As a buyer, you are in a powerful position. Here are some tips to help you maximize your power.
- Get a market analysis to know the home’s worth – Your REALTOR has access to a plethora of market research data. Use this data to calculate a market value.
- Make an intelligent offer. Aim slightly below the market value. 5% below is a good start. “Low balling” or offering a price substantially below the asking price is rarely successful. If you feel that the seller’s price is far in excess of the market value, it may be more worthwhile to pass on the property in favor of a more realistic seller. That being said, the worst the seller can do is reject the offer. Sometimes, it doesn’t hurt to try.
- If you intend on getting a loan, your bank will prevent you from overpaying too far in excess of the market value. The degree of excess is determined by the bank and should not be used as your sole governor. The bank will perform its own appraisal. If your contracted price is in excess of what the bank thinks the property is worth, your loan may be declined or you may be asked to increase your down payment to cover the excess.
- You definitely do not want to overpay for your property if you have any inkling of moving out in less than 5 years. This is especially true in a so-called “buyer’s market”. It costs upwards of 8%-10% to sell a home (including all the costs) If you need to sell quickly, you will need your appreciation to cover the cost of the sale. If your home has not appreciated, or even worse, depreciated, you may be forced to remain in your home, rent it out, or if you absolutely need to sell it, you may have to contract for a price which requires you to come to closing with a check for a large sum of cash. That being said, if you are in a so-called, seller’s market, paying more than the asking price may be the correct strategy especially if there is any indication that the price will increase substantially in 5 years or less.
- Be patient – In a so-called “buyer’s market”, time is on your side as the buyer. The seller is with one who has to pay the mortgage, taxes and insurance on the house while they still own it. Make your offer and wait. This underscores the importance of making an “intelligent offer”. Try not to get caught into the “heat of the moment”.
- In a seller’s market, put an expiration date in your offer. If your offer is good enough or if the seller is a little light on other offers, your expiration date will force the sellers to make a quicker decision. Of course, if your offer is unreasonable, the seller’s decision will likely be to let your offer expire.
- Decide on the most you will pay for the property before making your first offer. Never exceed that price. Make this decision carefully. It is easy to get caught up in the heat of the moment.
- Negotiating does not have to be about the purchase price. In Real Estate, “everything is negotiable”. Ask for other things. Perhaps the seller would be willing to carry part of the purchase price in the form of a 0% interest loan or pay for all or part of your closing costs including your own loan origination fees. Sometimes the seller will give “allowances” for paying for your moving expenses or for home repairs such as carpet or paint.
- Don’t worry about hurting the sellers’ feelings with your offer. This is why you have a Realtor and why the other guy has one too. Keep emotions out of this. Do be ethical, however, and hold yourself and your Realtor to the highest set of moral principles. Remember the golden rule. Do unto others as you would have them do unto you. No one likes a cheat.