) will probably preclude us from making the leap. I can see why having a paid mortgage is of great advantage in this situation. Even with our mortgage, since we didn't buy at the peak, we weren't really tied to an specific dollar figure and have a lot of flexibility if we want to price lower and sell though. Just haven't found the perfect house yet and decided maybe we are a little too picky too - wouldn't give this house up unless we found a sure thing, so is more our conundrum. We tried last year and it just didn't work out. But I feel like we have some time on our side as market is still slow. In this market for the last 7 years we have never had the luxury to take time in a house search, and that is a beautiful thing. But yeah, while the press focuses on those who bought at the peak and are freaking out, we see this as a time of great opportunity to make a lateral move.

Good Luck!

[Teri]

P.S. Our realtor was willing to waive fees too. I personally would not buy or sell without a realtor myself, but now is time to find a great bargain on one - they are hungry and a good realtor will be flexibile on fees to get a sale through.

[Big Cheese]

FMF,

My advice: be patient as the market will continue being soft with more price cuts for the next 2-3 years. I say this based on the lack of first time homebuyers that is the real driver for the real estate market.

You have the money to buy now but if you sit down and discuss the benefits of patience with your wife you may well come out ahead.

Good luck to you.

-Big Cheese

[Beth]

My husband and I have just purchased our first home after being married for 23 years. We're a military family and all the bases that we've lived at have been closed by BRAC within a few years after we've left. We have thought about buying in the past, but never really felt financially stable enough to do so. The area that we've bought in is near a base that was scheduled to close, but a new mission was found to keep the base open. About four years ago housing prices fell drastically when the BRAC list came out and the base was on the list for something like the fourth time. We were thinking about buying at the time, but because I hated my job and we didn't really plan to stay in the area the announcement helped us to decide not to buy. Yesterday we closed on a home that we probably could have bought 3-4 years ago in the high $80's to low $90's or about 2 years ago (when it was announced that a new mission was possibly found and when I was just starting a new job that I wasn't sure of) for somewhere in the $110-120 range. Now that I love my job we've decided to stay for a while and we closed yesterday in the mid $140's which now considered mid-range pricing in this small "city." Sorry, I'm originally from the San Francisco Bay Area...to me this is a small town...not even a quaint one.

Years ago when we first arrived on station new "expensive" homes for normal folk were in the low $100's now you're easily looking at the mid to high $200's. To me that's kind of outrageous considering that the median family income here is something like $33K/year. The amount of greed, maybe I'm too harsh, with people knowing that new blood will be coming to town is outrageous as well. The first house we bid on was sold 9 months ago for $139k and the asking was $154k (no improvements). We made two offers both countered with the asking price. No, we didn't want the house that bad. BTW, I enjoy this blog!

[Deborah]

On moving house... I think we paid a lot for our last move, probably in the range of $1600 - $2000 by the time you add everything. I keep good track of costs...

I think we paid the movers $1200, boxes were a few hundred, I just don't remember, cleaning lady $100, storage $200. I would elect to scrimp on none of these costs in the future, and perhaps if I was to move again I'd hire a second cleaning person to help out with the unpacking and clean up work. The money I resent and I feel I got little value for is the real estate agent fees.

Seriously, moving is extremely stressful and an enormous amount of work and if money is not to improve quality of life, I can hardly think of anything that gives you better value than hiring people for this if you can afford it.

Seriously, I've spent a week of my vacation time organizing my home after and around a move trying to save money and I much prefer just spending one hard weekend and having it mostly done.