When the list price is the starting point for negotiations instead of a home run finish for the seller, you know you’re in a really hot market.
And that’s the score for most of the country, which finds itself at the beginning of what could be another record year for home sales.
Not only are sellers regularly receiving upwards of 125 percent of their list price, but by some estimates, more are getting that price without having listed their property with a full-service broker.
So whats a home buyer to do?
Start by hiring an experienced buyers agent who owes his or her fiduciary duty, or loyalty, to you. A disturbing new trend in home buying is for buyers to find, negotiate for, and purchase a house without the benefit of an agent who can help them determine the true value of a piece of property.
Find a good agent who regularly help buyers purchase property in the neighborhood in which you’re interested, in the price range you can afford. If you are interested in new construction, find an agent who works with new developments in the area in which you’re interested in.
Next, be pre-approved for your mortgage, rather than pre-qualified. Being pre-approved means that the lender has given you a written commitment to fund your loan, provided that the home you ultimately select appraises out in value. When you’re prequalified, the lender tells you how much you can afford to spend, but doesn’t actually commit to funding your loan.
Being pre-approved means you know exactly what you can spend on a home, so you wont waste anyones time looking at homes you may or may not be able to afford.
Since many sellers will receive multiple offers for their property, they are looking for the cleanest offer. A “clean” offer is usually one with few, if any, contingencies. Since contingencies typically allow the buyers an out if, for example, they cant secure financing or if a home inspection produces an unsatisfactory report, striking contingencies from the contract can be a risky move.
In a competitive bidding situation, being pre-approved allows the buyer to remove the financing contingency from the contract, effectively giving the seller a cash offer. As a precaution, buyers should consider substituting an “appraisal” contingency, suggests David Hall president of the Chicago Association of Realtors. An appraisal contingency allows the buyer to cancel the deal if the home doesn’t appraise out in value, that is, if the banks appraised value of the home is less than the purchase price.
Hall also recommends that buyers consider going in with their “best offer, or nearly their best offer.” The days when buyers were able to offer 10 percent less than list and negotiate their way to a middle ground seem to have given way to full price offers.
But its easy to be coaxed into paying more than you should for a home. In many major urban areas, where home prices are rising rapidly, agents are counseling home buyers think carefully about how long they plan to stay before they buy. A period of 5 to 7 years should be enough to ride out most downturns in the market.
Being flexible on other areas of the contract could boost your chances of submitting the winning bid. Offer the seller his or her choice of closing dates. Consider allowing the seller to take some of the fixtures, like a dishwasher or refrigerator, that might have ordinarily stayed with the house.
Finally, there are always homes that sell less quickly than others, even in the hottest of markets. For example, in a neighborhood prized for historic homes, a house built in the 1960s or 1970s might not sell as quickly or for as much money as an 1880s Victorian.
Indeed, today’s home buyers seem to prefer homes in move-in condition, and are willing to pay a premium if they can simply unpack and start living at their new address.
Purchasing a less-desirable fixer-upper property might be a way for an enterprising home buyer to get more house, for less money, on more favorable terms.