Setting the right price is as much about knowing how buyers think as it is about how much the property is worth.

By Jonathan Clements, The Wall Street Journal If you’re selling a car or a house in today’s sluggish economy, make sure the price is right.

Americans are constantly buying stuff. But most of us don’t do a whole lot of selling — which means we don’t have much experience at setting prices.

Want to improve your odds of finding a buyer? As you try to unload your car or your home, consider these four pricing tricks.

Looking slim. We all know that $1.99 is barely less than $2. Yet retailers continue to use this trick, because there’s ample evidence it works.

“When we look at prices, we make judgments in a fraction of a second,” explains Manoj Thomas, a marketing professor at Cornell University. “We read from left to right. We anchor our judgment on the first thing we see.”

For instance, if you’re trying to sell your old car that you think is worth $8,000, you might set the price at $7,999. Potential buyers will read the seven first — and have a sense the car is cheaper than it really is.

Alternatively, you might start at $8,222 and then quickly drop the price to $8,111. One study of price comparisons found that, if the left digits are the same, buyers will focus on the right-hand numbers.

At that point, buyers perceive the discount to be larger if those right numbers are declining from, say, two to one rather than from nine to eight. Even though the decline is the same in dollar terms, “people think they’re getting a better deal,” says one of the study’s co-authors, Robin Coulter, a marketing professor at the University of Connecticut.

Stacking up. As buyers check out your car or your house, they’ll have in mind a price they are willing to pay. The good news: You can influence that price.

“You should list higher than you’re willing to accept,” says Alan Cooke, a marketing professor at the University of Florida. “If you ask a high price, people use that as information in setting their reference price. But there’s also evidence that, if you set a price that is implausibly high, the impact will be less than if you set a price that’s more reasonable.”

In addition, you can affect the reference price of buyers by, for instance, telling them your car’s book value or sharing the price of competing properties in the neighborhood. The obvious caveat: Pass along this information only if the comparisons are in your favor.

Sending messages. Imagine you’re selling your house, which you figure might fetch a little less than $600,000. A round number, such as $595,000, will convey quality, while a precise number, such as $595,385, will indicate a bargain.

The reason: We associate precise numbers with lower-priced goods. A precise number also may signal that you have given a heap of thought to the price and you aren’t inclined to negotiate.

Trying to settle on an asking price for your home? “If it’s a new development and you’re trying to give the impression of prestige, you would want to go for the round number,” advises Vicki Morwitz, a marketing professor at New York University. “But if you’re going for the quick sale and you want to give the impression of a bargain, you would want to go for the precise number.”

Cutting prices. In today’s housing market, many homeowners are struggling to find a buyer.

Thinking of dropping your asking price? Suppose that, as in the above example, you initially asked $595,385. If you lower the price to, say, $578,495, potential buyers may perceive the price drop as relatively modest.

“You want to make the computation as easy as possible,” Cornell’s Thomas says. “If you use digits that make computation difficult, it will lead to a perception of a small difference.”

What to do? You might specify the dollar discount — or, alternatively, lower the price from $595,385 to maybe $580,385 or $575,385. That way, it will be easy for buyers to calculate the price drop.

By Catherine McCarty
http://realestatearticledirectory.com/articles/home-buying/article228.html

Top things to know

  1. Don’t buy if you can’t stay put.If you can’t commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner.

2. Start by shoring up your credit.

Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.

3. Aim for a home you can really afford.

The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you’ll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.

4. Don’t worry if you can’t put down the usual 20 percent.

There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a down payment as small as 3 percent of the purchase price.

5. Buy in a district with good schools.

In most areas, this advice applies even if you don’t have school-age children. Reason: When it comes time to sell, you’ll learn that strong school districts are a top priority for many home buyers, thus helping to boost property values.

6. Get professional help.

Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.

7. Choose carefully between points and rate.

When picking a mortgage, you usually have the option of paying additional points — a portion of the interest that you pay at closing — in exchange for a lower interest rate. If you stay in the house for a long time — say five to seven years or more — it’s usually a better deal to take the points. The lower interest rate will save you more in the long run.

8. Before house hunting, get pre-approved.

Getting pre-approved will you save yourself the grief of looking at houses you can’t afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.

9. Do your homework before bidding.

Your opening bid should be based on the sales trend of similar homes in the neighborhood. So before making it, consider sales of similar homes in the last three months. If homes have recently sold at 5 percent less than the asking price, you should make a bid that’s about eight to 10 percent lower than what the seller is asking.

10. Hire a home inspector.

Sure, your lender will require a home appraisal anyway. But that’s just the bank’s way of determining whether the house is worth the price you’ve agreed to pay. Separately, you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road.

http://money.cnn.com/magazines/moneymag/money101/lesson8/

Buying a home is a complicated process, and it can be particularly daunting for the first-timer.

Get your house in order before you start shopping. Here’s what you need to do, and when.

By Liz Pulliam Weston, MSN Real Estate 

The following timeline starts one year before you hope to start seriously shopping for a home. This is an ideal; you can arrange your finances and buy a home in less time, if necessary, but you’d be smart to walk through all of the steps in order. The more time you give yourself for this process, the better.

A year out (or as soon as possible)

Get your credit reports. Errors on your reports can force you to pay a higher interest rate on your mortgage or even torpedo your chances of getting a loan. You can get free copies of your reports from the three major credit bureaus — Equifax, Experian and TransUnion — at AnnualCreditReport.com. Look for accounts that aren’t yours, collection accounts for debts you don’t owe and negative marks (other than bankruptcy) that are older than seven years.

You should be able to dispute errors with the bureaus and get them removed, but if the bureaus or the creditors balk, you may need to hire an attorney. (The National Association of Consumer Advocates can refer you to lawyers with knowledge of the credit-reporting and debt-collecting laws.) Don’t leave yourself in the position of having to pay a bogus collection account to get the loan you want or paying unnecessary interest because of credit-report errors.

Get — and improve — your FICO credit scores. Your credit scores, which are three-digit numbers used to gauge your creditworthiness, help determine the rates and terms you can get for a loan. There are hundreds of different credit-scoring formulas, but the one used by the vast majority of mortgage lenders is the FICO.

The only place you can buy your FICO scores for all three credit bureaus is MyFico.com. A package of three scores and three credit reports costs about $50. You can learn more about credit scores, how they work and how to improve them at MSN Money’s Your Credit Rating Decision Center, and you can get a copy of my best-selling book, “Your Credit Score: How To Fix, Improve, and Protect the 3-Digit Number That Shapes Your Financial Future,” which was published in a second edition in February 2007 (end of shameless plug). Three keys to better credit: Pay all your bills on time, pay down your credit cards and other revolving debt, and don’t open (or close) any accounts while you’re in the market for a mortgage.

Consider a credit-monitoring service. Normally, I think these are a waste of money for folks who aren’t at high risk of identity theft. But given how important your credit and credit scores will be in buying a home, you might appreciate the early warning if a collector tries to post a bogus debt.

Deal with your debt. Most people needn’t pay off their student loans, auto loans or other generally low-rate debt before getting a mortgage. What you want to eradicate is “toxic” debt: credit-card balances and payday loans. These are signs you’re living beyond your means. If you don’t get your overspending problem fixed before you buy a home, your problems likely will get worse because homeownership typically involves plenty of big costs (property taxes, insurance, maintenance, repairs, improvements, decorating). Get your act together before you house shop.

Save, save, save. Stop eating out. Drop your cable-TV subscription. Do everything you can think of to put as much money aside as possible, using your desire to be a homeowner as a motivator. (Read “Could you stop spending for a month?” for inspiration.) In today’s market, it’s best to have at least a 5% down payment; boost that to 10% and you’ll have even more financing options. Ideally, you’ll also have enough left over after you get your mortgage to cover the payments for two or three months.

Put your bills on automatic. A single 30-day late payment can knock 100 points off your score, and it can take many, many months to recover. Make sure every bill gets paid on time. If you don’t have a reliable bill-paying system, consider using automatic debits, so payments come directly from your checking account, or an online bill-payment system’s recurring-payment feature.

6 months out

Sort through your mortgage options. A lot of people are losing their homes today because they didn’t understand what kind of mortgage they had or they accepted bad advice. The low teaser payments that allowed them to buy a more expensive house have jumped skyward, leaving them unable to pay. It’s up to you to understand the risks of the different types of mortgages and to select the right one for your family. My 2 cents: Stick with traditional, fixed-rate mortgages. If you can’t commit to a 30-year version, at least use a hybrid loan with a rate that’s fixed for as long as you plan to own the home.

Start calculating how much house you can afford. Once you’ve settled on a type of mortgage and have a rough idea of your down payment, you can start using online calculators such as the one below to see how much house you can buy. Consider buying less home than the absolute maximum you can afford; if you keep your housing expenses (mortgage, taxes and insurance) to 25% of your gross income, you’ll be able to live more comfortably and have money left over for things like retirement savings, vacations and the kids’ college educations.

Research all the costs of owning a home. Your mortgage will be just the start. You’ll have to pay property taxes and insurance on the home. There may be homeowners- or condo-association fees as well. You may face higher utility bills, and you’ll take on maintenance and repair costs as well. Decorating your new house can cost a pile of money as well: Have you shopped for window coverings lately? Your home-owning friends and a friendly real-estate agent or two can help fill you in so you know what to expect.

Adjust your saving strategies. What you’ve learned so far may inspire you to boost your savings. A bigger down payment, for example, can result in a larger home or a lower mortgage payment. Or you may simply want to build up your emergency fund so unexpected home expenses don’t knock your finances off the rails.

3 months out

Reduce your credit utilization. The FICO scoring formula is sensitive to how much of your available limits you’re using on your credit cards and other revolving lines of credit. The less, the better. It doesn’t matter if you pay your balances in full every month; the figure the scoring formula typically uses is the balance that shows on your most recent statement. Try to keep that balance below 30%, or even lower. If you can’t — because you charge a lot for work-related travel, for example — make a payment before the statement’s closing date to reduce the balance reported to the bureaus. Just be sure to make a second payment after the closing date, so you don’t get reported as late.

Don’t open or close any accounts. Until the mortgage process is completed and you’ve moved into your new home, continue to avoid actions that could potentially harm your credit, such as opening credit accounts or closing old ones.

Get an idea of the mortgage rate you can expect. Order a fresh set of FICO credit scores — don’t worry, checking your scores doesn’t ding them — and talk to some mortgage lenders about what rates you might qualify for. (You’ll find current national averages here.) Don’t apply yet or give permission for your credit to be pulled; you just want to get a feel for what you can expect.

Understand the effect of mortgage-shopping on your score. You want to get the best rate and terms possible, which means you’ll need to shop around, but how does that affect your credit score? Here’s the lowdown: Every time you give a lender permission to check your credit, a “hard inquiry” appears on your credit report, and that can ding your score a bit. Fortunately, the FICO scoring formula lumps all mortgage-related inquiries made within a specified period and counts them as one. (The period used to be 14 days, but the most recent versions stretch that to 45 days.) Furthermore, the scoring formula ignores any inquiries made in the previous 30 days. So you want to do your serious mortgage shopping in a fairly concentrated period of time, typically after your offer on the home you want is accepted.

Get approved for a mortgage ahead of time. Pre-approval, in which a lender gives a commitment to make you a loan, is different and more valuable to sellers than pre-qualification, which merely gives you an idea of the size of the mortgage you might afford without making any commitments. You don’t have to get a loan from the lender that offers you a pre-approval letter. Getting a pre-approval does involve giving permission for a hard credit inquiry, but the small potential ding on your credit is worth it because you’ll be in a stronger position with sellers.

Consider a mortgage broker. Once your offer is approved, you can shop for a mortgage on your own, but if you want a lot of hand-holding through this process or your credit is particularly troubled, you might benefit from the services of an experienced, ethical mortgage broker. Get referrals from family and friends; you can also get a referral from the National Association of Mortgage Brokers.

Begin researching neighborhoods and look for an agent. Check Internet listings, attend open houses and find an experienced guide to help you refine what you’re seeking.

Once you’ve found your home and your offer is accepted

Shop for a mortgage. There are thousands available, and sorting through the possibilities can be overwhelming. That said, you may want to include some of the biggest national mortgage lenders, local lenders and online brokers. You’ll need to move fairly quickly to secure the loan, because the full approval process typically takes four to six weeks.

Arrange for an appraisal, a home inspection and a walk-through. The appraisal is required for your loan to be approved. An inspection isn’t necessarily required, but don’t skip this essential step, which can alert you to serious problems before the deal closes. The walk-through is usually done within 24 hours of the deal closing, so you can make sure that the home sellers have performed any agreed-upon repairs and the place is in move-in condition.

Get homeowners insurance. Mortgage lenders require this coverage, and you’ll need to prove you have it at closing.

Confirm how much money you’ll need at closing. “Closing” is when you sign all the paperwork and pay agreed-upon amounts, which can include your down payment and your share of legal fees, paperwork costs, property taxes and title insurance.

Enjoy your new home!

By Steve McLinden, Bankrate.com Question: My parents want to purchase the house they’re renting and have an oral agreement with the owner to do so. They believe that now is the time to go ahead. How do these deals work?

Answer: Yours folks might remember that old Burt Bacharach song, “Promise, Promises” and its lyrics that lament, “Those kind of promises take all the joy from life.” Well, they’ll surely want to get that oral promise in writing, assuming it’s still a good one. I suspect it will be, particularly with the market dragging along in most regions. In fact, the owner may be a little sorry he didn’t try to establish a fixed future purchase price for the house before values went south. Owners are sometimes content to keep those agreements at an oral level so they can see which way the market is heading without making a real commitment.

Right now, the leverage is probably in the hands of your parents. But before they get this pact in writing, they’ll want to determine the type of rent-to-buy arrangement they want to make. I strongly suggest a lease-option arrangement in which they will retain a legal option to buy the property at a set price after a given period, not an obligation to buy it. This affords them more flexibility in case their circumstances change, as circumstances are wont to do. A rent-to-own arrangement, also referred to as “lease-purchase” or “lease-to-own” deal, is generally a binding agreement for a renter to buy at the end of a set period. In a seller’s market it’s harder to get landlords to agree to lease-options. But in many respects, the timing seems right for your parents to talk with the owner about structuring an option arrangement.

Rent-to-own arrangements are generally structured so the renter/buyer agrees to pay above-market rent (20% and up) over a period ranging from one to three years in order to accumulate the equivalent of a down payment. Thus, if your parents are paying $1,200 per month in rent, they may be asked to boost that to $1,500 per month for, say, a 30-month period, thus accumulating a $9,000 “down payment” in that period. Typically, the buyout price at the end of these deals is at least 110% of the price the owner originally plunked down for the house.

An advantage of rent-to-own deals is that lenders generally require little or no additional down payment and may allow assumption of a mortgage that people such as your parents may not have been able to get on their own, particularly if they suffered past credit problems. (By the way, your mom and dad probably will be expected to handle maintenance and upkeep on the house during this rent phase.) Make sure you or your folks get a few “comps,” or comparative prices of homes that recently sold in their neighborhood, to give them a foundation for their offer. Realtor offices are pretty good about releasing some of these because they’re hoping to get your business.

The good thing about locking into a price now is that most markets are flat and unlikely to fully segue into recovery for another year or more. That might make the current owner apprehensive about trying to build future appreciation into the lock-in price. Remember to try to get a lease-option instead of a lease-purchase. It is a buffer against the unknown.

Here’s wishing your folks the joys of future homeownership.