How Buyers and Sellers
Can Get the Best Price

A growing area of coverage for The Wall Street Journal is what we call the business of life. The intent is to report the latest news in a way that helps readers make sound decisions about their own lives. The new book, "The Wall Street Journal Guide to the Business of Life," edited by Journal editor Nancy Keates, offers strategies on everything from getting the best medical care to helping a child get into his or her top college.

Below is an excerpt about how consumers can get the best deal when purchasing or selling a home.

By now, almost everyone knows someone who postponed buying a house "until prices cooled off" -- and most of those buyers are still waiting (unless they've given up and bought, before they get completely priced out of the market).

It's been a bizarre recession, with the real-estate market one of the few areas of the American economy emerging not just seemingly unscathed, but truly energized. Economists are quick to credit interest rates that got as low as they've been since the Eisenhower Administration. Indeed, the low interest rates have enabled lots of home-buyers to get more house for their money, or to lower their costs substantially by refinancing once they've already bought. Another force driving the real-estate market: affluent buyers who feel real estate is a better investment than stocks.

But even during some of the biggest boom years for residential real estate ever, there have been signs that inventory is building up at the high end of some markets (e.g., certain areas of Los Angeles County). Now that interest rates are headed upward, a lot of homeowners are wondering if this could be the start of a flattening out or even a downward spiral for home prices. Suddenly there's a lot of anxiety for buyers and sellers. Is it the right time to buy, or is it better to rent and wait for a more favorable buyer's market? If you're located in a market like Los Angeles or New York, where prices have risen in double-digit percentages for the past few years, should you cash out of your home, rent for a while, and wait till prices drop before buying again? What if prices don't go down?

These are points that have been debated on and off for the last few years, and with interest rates rising, the pundits are buzzing again. On the one hand, real-estate bears point to home values that have risen much faster than median incomes in some areas. They note that the availability of cheap money, which has kept the market artificially strong, won't last forever. When it gets more expensive to borrow, they predict inventory will build up and prices could drop 10% or more. That in turn could spell bad news for homeowners who are too leveraged, where a 10% drop could mean the loss of all the equity in their homes.

Real-estate bulls, on the other hand, say that prices will continue to go up, albeit perhaps at a slower rate. Why? For one thing, they always have, at least for the nearly four decades since prices have been tracked. And in much of the country, they point out, values have historically risen at a moderate pace, maybe one or two percentage points ahead of inflation. With the exception of a few mostly urban markets, that overall moderate trend hasn't changed much, even during the most recent run-up in prices. Homes in Cuyahoga County (the nicer suburbs of Cleveland) haven't tripled in value since 2000. So if the market gets softer, they argue, it's not like there's far for prices to fall. Taking a view somewhere between these two poles would translate to a yellow light: That is, exercise caution. Here are some ways to do so:

Buyers

1. Be careful not to stretch too far by buying a bigger house than you really need. That could leave you vulnerable to a big drop in prices (and it may get harder to unload those bigger homes).

2. Shop assiduously for a mortgage -- and be sure you really understand which one is best for your particular needs. An adjustable-rate mortgage (ARM), for example, can look tempting with an initial rate that can be in the low 4 % range. But this type of mortgage can cost you more in the long run, especially if you hang on to your property longer than expected and rates go up substantially. Also, don't be afraid to haggle. As rates start to tick up, lenders are going to get more competitive, not less, in order to win or keep your business.

3. Get a home inspection. Surprisingly, 25% of buyers still don't undertake this one measure that can save them huge hassles and expenses down the road.

4. Investigate your real-estate agent. While the majority of agents are capable and honest, we've heard enough horror stories to make this one of our mantras. Bear in mind that real-estate exams aren't necessarily taxing -- and in a few states not even necessary. If your agent really seems clueless, chances are he or she is clueless -- not a good thing when hundreds of thousands of dollars could be on the line.

5. Use the Internet. Real-estate Web sites have gotten better in the last few years, with better images, and virtual tours that let you get a pretty good idea in advance whether it's worth your time to see a property or not. Also, there are lots of sites that can help you find out more about, say, the sales history of a town's properties or even statistics (crime, school ratings, etc.) about a given neighborhood. Many of these sites are free -- take advantage of them.

Sellers

1. Be realistic up front about your asking price. Look at the most recent comparable sales in your area, and find out what the discount was off the asking price. Get an appraisal if you think the comparables are shortchanging your home's value.

2. Looks count. Take a long hard look at the way your house shows, then fix it up. Cut the clutter. Move the high-school hockey trophies to the attic. If you've painted in bright colors, repaint in monotones. If necessary, hire a professional "fluffer" to make your house look as appealing as possible to potential buyers.

3. Knowledge is power. Be prepared for buyers to know more about your house than you do. With prices as high as they are and interest rates rising, buyers are likely to be doing a lot more research than ever before. This can make for tougher negotiations than sellers may be expecting.

4. Think outside the box. If your house is really unusual for its area and/or hard to price, consider putting it up for auction. Auctions aren't just a measure of last resort anymore --they're increasingly being used by owners of multimillion-dollar properties who want to know for sure they're going to sell on a given date.

Interactive Map: A look at housing markets in a dozen U.S. cities where home prices and sales are moving up or down.

Email your comments to rjeditor@dowjones.com.