Let’s Make a Deal – Crafting an Offer in a Buyer’s Market Part 2

Like any good detective, either you or your buyer’s agent have gathered intelligence about the seller, the home you wish to buy and the marketplace.  The information you’ve obtained will not only help you in developing a price to pay but it will also help you determine a strategy. 

What goes into an offer?  Price, deposit amounts, contingencies (mortgage, inspection, attorney approval, etc.), inclusions (appliances, pool equipment, etc) and closing date. 

Price.  Before you submit your offer, determine the maximum amount you are willing to spend and work backwards from there to come up with an initial offer amount.  The maximum amount can be the listing price or the amount you and your agent determined to be the real value.  Take into consideration the average list price to sold price ratio in your area. Don’t forget to factor in condition and repairs you may need.

Other Terms & Contingencies.  Know in advance your must-have’s and what you can give up.  If the seller won’t close by the date you need to, are you willing to walk away or compromise?

Get it in Writing.  You can put in a verbal offer on a house but it means nothing and same with a counter-offer from the seller.  Until the offer is in writing with your earnest money deposit and signatures of both parties, you do not have a valid contract.

Know the Goal.   People often get hung up on price.  If your goal is to live in the house, there are other factors to consider besides the price like school district, neighborhood, comparable properties, lifestyle and timing.  You began your search with a dream house in mind.  If the house you are considering fits the bill, should you really haggle over $5,000 and lose out on it, only to start looking again and possibly never find a house like it again?

These are some strategies that can work.  They depend entirely upon the motivation of each party.  If you have to buy a house in the next month, playing too many games can be risky if there are no other homes that suit your needs.  In any case, the goal with your first offer is to entice and not offend. 

Don’t Put Your Best Foot Forward.  Even if you are offering close to asking price, you will want to save something to negotiate, like the closing date or deposit amount.  That way, the seller feels you’ve given up something even if you really haven’t. 

It works like this: you offer $15,000 lower than asking price, put $500 down, ask for a closing date 2 months away, and load the contract with all sorts of contingencies.  The seller comes back and says OK to everything else but the price – they want $10,000 more.  That is their counter-offer.  You then say to the seller, I’m sorry, but I can’t afford that much.  I can give you more of a deposit down to show you I’m serious and I’ll close earlier.   They may agree to this or you may continue to negotiate. 

Let’s Make a Deal – Crafting an Offer in a Buyer’s Market Part 1

Despite the overabundance of houses on the market, sellers are not giving away their largest asset to buyers at “low, low prices.”  At least not in my market.  As a buyer, you still have to craft your offer in order to catch the eye of the seller and at a minimum, pique their interest enough to begin negotiating with you.  Great deals exist in this market but many more can be made with a little work.

Here’s how to make your next home purchase a deal.

Be Prepared.  Before you begin looking at houses, be ready to buy.  Obtain mortgage pre-approval.  Sell your existing house.  Have ample deposit money.  Be flexible on closing date.  No matter the market, you want to stand out from the pack.  By doing so, you may be able to get a better deal on a property by offering the seller something of real value other than money – confidence that you’re not likely to back out of the deal.

The Object of Your Affection. How can you negotiate over something when you don’t have all the facts.  These are some questions you probably want to know the answers to: What did the sellers pay for the house?  How long has it been on the market? Was it ever re-listed under another MLS number? What’s the condition of the property?  Recent renovations? Are there sex-offenders living nearby?  Is it a high-crime area?  How are the schools?  Is any development planned in the area? Is a revaluation underway?

Know Your “Enemy”.  Sun Tzu wrote that “To know your enemy, you must become your enemy…” While I don’t like to think of sellers as the “enemy,”  in any negotiations, you must know the type of person you’re negotiating with and their motivations.  When it’s a seller, the first place to look is in the house itself.  While walking through the home at showings, look for clues about their life.  I don’t suggest that you start snooping through their belongings but do pay attention.  A vacant home or a home where the owner has already packed belongings would suggest an urgency to close on the property.

Home Buying 101 – Step Three: How much can you afford?

This is the third installment of twelve weekly features for first-time homebuyers on buying a home. 

What you can afford depends on your income, credit rating, current monthly expenses, down payment amount and interest rate.  You can find out roughly what you can afford by visiting one of many sites that offer free mortgage calculators.  I like Ginnie Mae’s.

But because there are so many factors in determining the amount you would qualify to borrow, it is best to talk with a lender directly.   You don’t have to marry your lender just yet – you can shop around for best service, rate, closing costs, etc., until you actually find the home of your choice.  In an earlier post, I gave you some suggestions for finding a lender.

You may also want to look into one of many state and local programs designed to help buyers.  Connecticut Housing and Finance Authorityoffers loans and  assistance programs targeted at first-time buyers, but not limited to.  You don’t have to contact CHFA directly to obtain a CHFA mortgage – some lenders offer CHFA loans in addition to conventional loans. 

Other programs can be found on the Department of Housing and Urban Development’s (HUD) site.

If you find you need help with managing and paying off existing debt that may be standing in your way of homeownership, HUD also has housing counselors throughout Connecticut available to assist you. 

One word of caution. If you are planning to purchase a home within the next 6 months to a year, don’t make any big purchases.  Try to have as much cash available for closing costs, inspection fees and other expenses that come up when you purchase a house.  And, don’t take out a lot of credit for items like a car, student loan, engagement ring, etc.  More debt and more inquiries will likely lower your credit score and could increase your interest rate on the mortgage and even impact your insurance premium on your homeowner’s policy.

For more articles in this series, visit the category of Homebuying 101.