Home buying: How to find sweetest deals
While home shopping on the Internet, Judy James became convinced that many houses in her target North Seattle neighborhoods were overpriced...
Seattle Times business reporter
While home shopping on the Internet, Judy James became convinced that many houses in her target North Seattle neighborhoods were overpriced but buyers who knew what to look for could find bargains.
An analysis by national real-estate company Redfin, based in Seattle, has put some science behind that, revealing which houses get heavily discounted and which don't.
The one James recently bought in Richmond Beach — at 6 percent off the original price without any seller concessions — fit two of Redfin's markers for deep discounts.
First, the house had been available more than 90 days — 94 to be exact — and the price had dropped twice, from the original $665,000 for five bedrooms, a third of an acre and a Puget Sound view to $625,000.
That's when James bit.
"A lot of houses are overvalued on a per-square-foot basis," says James, who works for a local nonprofit. "But when they hit the right price range, they really go fast."
July home-sales statistics, released Wednesday by the Northwest Multiple Listing Service, show that King County's prices are bobbing up and down on a monthly basis but are about 5.5 percent below the previous July.
At the same time, the number of houses and condos for sale climbed to 16,313 last month, a 26.4 percent increase.
In its study, Redfin found that recent King County buyers paid an average 1.76 percent less than the asking price, the smallest discount in the markets it covers.
Los Angeles buyers paid an average 2.94 percent less for homes in that area.
Redfin's calculations are based on 2,974 single-family homes sold from April 15 through June 15 as reported to the Northwest Multiple Listing Service.
Some neighborhoods averaged deeper cuts (on Mercer Island, for example, buyers paid about 5 percent less than the asking price), but others held firm. In Maple Valley, homes sold for an average 99.8 percent of the asking price.
Of the discounts in King County, the top 10 percent averaged 8.27 percent off the list price. In Los Angeles, by comparison, the top one-tenth of the discounted deals averaged savings of 14.26 percent.
According to Redfin's analysis, deep discounts locally were:
• 82 percent more likely if the house was for sale for more than 90 days;
• 56 percent more likely if it was called "a fixer upper";
• 37 percent more likely if the owners had already dropped the asking price at least once;
• 97 percent more likely if it had been owned 20 years or more;
• 46 percent more likely if a bank was involved (if, for example, the house had reverted to the lender in a foreclosure or if the bank agreed to a "short sale," taking less than it was owed).
As prices began declining here last year, Redfin CEO Glenn Kelman increasingly saw "more deals that went nowhere" because of an expectations gap.
"The sellers feel they'd given up so much, and the buyers think they haven't given up enough," Kelman said.
A survey released Wednesday by Seattle-based Zillow shows that two-thirds of U.S. homeowners think their house value increased in the past year. In reality, 77 percent of homes lost value during that period.
To combat the expectations gap, Redfin crunched local numbers to tease out pricing patterns and "inform the conversation," Kelman said.
"There are times you can be aggressive, but they're not as common as people think," Kelman said. "If a house hasn't been on the market for a long time, a large discount just isn't going to happen."
Significant price cuts also are rare when desirable schools are nearby, the house is in perfect move-in condition, is priced aggressively and is in the middle price range for its area, Redfin found.
"Things in the high or low price range tend to sit," Kelman said. "Things in the middle tend to be snapped up."
Anecdotally, that means Seattle houses with three or more bedrooms, priced between $500,000 and $800,000, generally are speedy sellers.
However, simply comparing original listing price with selling price doesn't tell the whole story.
Not reflected in official data are those instances where the seller offers concessions to get the house sold.
"About 50 percent of the time, the sellers pay closing costs," Redfin agent Cheryl McLaine said.
That was Judy James' experience. She paid the full, albeit reduced, asking price of $625,000, but the seller paid $5,000 in closing costs. That effectively dropped James' outlay to $620,000, increasing her discount from 6 percent to 6.8 percent.
James is thrilled with her house and the price she paid.
"It wasn't that I wasn't willing to go higher, but I wanted to get my money's worth," she said. "I was looking for a good deal."
Elizabeth Rhodes: firstname.lastname@example.org
Copyright © 2008 The Seattle Times Company
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