As list prices drop...

howdy all,

I’m seeing list prices cooling off here in MD. As this happens, does the buyer “get” all the equity? … or is that diminished as list price /perceived value decline?

Thanks.

realnew,

When you see the list prices decreasing, that means that the market value is decreasing. Of course, as an investor you should still be buying at a BIG discount (less than 70% ARV - repairs) and even more in a declining market. Therefore, you should still get significant equity when you buy. The key point is that you must sell quickly in a declining market if you are going to maximize your profit.

Mike

Thanks… I didn’t mention… this is for my personal residence. I’m worried about being upside down on the house.

realnew,

One of the best ways to protect against being upside down is to buy your personal residence like an investment property. In other words, buy at a BIG discount.

Mike

There would be no equity for you to ‘get’. The house sells for what it is worth. You can’t use un-utilized equity as a downpayment for example.
As a buyer, you need to make sure you aren’t paying more than market value for your home.
If prices are depreciating in your area, make your offer accordingly.

There would be no equity for you to 'get'. The house sells for what it is worth.

Of course, that is true if you pay the current retail value, but there are always desperate sellers who will sell their houses below retail, thereby giving you equity at closing. An example would be a couple that is getting a divorce. They hate each other and just want to get rid of the house and move on with their lives. If they only owe $120,000 on a house that has a market value of $175,000, you could buy it for $120K and you would have $55K in equity.

Mike

The other time you see good deals is when the seller has already bought another property and is in a hurry to unload his property before he gets stuck with two mortgages or has to come up with the downpayment from somewhere besides his house.

Keep in mind that interest rates took a big jump in the last couple of weeks, I’d say about 1/2 point from a month ago. That makes a big difference in the payment. You may want to calculate where it puts you in terms of payment. For instance 200k borrowed at 6% gives you a $1199 monthly payment. Now if rates are at 6.5%, you would have to be at 190k in order to end up with about the same payment.

The ideal situation is to try and find out what the divorce decree states is the lowest both parties have agreed upon to allow for the property to sell for. If it says neither party can sell for less then “X”, then that is what the divorce states. You should try and fish out what the divorce states is the very lowest they would accept. One of the divorced people maybe willing to tell you.