In many places around the country, the real estate market today is considered “soft,” with more houses offered for sale than there are willing and able buyers to purchase them. Though this may cause some angst for the seller, it places the buyer in a good position to negotiate a good deal.
However, having such an advantage is not a guarantee of success. If you are in the market for a home, remember these tips when you begin to negotiate for the home:
Find out everything you can about the property. Compare the asking price with what other homes in the neighborhood are selling for or have sold for recently. Your realtor can get this information with a Comparable Market Analysis (CMA).
Find out why the sellers are selling and how long the property has been on the market. If the sellers have already purchased or made an offer on another home, they might be open to negotiations. Likewise, a divorce, death in the family, or other personal situations could raise the urgency of the sellers to accept a lower offer.
Amanda and Steven Allen, first-time homebuyers in their late 20s, had been home shopping for several weeks when they found the home they wanted.
“We figured an initial offer based on the comparables,” says Amanda. “We took the average price per square foot for other sales in the neighborhood and multiplied our square footage. That was the starting price, before we got inspections and considered anything else we wanted from the seller. It was a place to start.”
The Allens also found out that the property was the former home of the sellers’ mother, who had been moved to a nursing home.
“There was some sentimental value for them, and we took that into consideration,” Amanda says. “It seemed to help that they knew we would care for the property.”
“I recommend that potential buyers become pre-qualified for a loan,” says June Walbert, Senior Financial Planner/Advisor for USAA. “There’s no sense in estimating if that’s not reality.”
She also recommends making sure your credit is as stellar as it can be when you start the mortgage hunt.
“You don’t want to get your hopes up for a home if your credit is not up to par or if your income doesn’t warrant a home in a certain price range,” she says.
The Allens knew the importance of covering that base. “We got pre-qualified so we knew what our limits were,” says Amanda.
Walbert goes a step further and recommends buying a home you can afford on one income even if you’re a dual-income family.
“A lot can happen: job loss, death, divorce, or deciding to stay home after having children,” she says. “It’s best to have something you can live with in case life throws a curve.”
Another suggestion is getting an inspection – and in some cases more than one inspection with trade professionals you trust.
“Hire an independent inspector (one not affiliated with the lender or the seller) who can be your eyes and look out for your best interests,” Walbert says. “Try to be there when the inspector is at the home and ask a lot of questions.”
When the inspection uncovered several issues with the HVAC, crawl-space insulation and plumbing, the Allens negotiated to have those problems fixed – which resulted in about $30,000 worth of work, including a new HVAC unit, before they closed on the home.
Even with paperwork in order and information in hand, the actual negotiation moment can still be intimidating. However, Walbert notes how important it is to lower the anxiety level and emotions as much as possible.
“This is a business transaction, and it helps to view it that ways,” she says. “Leave the emotion out of it as much as you can. Think of it objectively. If you can’t see yourself living there for five to ten years, maybe it’s not the best thing to do at this time.”
A willingness to meet the sellers halfway can help too. For instance, it is acceptable to offer the lower range from the Comparable Market Analysis, but low-balling with an insulting figure can ruin the deal.
“No one does your bidding like you do,” says Walbert. “The realtor puts in the official bid, but you are the one who knows what the home is worth to you. Stick with that price. Your realtor is your advisor, but you know what you’re comfortable with.”
Walbert also cautions to get everything in writing.
“Get a good faith estimate, get closing costs considerations on paper, get every offer spelled out,” she says. “That’s your due diligence.”