I've been pondering this for a day or so -- especially thinking about the hurt that sellers feel when their homes don't command the prices they feel are justified. I don't think I've worked with any sellers this year who were thrilled with the price they ultimately agreed to, but they acknowledged that the market had the biggest influence on the outcome of the negotiations.

So, what drives the offer -- the house or the market? Obviously, buyers select the house because of the house. After all, how many buyers say, "I hate this house! I think I'll buy it!"  So once they choose the house, they make their offer based on the market.

It's the market that drives the offer. That buyers look at days on market and condition may feel like it's about the house. But the fact that buyers are asking these questions at all is indicative of the overall market we're in. When the market was scorching hot, no one took the time to ask those questions, because if you waited for an answer, someone else got the house.

What other explanation is there for buyers paying thousands of dollars over asking price and appraised value than market conditions? They obviously didn't do it because they just felt like it, but because it was the only way to get the house. It was market conditions that drove buyers decisions then and market conditions that are driving buyers decisions now. Today, in our current economy, buyers are making low offers out of fear that they will have lost equity before the ink is dry on their settlement papers.

Sellers may hope that a buyer will just fall in love with their house and make an offer accordingly. And it may happen - but if that is the seller's strategy for getting the home sold, they're very likely to be disappointed.

And that's the market we're in.

(C) Susan Pruden.

Tom Priester made an excellent point in his comment to my previous post - here is his comment in its entirety:

In my opinion the number one item of importance in the minds of buyers in todays marketplace is the assurance they are making a good financial decision in buying now in lieu of waiting. As real estate is so geographically oriented, not just by state, city but in my area of Southern Florida, it is important to show them the facts about the market conditions in their neighborhood and sometimes even their street and/or building. The buyers goals are extremely important and as REALTORS we need to help them explore the ramifications of the time span they plan to stay in the home they are thinking about buying, the trend in interest rates and how they will effect them in the long term. With some simple documentation is is easy to show buyers who are planning on staying put for a period of a few years (italics mine) that there is no better time than today to buy. The opportunities are incredible in this market.

His comments are true, in any location and in any market. None of us wants to think we've made a bad decision.

I tell this story all the time, but I'm not sure I've ever done it here --

I bought my house in 1991 -- at the top of the market, just as it was cresting. I paid $117k for my house. I was sure I had way overpaid (by maybe $5,000 bucks!), but I also knew that I was planning to stay in this house for many years. The flip side of the price I paid is that the sellers gave me a terrific amount of closing help, plus made some major repairs (replacing the defective electrical system and rotten bathroom floor).

Within three years, the market had dropped quite a bit and two years later, when the market really hit rock bottom, I would have been lucky to have gotten $89k for my house. For those of you who remember these things, the federal government had massive layoffs and RIFs (Reduction in Force) in the mid 90s. My little town of approximately 1600 homes went from 30-odd houses on the market to over 80 in fairly short order. (It was in the midst of this horrible market that I got my real estate license).

So things stayed pretty bleak until the market made a turn-around in 2003. By 2005, houses similar to mine were selling in the $325k range. The value has since dropped a bit, but I'm still sitting on at least a 250% appreciation rate.

The point is, real estate is a great long-term investment. Did I overpay because I bought at the top of the market? Not from where I stand in 2008. Not by a long shot.

The recent leaps upward in value made real estate seem like a good short term proposition. For a lucky few, it was. But history shows us that these windows of extreme short-term appreciation are very rare occurances. And a lot of people bought what they could get in that hot market, not what made sense for them in the long run.

Today's market is a prime time for buyers to get what works for them in the long term. There's a terrific selection out there, at great prices and decent financial terms. The selection and prices will probably be there for a while, but not necessarily the terms -- while interest rates are still terrific, the rest of the financing guidelines change daily and they are only getting more restrictive. A house today that can be financed with a 5% downpayment may require a 10% downpayment tomorrow - simply because the rules are an ever-moving target.

So is this a good time to buy? You betcha. Read my post on the buyers who found five homes that they liked! One of my friends was remarking on that blog post, saying that when he bought, he had next to no choices - he felt lucky that the one that was available in his price range was one that he actually liked!

If you are ready to buy a house, you will find great values and a lot to choose from out there. It's a great time to buy!

Thanks, Tom, for the great comment!

(C) 2008 Susan Pruden.