You might not spend a lot of your valuable time looking for a store that
sells candy bars for a nickel less than their competitor - but chances are
good that when you want to buy a car or a house, you'll shop around for the
best deal available. With a car, the best deal might mean a rock-bottom
price without any frills or a sweet-ticket price that includes an
undercoating treatment and a high-end stereo system included at no extra
charge.
You would think that the same thing should hold true when you want to buy
a home, but, as you will see, it's usually not as simple as that.
Washington, D.C. is presently in what's known as a seller's market.
This simply means that there are fewer homes being sold than there are
buyers. Because of this, prices tend to climb higher than usual and when
dwellings become available, they usually sell quickly. Very quickly.
In a seller's market, it's not unusual to find yourself in a situation
where the best deal is the opportunity to pay thousands of dollars
more just to scoop your competition. And who is the competition when you're
trying to buy a house, condo, or co-op? The competition is the other nine
people in the room who want the same property that you do but who are
willing (and able) to pay more than the list price to buy it.
Jim Vaughn, a home inspector with HomeAuthority describes LIST PRICE
as "the dollar value placed on the house by the seller and listing agent."
Licensed appraiser Michael Kaminski describes it as "the seller's most
hopeful guess as to what a property might bring and is the starting point
for negoliations."
In contrast, says Vaughn, the "SALE PRICE is the actual contract
price agreed on by the buyer and the seller."
Vaughn next described the process involved in selling a home, beginning
with a call to a real estate agent (also known as the listing agent). Stated
in the simplest of terms, the agent looks over the property and tells the
seller what she or he thinks it is worth. At that point, if all parties
agree, the home officially goes go on the market with the determined "list
price."
When a potential buyer comes along with an agent (buyer broker), they'll
examine the property and make their own offer. In a seller's market, the
buyer will usually offer at least the asking price (list price).
However, knowing that there are probably other buyers coming along, the
first buyer will more than likely offer a bit more - even if the price
already seems a little high.
Now, when more potential buyers do come along, each one of them may begin
bidding against the other. And since the only direction to bid is up, the
price will begin to rise and rise and rise. In fact, by the time all the
bidding is done, the value of the property will be artificially inflated.
In an attempt to try to put a ceiling on the over-inflated prices and add
a semblance of fairness to the game, Julie Waesche of Tutt, Taylor, and
Rankin Real Estate says that an Escalation Clause Addendum is often
added to contracts. She says that the multiple offer situations are often
like "cat fights." "The clause states that the purchaser will pay so much
above any other offer up to a cap." When an agent decides to deal without
such caps, it can spell h-a-s-s-l-e for the other agents involved because it
wreaks havoc with the idea of competition. "How," she ask, "can you compete
with that? You can't."
Cat fights and hassles aside, one buyer will usually outbid the rest. At
this point a ratified contract will be drawn up. The intricacies of what
happens next are the fodder for another column; but suffice it to say that
even then, prior to the addition of any other expenses or contingencies, the
sale price is higher than the original list price. All because the seller,
in a seller's market, knows that if one buyer won't pay what he or she
wants, the next buyer to come along will. Add to the recipe things like
egos, fear, and other human factors occasionally found in folks living in
Washington, and you have a perfect formula for skyrocketing home prices.
External factors like strong economies and better wages all contribute to
a seller's market. Wanting to put your money in one of the best investments
around at this time is not a bad idea. But remember that a seller's market
translates into homes that are at a premium and which command more money
than they might during a buyer's market. Even homes that need additional
work done may sell quicker because of the competition. As a buyer, be
forewarned and, at least, be prepared to meet the seller's market head on.
- 30 -
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by Michael Walker
