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Four tips for buying a house in a buyer's market

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Now is a great time to buy a house. Prices are falling, and so are mortgage rates. Millions of houses are for sale, and sellers are getting anxious.

That's one way of looking at it.

Alternatively, you could say: This is a bad time to buy a house. Prices might be lower in a few months. Same with mortgage rates. With more than 4 million houses on the market nationally, and more being added daily, sellers are bound to become desperate. Why not wait them out?

In many places, it's a buyer's market in real estate, with sellers outnumbering potential purchasers. The resulting downward push on prices makes buyers happy. But it complicates matters for buyers, too. In some markets, there are too many choices to sort through. Even more bewildering, buyers wonder if they should wait a few months.

"They're worried that they're going to buy too soon, and the figures will reduce, and by the time they go through the transaction, they'll have negative equity," says Mario Villena, vice president of Homekeys. In every market there are people who are serious about buying, and don't get sidetracked by market forces that aren't under their control.

For those buyers, experts have some advice: If you find the right house at the right price, buy it.

Put technology and a buyer's agent to good use.

Negotiate effectively.

Avoid gimmicks.

If you find the right house at the right price, buy it

If you're serious about buying a house, this is both the first step and the final goal. To put it more precisely, you have to decide whether you will actively shop and then negotiate a fair deal, or if you'll just passively browse houses, hoping to stumble on a steal.

You're more likely to succeed with the active approach instead of waiting (possibly in vain) for prices to fall further. You can't predict when the local market will hit bottom. Even if prices do fall, someone could buy your favorite house out from under you. Diane Saatchi, a real estate agent with the Corcoran Group on Long Island, N.Y., draws this analogy: "It's like when you find a dress that you like, and you wait for it to be on sale, and then the sale comes and they don't have your size. Theoretically, you saved 20 percent. But you don't have your dress."

There's always the possibility that you'll buy a house and then the value will fall. In the 1990s, Southern California and South Florida had housing slumps in which it took years for prices to recover their previous levels. It could happen again, there or elsewhere. For that reason, "buy a home that can grow with you if necessary," says Elizabeth Razzi, author of "The Fearless Home Buyer."

"Look to the long term, because you don't know how long you'll be there," Razzi says. "You might have to ride out bad market conditions for a while." True to her book's title, Razzi says you shouldn't let fear dictate your timing.

"You should not wait if you find the right property, because, for one thing, you're not looking solely for the best price. You're looking for the best home."

And keep in mind that mortgage rates have fallen about three-quarters of a percentage point in the last three months. "Right now is a perfect time to buy, because of a real sudden increase in buying power," says Bill Christiano, loan officer with MortgageIT's office in suburban Westchester, N.Y.

Put technology and a buyer's agent to good use

Cool technological innovations are popping up on real estate Web sites practically every week. Among the most useful are valuation tools. Zillow has the best known of these called the "Zestimate," which is a computer-generated estimate of a house's market value.

It's hard to stress how revolutionary these valuation tools are, Villena says: "Until recently, this was impossible. You didn't have, as a consumer, tools that could reasonably provide home values to you without spending something like $300 for each property to appraise it."

Now those estimates are free, and you can get them without changing out of your pajamas.

Focus on finding faster ways to weed out the houses you're not interested in -- because they don't fit your criteria for asking price, size, neighborhood or amenities.

"If you're a serious buyer, you really have to increase the speed at which you arrive at reasonably priced homes," Villena says. "Those are the ones that are going to see a lot of action. You need to be early to that party. Start out by being more specific about the characteristics defining your desired home."

With so many houses on the market, it's useful to hire a buyer's agent to sort them out, says Pam O'Connor, president of Leading Real Estate Companies of the World, a national network of 650 regional and independent brokers. You have your pick of agents now, and "you should be asking what's their experience, how long they've been in the market, what price they specialize in," O'Connor says.

If you find a house you like, ask the agent to perform a comparative market analysis -- basically, to do what technology does, but with the addition of human judgment. Do your own analysis online. Compare your research with your agent's. If they corroborate each other, fine. If something seems amiss, find out why. (An experienced agent is almost surely more accurate than Zillow.)

Negotiate effectively

Right now, "there's more room for negotiation" in most housing markets because the sales pace slows in autumn, and prices have been falling, says Steve Habetz, president of ARCServ, a network of real estate attorneys.

Villena counsels buyers to avoid the temptation to toss out lowball offers, because sellers won't negotiate if they feel insulted. "You have to be able to defend that offer as much as the seller has to be able to defend the asking price," he says. "If you're not making a full-price offer, it's not enough to pull a number out of the air. You should be able to show that this neighborhood has 20 comparable homes for sale, and, although I like your property, it's priced 6 percent above the other properties. That gives you a better footing for establishing an objective and reasonable negotiation."

Don't just negotiate with the seller. "Most people think that only sellers pay commissions," Villena says. "They think that buyers are being serviced for free. Most people are not yet aware that there is a commission component reserved for the buyer's agent. And that, too, just like the seller's commission, is negotiable."

Avoid gimmicks

You're shopping for a house, not for a Caribbean cruise or a car lease. Recently The New York Verdana,Arial reported on a condo seller who was offering to give the buyer a year's use of a leased Mercedes-Benz E-Class sedan. Razzi says you'll find all sorts of gimmicky incentives from condo sellers. They offer flat-screen TVs or weekends at vacation homes, or more creative inducements. "That has nothing to do with the transaction at hand," Razzi says. If there's an incentive, make sure it has something to do with the dwelling -- upgraded countertops, decorating allowances, payment of mortgage closing costs, that sort of thing. "If they're willing to subsidize it with a $500 TV, ask for $500 off the asking price," she says.

There's another gimmick to avoid: what O'Connor calls "magic loans." This is the time to avoid mortgages such as pay-option ARMs and interest-only loans, she says. If you can't afford it with a more mainstream loan, such as a 30-year fixed or a 5/1 ARM, you can't afford it. Not in this market, where house values could drop and mortgage rates are almost sure to rise.

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