Real estate experts normally caution against buying the most expensive home in a neighborhood. They argue that lesser houses nearby could hold down its value.
But that rule didn’t apply in the case of a financial executive who bought a luxurious Italian-style home recently. When the executive first caught sight of the place last year, he was enchanted by the 15,000-square-foot estate, located on a lush 100-acre parcel.
However, there was one problem: sticker shock. At $16 million, it was greatly overpriced. Other wealthy shoppers balked. But the financial executive persevered. He put in a series of five offers before finally acquiring the prized property at the deeply discounted price of $8 million.
Although many top-of-the-neighborhood homes are overpriced originally, a dose of realism eventually forces the owner to back down. “It was the end of a long road. But after 18 months, the buyer got a tremendous value on a home he loved. He and his family were just thrilled,” says Kathi McLean, the Coldwell Banker broker who represented the buyers.
Why do sellers of top-of-the-neighborhood homes often list too high in the beginning? Because many such dwellings are “overimproved.” And their owners hope, often unrealistically, to recoup their full investment. This was the case with the Italian-style home. The sellers wanted to recover the costs of their glitzy improvements, such as fine marble imported from Portugal and lavish window treatments.
The secret for a buyer is not to get discouraged by a heavy price tag. If you hold out long enough, you could get a true bargain. This strategy, of course, won’t work if the seller is wedded to the original asking price. Your agent can probably find out if the seller must move due to a job transfer, divorce or other pressing circumstance. Otherwise, the seller may be unbending.
Here are three other rules that homebuyers in any income category may wish to break:
– Always buy ASAP in an area where prices are rising. Mortgage money is now readily available, even for those with tarnished credit. Many lenders will make “subprime” mortgages to those with a recent history of late payments, court judgments or even bankruptcy. But subprime loans are expensive. They are typically offered at 1 to 5 percentage points above market, and that doesn’t count upfront fees and points. (A point is 1 percent of the mortgage amount.)
Instant gratification is part of the American culture. And rising real estate prices make it all the more tempting to buy a home now. But many with longstanding credit problems often find it tough to hang onto a property they bought with a subprime mortgage because bad habits are hard to break, says Michelle Thornhill, a consumer services executive for Wells Fargo Home Mortgage.
Thornhill urges those with severely flawed credit to seek homeownership counseling before rushing into a purchase. By deferring until you’ve completed a counseling program, you’ll stand a better chance of receiving a mortgage at a prime interest rate.
One such counseling program is the Wells Fargo HomeBuyers Club, a national service based in Riverside, Calif. (800-851-9131). Those who join the free club receive one-on-one help (by phone, mail or e-mail) to restore their credit and learn how to better handle money. “We have doctors, lawyers and janitors among our graduates,” Thornhill says. (Graduates who buy homes need not promise to finance them through Wells Fargo.)
Many local community organizations also provide counseling. To find them, contact an office of the U.S. Department of Housing and Urban Development or call a major mortgage investment company such as Fannie Mae.
– Never work with more than one real estate agent at the same time. It’s futile to have two agents scouring the same community on your behalf, even when attractive properties are in short supply. You may try to keep it a secret, but chances are the gambit will be discovered. As a result, the two agents will typically cut their commitment to you, believing you could buy through the other in his or her own backyard, says Michael Knight, the co-owner of a Re/Max Realty office.
However, if you’re seriously considering two neighborhoods a significant distance from one another, engage specialists in each area and fully disclose the fact. That way you’ll gain genuine expertise in both markets. “The agents will understand if the two neighborhoods are far apart,” Knight says. Under such circumstances, “competition is healthy.”
– Never buy the first home you visit. Realtors usually caution against purchasing the first property you’re shown unless you’ve already done comparison shopping. But there are exceptions to the rule. Without visiting multiple properties, you can do the equivalent of comparison shopping if you already own or rent in the community, or have studied comparative listings through the Internet or Multiple Listing Service.
