Buying a home has to be one of the most exciting, yet stressful financial decision that most people will have to deal with. You can spend years saving up for a down payment, months touring homes looking for the right one, and weeks trying to find the best mortgage. With all of the effort going into this single decision it’s obvious you want to avoid any mistakes. Even once you find the home of your dreams, your job isn’t done yet.
It’s time to make an offer. This part of the process is not to be taken lightly because an accepted offer becomes a binding contract. If you realize too late that you may have made a mistake you could end up losing your deposit or earnest money at the very least. So, before you make that offer it’s your last chance to negotiate the best deal. Don’t squander the opportunity. Here’s what you need to know before making an offer.
1. Never Fall in Love With a Property
This is the cardinal sin of buying real estate. When you’ve spent a month or more walking through countless homes and finally find the one that’s perfect you’ll obviously be excited. Your hard work and patience has paid off so you’re thrilled to be moving forward with the process. The problem with falling in love with a house is that you become emotionally attached to it and that can cloud your decision making process. The seller has you right where he wants you.
Once you’ve emotionally committed yourself to a particular home you’ll stop at nothing to make sure you get it. This might mean stretching your budget more than you had planned, getting a mortgage that isn’t ideal because you don’t want to wait, and most importantly, you’ll lose the negotiation game. Rather than trying to get a better deal for yourself you’re far more likely to take whatever the seller is offering just to make sure you get the home. This is a mistake that could literally cost you tens of thousands of dollars. Don’t fall in love with a single property, and even if you did find the perfect home, keep a clear head and make sure you do what you can to get into the home with the best deal possible.
2. Find Out What You Can About the Property and Owner
The listed price isn’t always what the home is worth. It’s that simple. Homes go up for sale for a variety of reasons. Some need to move out of necessity, some people simply want to upgrade to a bigger home if they can, and others might be just looking to cash in on the equity they’ve built. You could take the same exact house and a seller in each of those situations would value and price their home at very different levels.
Someone who needs to sell their home because of a financial hardship or relocate for a new job is usually going to price their home far closer to the true market value than someone who really has no need to sell other than to hopefully make a little money on the sale. This can also help you identify areas to negotiate on.
Granted, you may not be able to just flat out ask the owner why they are selling, or even get a true answer if you were able to, so it’s up to you to do a little detective work. Start by looking at the history of the listing. When was the house listed and how long has it been on the market? Has the seller reduced the price over the months or has the price remained firm? These two pieces of information alone will tell you a lot about the owners. A home that’s been on the market for six months and seen little if any reduction in price is more than likely owned by someone who isn’t in a rush to sell and isn’t likely to negotiate much. It’s also a sign that they have put a price on the home that isn’t in line with reality. On the other hand, if you come across a property that’s only been on the market for six weeks and the seller has already reduced the price a few times you could be on to someone who really needs to get out as soon as possible and they are likely willing to negotiate.
Have a little spare time on your hands? Try searching your county’s public records for information on the property and the owner. When it comes to things like property title transfers and deeds most of it is public record. A lot of cities and counties even provide free searches on their websites. With this information you can obtain details such as when the previous owner bought the property and if they took out a mortgage, how much they borrowed. This information can be quite valuable. You may find that someone purchased the home five years ago with little or no money down and then see that their asking price is almost exactly what they probably still owe on their mortgage. Now you’ve discovered why the home is priced where it is. It’s not because it’s worth that much, but instead it’s because the sellers simply don’t want to resort to a short sale. Knowing this information ahead of time will give you an idea of how much potential room you have to negotiate down.
3. Get Comparable Sales Data
When you are ready to make an offer that’s lower than the listed price it’s good to back it up with facts. If you make a lowball offer just for the sake of trying to get a good price you’re probably only going to insult the seller and you may never even hear back. If you want to make a low offer and can support it with detailed information about recent sales of other comparable homes you stand a better chance of getting a response and maybe even some ammunition for negotiating. Remember, just because they may have a real estate agent working with them doesn’t mean the listing price is in line with actual value. So, it’s up to you and your agent to do a little homework and get as much information as you can about similar properties so you can spot a true deal.
Another tool that can help you determine the value of a home (or at the very least compare relative values) is to dig into your local property tax data. This is public record and these days most counties have free online property tax searches available on the web. You have to take some of the data with a grain of salt since appraisals and property tax adjustments haven’t been completely in sync with market values, but it can help you compare similar properties in the area. For example, you may see that the house you are looking at has a value $50,000 more than almost identical homes on the same street. Why? Has the property been significantly improved? Is there something different about the lot? Was the house last purchased at the height of the real estate bubble therefore resetting the taxable value and making it look like it’s worth more? The tax data won’t give you explicit answers, but it should point you in the right direction so you know the questions to ask.
4. Price Isn’t the Only Thing Negotiable
We bought a house about a year ago and we were able to negotiate a few thousand dollars worth of electronics and appliances as part of our offer. In the offer we asked the sellers to leave the 50″ plasma TV that was mounted on the wall in the basement, the wired surround sound, a plasma TV in the bedroom, really nice garage shelving, and a $1,500 wine fridge. Did we get everything we asked for? No, but we got most of it. We were left with the 50″ plasma TV, the garage shelves, the surround sound speakers (not the receiver, though), and the wine fridge.
We only made this part of the offer because we did our homework first. We knew these were the original owners and they built the home just a few years ago. We knew how much they financed and built the house for, and learned that one of them received an irresistible job offer halfway across the country and they had to move almost immediately. We also knew they were going to be having a moving sale and wanted to get rid of as much stuff as possible so they wouldn’t have to haul it across the country. So, why not see if we could get them to just leave it in the house for us? Luckily for us, it worked out great.
It’s not just about getting free stuff. A lot of aspects of the offer are negotiable. Things like minor repairs, closing costs real estate agent commissions are all negotiable items as well. Also, don’t forget to mention things that the buyer may want that can help you get a better price. If you’re in a situation where you don’t have to wait to sell your own home before buying this new home, that’s a very attractive proposition for a seller because they know they won’t be waiting for months. Because of this they may gladly come down a few thousand off the price because you’re likely one of the only offers coming in that doesn’t have a home sale contingency.
Making an Informed Offer
As you can see, there are a lot of different opportunities to save money when making an offer on a home. The worst thing you can do is simply go in and make an offer a few thousand less than what they are asking and expect to get a fair price. You still might, but if you do your homework you could find that you’re really not getting that great of a deal or you may miss an opportunity to negotiate even more of a discount. It isn’t an exact science, but the seller wants to get you to pay as much as possible and you want them to sell it for as little as possible. With the right information you can likely find a reasonable middle ground.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.