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Looking for a Bargain?

3/5/2013

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Everyone wants to buy low and sell high. It just seems to be the best thing we can do...  Right?

Unless you have been in a coma for the last 6 months, you know that the market bottom has hit our area and home prices are now trending up almost everywhere. Better yet,  with low interest rates, home prices are more affordable than ever!

So why are some homes priced real low while others seem so high? And how can agents say with a straight face  that the high priced homes may actually be "bargain priced"?

The answer is really very simple.

As a result of all the foreclosures and short sales, we are in a special type of split market:  the Wholesale and the Retail markets.  

The Wholesale market is for true cash investors. Cash buyers can close escrow quickly. They don't require appraisals. They don't need to wait for lender "approval". They represent minimal risk for the Seller.

The Retail market is for buyers who need to acquire purchase money loans. To qualify, among other things, a home must be appraised for value and that appraisal must then be approved by the lender.  Closing costs for the Seller will often be higher.  And because Retail buyers are dealing with many parties, there are more obstacles to overcome before escrow can close.  Quick escrows are often impossible to achieve.  Retail buyers represent much higher risk for the Sellers. 

When you purchase goods in a retail store, like a Target or Costco, you are buying at retail prices. Most people feel that the asking price at Costco represents a pretty good deal, yet they are purchasing merchandise that Costco acquired by paying a lower  "Wholesale" price.  

For the manufacturer, Costco eliminates risk by often ordering the merchandise long before it is even made.  If the goods don't sell; the manufacturer still gets paid and Costco loses.  Because of that, Costco will mark up the wholesale price to a retail price; the price you or I happily pay. 

That's what's happening in our housing market. The problem is, thanks to the internet,  wholesale priced homes are lumped together with retail priced homes. Consumers  have no easy way to differentiate between the two types of homes. 

Most home buyers want to to snag a great deal from the "wholesale inventory"  because they think those homes are available for everyone to purchase.  And they are, if you have cash.  In this case, the  internet is providing a false picture of the housing inventory and this is causing a great deal of frustration for retail homeowners. 

Right now many highly qualified buyers are losing precious time (time is money when prices are trending up)  by avoiding homes that are in reality properly priced at "Market Value" yet look overpriced when compared to "wholesale" priced homes.    (Those great values at Costco would not look so good if we had access to the wholesale price of what Costco actually pays to the manufacturer!)

The best real estate agents will research and show you homes that you are able to purchase: homes in the Retail Market. They will perform a Comparative Market Analysis to help you determine a fair market value for the specific home.  Knowledgeable agents will never want to show you homes you "cannot have" and they will want to avoid showing you "wholesale" priced homes.  Unfortunately, if you are like most buyers, you will search the internet, find wholesale priced homes mixed in with retail priced homes, and ask your agent to visit them.

The internet is a wonderful tool for agents, buyers and sellers. Just keep in mind that If you are using the internet to search for homes, you will be discovering many that are intended for the Wholesale market. 

Don't lose out on the best interest rates for home buyers most of us have ever seen because you are only looking at homes you cannot buy and passing on the many gems of the market. Let your agent find you that dreamhome. And next time you are shopping at Costco and find a really good deal, remember that you are paying "retail" for that great deal. Costco paid wholesale!

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    Karla & Joe

    We're the owners of Realty World ALL STARS and we play an active, hands-on  role in the operation of our company. We'll be glad to help you find the right agent to assist you in your real estate needs.Feel free to call us direct or send us a message.

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