Okay, you’ve now found the home you want to buy? The next step is to make an offer. By using the following negotiation techniques, you should be able to reach an agreement that is acceptable for both you and the seller.
But before you do, remember, for some home sellers, it’s been a long year without a home sale. That means some buyers, smelling the desperation, may be able to cut a better deal. Sellers who have had their homes on the market a long time are eager to move on, especially at this time of year, says Bill Golden, a real-estate agent with Re/Max in Atlanta. The closer it gets to the holidays, the more anxious unsuccessful sellers can become, he says.
Other sellers will choose to let their listings expire and try again next year. They, too, may be willing to make a deal in order to sell their properties, even if they’re no longer actively trying to sell, says Patrick Carlisle, chief market analyst for Paragon Real Estate Group in San Francisco. (Bing: How long do homes linger on the market in your area?)
The key to making an aggressive low-ball offer on a home is to start by finding properties that have languished on the market for a long time. The softer the market, the more likely your strategy will work, Carlisle says.
But buyers can get tripped up. Here are six mistakes people commonly make when making a low-ball offer.
Not Understanding the Market
Before submitting an offer, your real-estate agent should do a full comparative market analysis of the property to determine what its fair market value is, Carlisle says.
For instance, it’s still a buyers market in the Richmond, Va., area, where Susan Stynes works as a real-estate agent for Long & Foster. Stynes says she wouldn’t hesitate to encourage a client to make an aggressive offer, after considering the time the property has been on the market and what other home comparable homes are in the neighborhood.
Not Picking the Right Real-Estate Agent
Some real-estate agents caution buyers against making an offer that is so low it could offend the seller and halt negotiations. But sometimes agents are too reluctant to make aggressive offers, Carlisle says. They may be more focused on completing a deal and collecting their commission, rather than making the best deal, or their negotiation skills might not be up to par.
“If it’s an appealing, well-priced property that has five or six offers on it, well, going in 10% or 20% under asking isn’t going to get you anywhere,” he says. But on a property that has been overlooked by the market and doesn’t have multiple bidders, it often doesn’t hurt to go in low.
Not Backing up Your Price
There’s an art to presenting an offer that’s substantially less than the asking price. A low offer could start negotiations off on the wrong foot if you’re not careful, Golden says. The key is for you or your agent to explain the offer when presented.
“Sellers want to know why you’re coming in so low. Include recent (comparable sales in the area) or issues with the property that validate why your offer is so low,” he says. Don’t be too harsh with your criticism, however — that can also work against you.
Not Knowing What You’re Willing to Pay
Buyers today are strongly motivated to get the best possible price on a property, especially if they believe that home values will fall even more, says Jay Butler, professor emeritus of real estate at the W. P. Carey School of Business at Arizona State University. Their biggest worry is often that people will say they overpaid, he says.
But sellers have limits too, most often dictated by the amount of home equity they have, Butler says.
Before negotiations begin, it’s important for a buyer to decide what his walk-away price is, Carlisle says. “At some price point, the deal is no longer worth doing, no matter how great the property.”
What’s the lowest interest rate you can get?
While a buyer should know how high she is willing to go, don’t put limits in the first offer, Kliegerman says. You lose integrity if you say it’s your “best and final” offer, but then are willing to come up with a few thousand dollars more in order to buy the property.
Not Making a Clean and Easy Offer
When you make a low bid you want other elements of the offer to be attractive to the seller. And a deal that can close quickly will often have appeal.
Make sure there are as few contingencies as possible, Golden says. It’s always best if buyers don’t have a home to sell in order to buy the one they’re bidding on, Stynes says.
Also have your financials in order from the very beginning. Loan qualification is more difficult these days, so it’s important to have a lender pre-approval letter, Carlisle says.
Assuming Cash Will Always Get You the Best Deal
Cash is king, but in the end, a seller often wants the most money for his home — regardless of whether the buyer needs a mortgage or not. So don’t think making an all-cash bid will automatically mean an accepted offer.
That said, if the seller is a bank because the property is a foreclosure, the institution may accept a lower offer from a cash buyer, as opposed to someone who needs a mortgage, Golden says. Banks often don’t want to deal with mortgage-related delays.
The purchase offer you submit, if accepted as it is written, will become a binding sales contract (known as a purchase agreement). It is important that it contain all the items that will serve as a “blueprint for the final sale.” The purchase offer includes such items as: • Address and legal description of the property. • Sale price. • Terms: for example, all cash or subject to the buyer obtaining a mortgage for a given amount. • Seller’s promise to provide clear title (ownership). • Target date for closing. • Amount of earnest money deposit accompanying the offer, and whether it will come in the form of a check or cash. Also included may be the disposition of the deposit should the buyer back out of the deal at a later date. • Method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller. • Provisions about who will pay for title insurance, survey, termite inspections and other details. • Type of deed to be given. • Other requirements such as disclosure of specific environmental hazards, seismic hazards or other locally-specific clauses. • A provision that the buyer may make a final walk-through inspection of the property just before closing. • Any contingencies.The Basics Of Making An Offer
A written proposal is the foundation of a real estate transaction. Therefore, you need to enter into a written contract, which starts with your purchase offer. This proposal not only specifies price, but all the term and conditions of the purchase. There are a variety of standard forms used by agents and bound by both the law and local practice. After the offer is written and signed, it will be presented to the seller by your agent in the presence of the seller’s agent, or by the seller’s agent alone.What the Offer Contains
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Elements in the Purchase Agreement Sales Price
Self-explanatory, but still the most important term. Earnest Money
Along with your Purchase Agreement, you will submit earnest money to demonstrate your seriousness about the home. “Earnest Money” is generally between 1% and 5% of the purchase price. If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal against the terms of the contract, you may have to forfeit the entire amount. Title
“Title” refers to the legal ownership. The seller should provide title, free and clear of claims by others not acceptable to you, the buyer. Title insurance will assure that the home is free of “unacceptable liens” or “encumbrances.” It’s negotiable who will pay for the title insurance policy. Mortgage Clause
A clause which specifies that the obtaining of a mortgage loan on the property on terms and conditions acceptable to you is a condition of the sale, and provides for the refund of your deposit if you fail to get the mortgage loan. Pest Inspection
This clause provides for a pest control inspection and report by a licensed pest control operator. Sometimes sellers will provide this report prior to the purchase agreement. If not, it provides for a method of allocating whether seller, buyer or both will pay for the repairs disclosed by the report. Your lender may require a certificate from a qualified inspector stating that the property is free from termites, pests and dry rot. Home Inspection
I strongly recommend an inspection and written report by a home inspector who is a licensed general contractor to determine the condition of plumbing, heating, cooling and electrical systems, the structure of the home, the grading, roof, siding, windows and doors. Most buyers prefer to pay for inspections (generally between $300 – $500) so that it’s clear that the inspector is working for them, not the seller. I also strongly recommend that you request any such additional inspections as may be recommended by your home inspector, such as a separate roof inspection, foundation or soils inspection, pool inspection, etc. These additional inspections may reveal conditions or defects beyond the ability of a general home inspector to ascertain. Other Disclosure and Inspection Terms See the section on “What You Need to Know” for a detailed discussion of these disclosure and inspection items. Contingencies
You can specify, in your Purchase Agreement, that certain conditions must be met before the sale goes through. Contingencies are crucial, so be sure to speak up and tell me what’s important to you, so that all of your concerns are reflected in the offer. They may include: • Your ability to obtain specific financing from a lending institution. This contingency will ensure that if you can’t find the loan, you will not be bound by the contract. • That the home inspector you hire provides a satisfactory report within 10 days (for example) after the seller accepts your offer. With the proper contingency, if the report does not satisfy you, the contract becomes void. • The sale of your existing home. Obviously, in a slower home sale market, sellers are more willing to accept contingencies than they are during more active circumstances. Too many contingencies in a strong real estate market may prevent your offer from being accepted. Make sure your contingencies are clear. Earnest Money
This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show “good faith.” The real estate agent usually holds the deposit, the amount of which varies from community to community. This amount will become part of the down payment. Escrow Company
In most instances, the buyer will select the escrow company which is also the title company providing the title insurance policy after close of escrow. In some counties where the custom is for the seller to pay for the title insurance policy, the seller will select the escrow and title company. Closing Costs
You can negotiate which closing costs you will pay and which will be paid by the seller. However, be aware that longstanding custom regarding the handling of the allocation of these costs makes many of them hard to negotiate on terms different from local custom. If a seller was obligated to pay a certain closing cost when he or she bought the property, they will expect you, the buyer, to pay the same cost on your purchase. See the section on “Who Pays for What?” which details these cost allocations in the area we serve. Withdrawing an Offer
In most cases the buyer may withdraw an offer right up until the moment the offer is accepted. Consult us as to the best and safest way to withdraw your offer. The Seller’s Response to the Offer
You will have a binding contract if the seller, upon receiving the written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as the signed offer is delivered to you or me, your agent. If the offer is rejected, then the offer is no longer valid. If the seller likes everything except the sale price, or the proposed closing date, or the terms of your offer, you may receive a written counteroffer, with the changes the seller prefers. You are then free to accept or reject the counteroffer, or even to make your own counteroffer. Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal and that final, unchanged document is delivered to the other party or their agent. How the Seller May Make a Counteroffer
The buyer and seller can negotiate and agree about any of the terms, conditions, costs and who pays for them. Some terms and conditions that are negotiable include: * Termite inspection fee and costs to repair any damage. * Closing costs. * Points to the buyer’s lender. * Buyer’s broker. * Repairs required by the lender. * Repairs of conditions or defects disclosed by the seller, uncovered by inspectors, or required by governmental agencies. * Date for the close of escrow. * Date and time for possession by buyer. * A holding over, or rent back, by seller after close of escrow.The Purchase Agreement
Your agent will use a standard form of Purchase Agreement, developed by the Association of Realtors® , a local Association of Realtors® , or a private publishing company, depending on the custom in the area. You can make changes – but the seller must agree to each of the changes you make.In the United States, oral contracts are not enforceable – real estate contracts must be in writing. Even if you give me, your agent, permission to bargain on your behalf, I must have a Purchase Agreement signed by all buyers before I can present your offer.When you read the Purchase Agreement, try to imagine yourself as an independent party who has no knowledge of the transaction other than what’s included in the contract. Is the meaning of each clause clear? For example, to avoid miscommunication list all personal property you expect to be included in the transaction. Also, it’s a good idea to stipulate the exact date and time of possession – if you’re not specific, you and your moving van could arrive and find that the seller still inside the home!Specify in the contract that the seller is obligated to repair any damage (along with the conditions causing such damage) noted in the pest control report and the reports of other inspections.
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Transfer Disclosure Statement
The seller of your property is required by law to furnish you with a “Real Estate Transfer Disclosure Statement,” (TDS), in which the seller will make known to you important disclosures about that property, including any known existing conditions, any hazards or nuisances. For example, if the property drains improperly or if there are cracks in the chimney and the seller knows about it, he or she is required to let you know via the TDS.In the TDS, the seller’s agent and the buyer’s agent are also obligated to inspect the property and to provide results regarding any known existing conditions, any hazards or nuisances. If the TDS is delivered to you after execution of the offer to purchase, you have three days if the form is delivered to you in person or five days if it is delivered to you by mail, to use it to terminate the contract if you are not satisfied with its contents. Home Inspection Report
Just as important as the TDS is the home inspection report. While the TDS documents the property’s condition, to the knowledge of the seller, a home inspection will provide you with the additional insight of a construction expert. As a result, I advise anyone buying a home to first have it inspected by a professional home inspector who is: • a licensed general contractor.
• a member of a recognized home inspection trade group.
• has professional liability insurance. Your home inspector will provide you with a written report, which will advise you of the physical condition of the property as determined from the inspection of accessible areas. Generally, the cost is approximately $300-$500. The report also will identify areas that could not be inspected and may recommend additional inspections by other experts in areas including roofs, foundations, soils, drainage or pools. Less usual, but also recommended from time to time, are inspections for health-related risks such as radon gas, asbestos or problems with water or waste disposal systems. While additional inspections will cost more money, they definitely are worth it if they uncover an expensive defect in the property. A general inspector will focus on the structure, construction, and mechanical systems of the house, and will make you aware only of repairs that are needed. Generally, an inspector checks (and gives estimated prices for repairs on): the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, heating and cooling systems, water source and quality, the foundation, doors, windows, ceilings, walls, floors, and roof. The inspector does not evaluate whether or not you’re getting good value for your money… Usually, there will be an inspection clause in the contract. Sometimes, the seller will provide a report of a home inspection aid for by the seller. If conditions or defects are disclosed in the report you can: • Negotiate for the seller to fix the problems prior to close of escrow,
• Receive a credit from the seller for an amount to make the repairs; or
• Cancel the contract if your and the seller cannot agree on the repairs or their costs. It’s not required that you attend the inspection, but it’s a good idea and I strongly recommend that you do, since generally you will learn a great deal about your property. The inspection also provides a great opportunity to hear an objective opinion on the home you would like to purchase and it is a good time to ask general, maintenance questions of an expert. Pest Control Inspection Report
While you are in escrow, you should have the property inspected by a licensed pest control professional. While termites or other pest infestations are not common, pest control operators also are trained to look for dry rot, usually caused where wood comes into continuous contact with water. Dry rot can be serious and should be fixed immediately. If any condition is discovered in a pest control report, it needs to be corrected and the property re-inspected by a certified pest control inspector, before you close the sale of the home. Pest control reports generally cost around $200-$300. Smoke Detector & Water Heater
During the escrow process, sellers are required to provide for you evidence that they have equipped the home with smoke detectors, and that water heaters are braced, anchored, or strapped to resist falling in an earthquake.What You Need To Know
The home buying process is one of discovery. Throughout, you will receive crucial information on the condition of the property – from its physical attributes to the condition of its title. Piece by piece, you will learn what you need to know to make an informed purchase. Following is an explanation of the most significant parts of the puzzle.
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• You’re an all-cash buyer
• You’re already pre-approved for a mortgage
• You don’t have a home that needs to be sold before you can buy These circumstances give you a little more leeway in negotiating. However, even if you are in a strong position, in a “hot” market, you may want to make your offer more desirable by offering more than asking price. When the market is “soft,” homes tend to sell more slowly, creating a larger pool of homes from which to choose. On the other hand, when the market is “hot,” there may be a limited number of homes to visit and the demand for them may be high. Overall, here are some suggestions: • Enter into negotiations with the maximum amount you are willing to pay for the property firmly in mind.
• Keep in mind (and add to the contract) some terms you can live without – then you can make concessions without compromising the items that are important to you.
• Always have a few alternative homes in mind – knowing you have other options will help you stay objective during bargaining and may encourage the seller to be more reasonable.
• Try to ascertain what the seller wants and needs. If, for example, the seller’s new home is not ready by the closing date, you might consider allowing the seller to rent back the home for a short time, provided your schedule permits.
• Terms may be negotiated as well as price, and the changes can result in financial savings.Negotiating
Of course, negotiating is a huge part of the home buying process. I will negotiate on your behalf, bringing to the table years of experience and local expertise. There are some principles that are universal, though.You’re in a strong bargaining position if:
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Counteroffers
Offers are occasionally rejected outright, but it is common for a seller to counter an offer with terms acceptable to them. But don’t let this stop you. Now you begin negotiating. I will help you. There are many options to explore: • Maybe you offer more money, but ask the seller to cover some or all of your closing costs or to make repairs that wouldn’t normally be expected.
• Or, you provide the seller with more time to move in exchange for a price break, if you know extra time is what they need.
• Just remember — don’t get so caught up in negotiations that you lose sight of what you want and what you can afford! At What Point are Negotiations Considered to be Binding?
You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as the signed, unchanged offer is delivered to you or me, your agent. If the offer is rejected, that’s that and the seller cannot change their mind and hold you to it.
How Much Should I Offer?
Generally, I will help you with this. However, there are several things to consider as you develop your purchase offer:
• Is the asking price in line with prices of similar homes in the area? I will conduct research, called a “Competitive Market Analysis” or CMA, on comparable properties, to help you come up with an educated opinion on the worth of the property.
• Is the home in good condition – or will you have to spend a substantial amount of time and money making it the way you want it?
• How long has the home been on the market? If it’s been for sale for a while, the seller may be more eager to accept a lower offer.
• How much mortgage will be required? Make sure you really can afford an offer that you plan to make.
• How much do you really want the home? The closer you are to the asking price, the more likely your offer will be accepted.Common Points of Negotiation
The buyer and seller may negotiate many of the associated costs of the transaction. Some common items are: price, financing, closing costs, repairs that need to be made, appliances and fixtures, landscaping, painting and occupancy time frame.
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