Negotiating a Home Purchase

Negotiating a Home Purchase Coastal Quest

What is the right price?

In today’s dynamic market knowledge is power. Without knowledge, how can you make an informed real estate purchase decision? Will the  seller take something less than the listing prices? What are the dynamics of the market – what does it tell us?

Maybe the standard way people make an offer is to ask 10% below the listing price, add in a bit of bluff, counter offers and go through the give-and-takes where neither you nor the seller gets what they want.

Don’t just assume you make an offer and they come back with a number and then you guys agree upon a number. In a “seller’s market”, its more complicated than that.

[quote_simple author=”Robert Deane, Buyer’s Broker”]

BUYING A HOME REQUIRES KNOWLEDGE

Negotiating Requires Information  – Negotiating Requires Answers

[/quote_simple]

[quote_right]In a seller’s market, buyers don’t have much clout, and style matters. If the seller has a desirable home and doesn’t like your offer, he won’t invest time in negotiating with you. Zillow[/quote_right]

[icon_check]Negotiating in a Buyer’s Market – Ask for the Moon!

[icon_check]Negotiating in a Sellers Market – Keep it Simple.

 

Negotiating – tips from the old gambler.

[quote_left]”Son, I’ve made my life Out of readin’ people’s faces Knowin’ what the cards were By the way they held their eyes..”[/quote_left]

 Some people relate negotiating  a home purchase  to playing poker. But as as Kenny Rogers sang in the Gambler; “You got to know when to hold ’em, know when to fold ’em, know when to walk away… “. If you remember the song, perhaps you remember the old gambler’s advice.  “If you’re gonna play the game, boy, ya gotta learn to play it right.”

Know whenPut your chips on the table: Show that you are pre qualified and know the market. Set the tone with your “earnest money”. A higher amount indicates you are committed to serious negotiations.

Know the importance of time: A job transfer, illness or unemployment could put the pressure of a short time limit on a seller. On the other hand, a retired couple may have no time pressure at all – they can just wait to see if a higher offer comes in.

Know the sellers motivation: Are there reasons to negotiate or reasons to stay firm? Have they already bought a home and are under pressure to move or are they planning to rent and buy at a latter date? If they have not purchased a home,  the seller may not be motivated to sell for a lower price.

Here is where a Buyer’s Broker’s value comes into play. I have no fiduciary responsibility to the Seller. I can tell you everything I can find about the seller’s motivations that will help you in the negotiation process.

Who is really holding the cards? Is the “seller you are dealing with” the final decision-maker? Or is a spouse out of town or is the sale dependent on a third-party? Make sure all the players are in the game that have a stake in the outcome. If some one did not see you deal the cards, they may not agree with the outcome.

Get it right: Be realistic in you offer – don’t make a low ball offer –  it shows you have done your research and are serious. The best offer may be a straightforward, “clean” offer.

Be Creative: If the seller is stuck on his price, what is your strategy? There is more than price to be negotiated.

Know when to hold ’em: If you have done your homework you have reasons to stick to you guns.You know what homes are selling for in the neighborhood, be prepared to present and defend those figures.

Don’t show your enthusiasm: I have worked with a number of very skillful negotiators  and the first thing they would tell you is, don’t approach it with the attitude “I can’t lose this house”. The purchase of a home is both an economic  and an emotional decision. Some homes we walk in the door and immediately fall in love with; others, we don’t even bother to walk in the door. The process of negotiating a home purchase is in itself an emotional process; don’t let the emotional appeal of the home over ride your common sense.

Set tight deadlines for the expiration of your offer. Make them believe they have to play their best cards now rather than sit back and wait for better offers.

What cards do you have “in the hole”?  What is your final and best offer?

Know when to fold ’em: In a fast moving market with lots of buyers bidding on the same house and the “pot” becoming too big for your taste; your time may be better spent elsewhere.

Know when to walk away: A frequent problem in the current market is becoming excited in the purchase process and over paying for a home. Don’t get caught up in a bidding war.

[faq title=”Frequently asked questions:“]

[faq_question]What are the important details in a Purchase Offer?[/faq_question][faq_answer]

  • The amount you are offering for the home, and how you will pay the seller (cash, check, etc.)
  • Contingencies to protect you if your financing falls through, or if the inspection unearths major problems with the home (because inspection happens after you make an offer.
  • Conveyances, such as whether the home comes furnished or unfurnished
  • An expiration date, by which the seller must respond or your offer expires
  • Concessions, such as any closing costs or other costs you would like the seller to pay for
  • The amount of earnest money you are offering
  • The size of your down payment

[/faq_answer]

 

[faq_question]Making Counter offers to the Seller[/faq_question][faq_answer] Negotiating the purchase of a home is like a conversation in writing. The seller opens the conversation by putting a home on the market. The potential buyer answers by making an offer that includes a deadline for answering.

The buyer’s offer is rarely accepted as is. The seller almost always makes the next remark in a counteroffer, which is simply making amendments, in writing, to the original offer. The changes are initialed and sent back to the buyer for a response by a new deadline. Typically, the seller asks for more money than the buyer first offered because it is assumed you didn’t offer what you could pay. Perhaps the closing date is not agreeable because the seller has children and can’t move until school is out. Maybe the seller wants to keep the appliances. That gas grill you wanted? No way. It was a Father’s Day gift. As for the bright blue birdbath you asked to keep, dear Aunt Millie made it in her pottery class. You can’t have it.

The buyer now counters, offering more money and agreeing to drop the bird bath and the gas grill. But the buyer really wants the quick closing date and the appliances to stay with the house so keeps them in the amended offer. This time the buyer gives the seller a new deadline for responding. This back and forth continues until both parties agree.

Each side makes concessions. Perhaps the buyer agrees to the seller’s closing date and gives up the appliances. Seller Financing the Difference What if both sides agree on everything but the selling price? The buyer desperately wants the home, but is maxed out. A lender will not loan him $5,000 more than he’s already offered. Is the deal dead?

Not necessarily. In some circumstances the seller may be willing to loan the buyer the $5,000, perhaps for a five- or 10-year term at an interest rate agreeable to both parties. There are documents appropriate for this arrangement. If you are not working with an agent, have an attorney do the paperwork.

Buyer’s Tip: Counter offers can be the most creative period of your home-purchase negotiation. They continue until both sides agree and sign a contract, or until one side or the other decides to walk away from the deal.

Zillow By Diane Tuman [/faq_answer]

[faq_question]How to Back Down After Signing[/faq_question][faq_answer] Once the purchase contract is negotiated and both parties have signed, it’s legally binding. This is why the wise buyer wrote those emergency exits — the contingencies — into the offer. Because the only way the buyer can walk away from the deal now is if the contingencies can’t be met.

Too many contingencies make sellers uncomfortable, your agent will advise you on their proper use in order for all parties to be protected and move forward to closing. Typically, a buyer who wants to cancel a purchase agreement based on one of the contingencies it contained will give written notice to the seller prior to the deadline for removing the contingency.

The buyer’s agent could be the one delivering the news, or the buyer could do so directly. For example:

  1. You made the deal contingent on getting a 30-year, fixed rate mortgage for 80 percent of the sales price. But you weren’t pre-approved for a loan, and now realize you can’t get the loan. You can walk.
  2. The inspector you hired just found rotten boards along the eaves of your dream house, an electrical panel that doesn’t meet code, and two leaky faucets. You can walk.
  3. You had a third contingency — that your present house sells by a certain date but it’s still sitting there. You can walk.

You wake up in the middle of the night terrified that you’re about to lose your job. You must have been out of your mind when you signed a contract to buy a house! What if you can’t make the mortgage payments? What if tomorrow you find out you have a terminal illness? You are suffering from buyer’s remorse. This is normal. You cannot walk. The cure lies ahead.

Buyer’s Tip: You can’t just change your mind. The ways out of your deal depend on the escape hatches you put in the contract.

Zillow By Diane Tuman[/faq_answer]

[faq_question]What services to you provide during the Property Selection/Contract Offer Phase”[/faq_question][faq_answer]

  1. Buyer Agent will discuss and evaluate the properties viewed with his/her Buyer-Client, comparing each property shown with the target property profile.
  2. Before preparing an offer to purchase, a Buyer Agent will inform a Buyer-Client about any defects or problems he/she has observed or in any way discovered regarding the target property.
  3. Before preparing a contract offer on behalf of his/her Buyer-Client, a Buyer Agent may prepare a comparative market analysis, including explanations and documentation, to determine the target property’s market value. A Buyer Agent will not prepare an offer to purchase a property he/she has not seen.
  4. Before a Buyer-Client signs an offer to purchase, a Buyer Agent or lender will provide that Buyer-Client an estimate of closing costs and, whenever possible, with the truth-in-lending estimate provided by the mortgage company.
  5. A Buyer Agent will counsel his/her Buyer-Client and explain the choices available in completing a real estate contract. This real estate counseling is based upon a Buyer Agent’s experience in negotiation and real estate business decisions and is not legal advice. Legal matters should be identified and a Buyer-Client advised to seek legal counsel where appropriate.
  6. Whenever possible, a Buyer Agent will prepare the contract offer on a form which has been designed to protect a Buyer-Client’s interest. A Buyer Agent will provide proper disclosures regarding agency representation and other matters as required by law.
  7. A Buyer Agent will develop contract negotiation strategies with his/her Buyer-Client, establishing pre-set limits on key points of negotiation when that Buyer-Client wishes to do so. A Buyer Agent will actively negotiate only on behalf of his/her Buyer-Client.
  8. Before submitting a contract offer to a Seller, a Buyer Agent will counsel his/her Buyer-Client regarding the time requirements specified in the contract and will encourage that Buyer-Client to have professional inspectors inspect the property if the contract is accepted.[/faq_answer]

[faq_question]What services do you provide during Escrow to Closing?[/faq_question][faq_answer]

  1. Buyer Agent will counsel a Buyer-Client regarding the types of home inspectors, the suggested criteria for selecting home inspectors, and the comparative costs of inspection services. A Buyer-Client will select real estate inspectors. A Buyer Agent will encourage his/her Buyer-Client to be present during inspections.
  2. Buyer Agent will counsel a Buyer-Client regarding the types of home inspectors, the suggested criteria for selecting home inspectors, and the comparative costs of inspection services. A Buyer-Client will select real estate inspectors. A Buyer Agent will encourage his/her Buyer-Client to be present during inspections.
  3. Buyer Agent will notify a Seller or a Seller’s Agent in writing of inspectors’ findings and of corrections/repairs mandated by a Buyer-Client. A Buyer Agent will specify a Buyer-Client’s desire to proceed or cancel the purchase contract whenever such notification is required.
  4. Buyer Agent will maintain contact with a Buyer-Client’s title company and mortgage company to make sure that his/her Buyer-Client’s interests are being protected.
  5. Buyer Agent will review a settlement statement with his/her Buyer-Client at or before closing, if possible.
  6. Buyer Agent will accompany a Buyer-Client on a property walk-through before closing.
  7. Buyer Agent will keep records of transactions for a reasonable period of time and will provide this information to a Buyer-Client on request.[/faq_answer][/faq]

 

[styled_box title=”Can I negotiate on my own?” type=”sb_green” class=””]Absolutely. Many buyers do. It means:

  1. Doing intensive research about the market, neighborhoods, schools, community lifestyle, the property you want to buy, and the seller’s situation
  2. Figuring out an appropriate negotiating strategy and style based on that information.

The question is – Do you have the Time? Do you want to incur the stress? [/styled_box]

Negotiating Requires Information

Negotiating a home purchaseI like the Kenny Rogers song the Gambler as an analogy to explain the negotiation process.  We have to “read” the seller and get an idea of the price that will be accepted; its critical to our bid. We definitely need to know when to hold ’em, know when to fold ’em, and know when to walk away.

To follow the analogy, let my give you the chips you need to be a real player in the negotiations. The new gold is knowledge, and that is what I will provide you. Not Information, but Knowledge.

It is easy to find information on the Internet. The problem is that it is time consuming to sift through the mounds of data and find credible information. It takes yet more time to analyze this data, summarize it and translate it into actionable knowledge. When you contract with me as your Buyer’s Representative you get my full attention. My chips are a strategic plan.

Before you start the selection process, well before negotiations, we will have a Strategic Plan in place. A plan that will achieve your goals under conditions of uncertainty. Like our gambler entering a game,  we must be ready to exploit  known or emergent possibilities rather than committing to any specific fixed plan designed at the outset.

Why do we want a strategic plan even before we start negotiations?

Think of it as writing a number on a yellow pad and putting in your desk drawer and then going out and looking for a home. If the price you find is dramatically different the the number you previously placed on that note pad, we have to ask why and be prepared to walk away if the numbers don’t make sense.

You are likely to make an offer on more than one home, the market is just that competitive. You must put your best foot forward and be ready to respond quickly if the right home appears. To do so, you need to  know what you want, what you can afford, the neighborhood that meets your lifestyle needs and be fully knowledgable of market conditions in that very neighborhood. This is the knowledge you need to make an informed real estate purchase decision – it is in your Strategic Plan.  You may miss the first home, but it won’t be because you were not prepared. And once you are zeroed in on a neighborhood and price, you will full prepared to act decisively when the next home appears.

In your case you will have far more than a number on a note pad, or notes scattered around the home. You will have every thing you need in one place in a Strategic Plan for Purchase.

What is in the Strategic Plan?

  1. Make and Informed Decision 2Preparation: How to put your best foot forward for a home purchase. Pre qualification, Mortgages.
  2. Market conditions: Exactly what is taking place in the market. Are new trends developing? What does it mean to you in your home purchase? 
  3. Market dynamics: Who has the leverage What are the details of recent sales?
  4.  Details on the home and seller.
  5. Motivation: I can tell you as much as I can surface on the seller and his/her motivations in selling the home. As an Exclusive Buyer’s Broker I have no loyalty to sellers, only to you. Together we will look for any pressures on the seller of this house; but also  look at the deal from the opposite side of the table. Sometimes you win on terms, not price.
  6. Never show your cards: Since an Exclusive Buyer’s Broker never owes fidelity to a seller, I will divulge as little  as possible about you. Learn about an Exclusive Buyer’s Broker
  7. Be Realistic: How well is the home priced? Do we have recent sales proving its value? Is it likely the price will be supported in a bank appraisal? I will provide you with a Competitive Market Analysis.
  8. What is the true value of your home of choice? Are there special features (views, community amenities, potential appreciation) that may justify a purchase price above a likely bank appraisal? In short, does the risk/reward of buying the home justify  paying the difference between the mortgage limit and the purchase price negotiated with the seller?
  9. Keeping your options open. Since we will have zeroed in on a Neighborhood, price range and your lifestyle needs, I will provide you any new listing that meets your criteria as in enters the market.
  10. Working with Appraisers: Far too many home sales fall apart at the bank appraisal. We often have “out-of-town” appraisers that lack local market knowledge. To start with I meet with appraisers and provide them with the most significant competitive sales. An appraisal report should discuss market trends as well as verifying information on the home and providing comparable sales, but few if any do. In a market in change, this can dramatically change a home evaluation. I provide appraisers with my statistics on local market conditions. As the market improves, this will help them speak to increasing prices with more knowledge.

 

Exceptional Service Throughout the Purchase Process

 

Negotiating a home purchase

Real Estate transactions in today’s real estate market are, if anything, more complicated than ever before.

While many factors favor homebuyers such as low interest rates and lower prices, others do not. Among the new challenges are working out mortgages with banks, dealing with appraisers, understanding the short sale process and negotiating the purchase of  home in a seller’s market.

In addition, in an ever changing market, an agent must provide buyers with a solid knowledge of market trends. Knowledge critical to making an informed decision.

These are compelling reason buyers should turn to an Exclusive Buyer Broker. An Exclusive Buyer’s Broker, never takes a listing, never represents a seller and makes a major commitment to you, the buyer. A 100% commitment in loyalty and time that exceeds what you can expect from a normal agent; in return they ask you to make a mutual commitment to them, a commitment that provides the incentive to work with you from day one in the home buying lifecycle.

 

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