Making an offer on a home and getting under contract is one of the last, but probably the most important, steps in home buying. Having a knowledgeable real estate broker by your side is critical in knowing the true value of a home and what should be included in the contract.
In today’s sellers’ market, most of the leverage is still in the hands of the home seller. However, with increasing mortgage rates and more homes coming on the market, there are still tactics the home buyer can use to get under contract this spring and summer.
Many times, the buyer and seller will go back and forth not only on price but on other aspects of the potential sale. Below are five real estate negotiating tips for buyers that can be negotiated by a realtor on behalf of their client during the home buying process:
How Home Pricing Impacts Negotiations
Just like any high-priced commodity, the listing price of a home isn’t always the “real” price. Negotiation is expected in any real estate transaction. In a hot market, it may represent the point where bidding begins. In other scenarios, the price tag may be reduced, especially if the home wasn’t priced correctly. It’s important to know the neighborhood and have access to the most up-to-date comparable sales of similar-type properties. This is where a knowledgeable realtor proves his or her worth and determines whether a home sells quickly or languishes on the market for months. Having timely market data to back up a solid offer is the first step to landing your dream home.
The good news is that you have plenty of tools at your disposal to find out the essentials about the house you’re looking to purchase. When you work with a realtor, comparable sales can be evaluated to determine whether the list price of the homes you’re considering is accurate. You’ll be able to see how long the homes have been on the market, property tax history, what improvements were made and when, and other valuable information.
With a little bit of detective work, you can also find out vital information on the seller that might be useful in negotiations.
Some special circumstances to keep an eye out for include:
- Whether the seller is still living in the house
- The property is in foreclosure
- The seller needs to rent the home back from your post-closing for a couple of weeks
- If there has been a pre-inspection on the home
All of these factors can influence your negotiation strategy, as well as the offer you make.
Knowing all of the details — especially the true market value of the house — makes it much easier to make a spot-on offer that will hit home with the owners.
Finance Terms are an Important Part of an Offer
Unless you have a cash offer, acquiring a loan to buy a home is the most critical piece of the contract. Outlining the finance terms and whether the contract is contingent on financing should be included in the offer. It is beneficial to get pre-approved for a mortgage and know ahead of time what kind of interest rate you’ll need. It may behoove you to lock in a specific rate especially if a rate hike is anticipated. A .25 % interest hike can mean hundreds of dollars extra in your monthly payment.
If you haven’t done so already, start getting a feel for what the market is doing and where it might be when you make the offer. Any reputable loan officer should be willing to sit down with you and explain the ins and outs of your loan and how the interest rate might vary. Having your down payment ready and finances squared away will put you in a more secure position once you enter negotiations. Be prepared for a counter-offer, know your budget and don’t exceed it!
Setting Dates Will Dictate Closing Timeline
Knowing how much time you’ll need to close is important, both for the buyer and the seller. Typically, a closing takes 15-30 days — not a long period of time! Unless you are purchasing a home with cash, the buyer’s lender (i.e. loan approval) dictates the length of time it will take to close. As a result, it’s imperative to have your loan pre-approved before getting too deep into the process. Once the clock starts ticking (upon a signed contract), you’ll have to be dealing with earnest money, a home inspection, an appraisal, finding homeowner’s insurance, and an array of other details. It’s vital to look at the big picture and have a detailed list of what needs to be accomplished when — that is where an experienced real estate broker is worth her/his weight in gold.
Don’t Forget to Address Inclusions/Exclusions
Inclusions are often one of the items that get lost when negotiating. Just because the MLS says they are excluded or are not included, doesn’t mean they can’t be. Bottom line – it never hurts to ask! Typically, all major kitchen appliances (refrigerator, stove, dishwasher, trash compactor) are included but it won’t hurt to ask about the microwave, small convection oven, washer/dryer, and any other items in the home, for that matter. Many homeowners might not want to mess with moving large pieces of furniture or appliances, especially if they are downsizing. For first-time home buyers, it’s a great opportunity to have furnishings already in place. This alleviates the seller from having to conduct a yard sale and it’s also a convenient negotiating tool. When previewing homes, keep a list of items in the home that appeal to you and might be bartering tools for you. Also, your broker should be up-to-speed on what current contracts are including and excluding.
Contingencies are a Big Part of the Contract
Contingencies in a contract are essentially a list of conditions or actions that must be met before a contract becomes binding. These conditions can be wide-ranging and are enacted for both the protection of the buyer and the seller. Regardless of what is included in the contingency section of the contract, it should be spelled out very clearly leaving no room for vagaries. Some examples of what would be included in the contingency sections are:
- Amount of earnest money required as a deposit on the home (typically 1% of the purchase price)
- Time allotted to inspect the home
- If your present home needs to sell prior to purchasing a new home
- Agreement on the home appraisal
Home Inspection | Critical Piece in the Home Buying Process
This will often be the step that provides even more negotiation and potentially, a further price reduction on the house. We just can’t stress enough how important a home inspection is when it comes to negotiations! Not only can it eliminate headaches down the road, but it can also impact the price of the home itself.
An inspection will reveal any minor and major defects in the home. High price repairs like a roof replacement, an aging furnace, or hot water heater will prove to be key leverage items when negotiating the ultimate price. Likewise, cosmetic imperfections or low-priced repairs aren’t worth haggling. Keep in mind that good faith bargaining reaps benefits when the sale comes to a close. The sellers will be much more willing to help you if post-sale issues arise. If you get too nit-picky, they may not be as receptive. Keep in mind, that every house has imperfections unless it’s a new build. And even then, there may be some blemishes!
Barring any major findings from the inspection, don’t get caught up in the small or minor flaws that mask a good find.
Whether the avocado kitchen or dated vinyl flooring has you reeling, cosmetics are not important enough to influence negotiations. It’s important to look at the whole property and not get bogged down on inconsequential items that can easily be fixed and improved down the road.
By all means, keep track of your grievances; just don’t let something minor throw negotiations off course.
The negotiation process can be stressful and time-consuming. Don’t lose sight of your goal, even if the process gets a little bumpy. Keep a level head and stay optimistic about the outcome of the process. These five real estate negotiating tips for buyers should help get you to the closing table without too much wear and tear.
Your Usaj Realty broker will know exactly how to write the best possible offer. They will communicate effectively and professionally with the listing agent in order to strengthen your offer. Contact us today to learn how Usaj Realty can assist you in finding the home of your dreams.
(Editor’s note: This article was originally published in July, 2017. It has been updated and refreshed to reflect current trends and market data).