The Big Questions

Is now the time to strike?

By Robert Plunket

All of a sudden people are starting to ask me two questions: 1.) Should I buy a home right now? And 2.) How much should I pay? These are good questions, certainly, but the very fact that they’re asking me indicates the profound confusion in the market.

Let’s examine each question in more detail.

The first question: Should I buy a home now? Almost everybody (except those trying to sell a house) seems to think that prices will continue to decline for the next year or so. So why spend more now when it will be cheaper in a year? That is the conundrum facing the market at the moment.

But the trick is to recognize the exceptions —the good buys of the moment. They generally fall into one of the following categories.

A: The unique, at all price levels. If your dream house comes on the market—and many dream houses are at the moment—then go for it. You may never get a chance like this again. And remember: High-end Florida real estate is traditionally the first thing to recover its value in a recession.

B: Good solid condos, particularly the more expensive ones, are holding their own pretty well. I think the secret is that the other owners with the exact same unit across the hall are praying so hard that God is actually being merciful, so far. And never has the power of a prestige building been more apparent. The places with cachet are doing OK. In fact, an economic situation like this really shows which buildings are the desirable ones.

The second question: How much should I pay?

Those enormous discounts on new homes that builders are offering at the moment certainly sound good. But I keep thinking—wouldn’t it be easier to wait until the developer goes bankrupt? Then they’ll really be cheap.

Check the home’s price reduction history. You want to hit it on the third reduction. The first two are just a prelude, so that it can gradually dawn on the seller how much trouble he’s in. If you’re not getting 30 percent off the original asking price you’re not getting a very good deal.

Low-ball offers are now perfectly acceptable. A 40 percent off offer is no longer an insult, just an indication that you’re a serious investor.

I hate to say it, but seek out unfortunate people. A death in the family is ideal. Older Sarasota residents are still dying at an alarming rate, and their heirs want to get rid of the old homestead as quickly as possible. And because Gramps purchased it in 1975 for $20,000 the heirs will get a lot of pure profit, and they don’t take the whole thing so personally. Some of these homes are going for 50 percent of what they would have fetched two years ago. So check the obituaries.

To sum up: In today’s market you need a very sure sense of what makes a piece of real estate desirable. All the nuances of location, style, rarity, price, construction quality, future development next door, improvement possibilities—in other words, all the reasons you read Real Estate Junkie.

And here’s something fun—for my take on the recent real estate auction, go to my article in the hallowed pages of Barron’s, no less.

Posted: 12/12/2007 12:54:12 PM | 0 comments