You’ve finally found the home you’ve been looking for and you’re ready to make an offer. But how you can you be sure that you’re getting a good deal? When you buy a home, every penny you can save on the purchase price will help you with closing costs, redecorating, and moving.
The trick to buying a home at the best price is negotiating, and the key to negotiating is research. When you have an accurate idea of the property value, the seller’s options, and the near-term character of your local market, you know what you’re up against.
Before you make an offer, you’ll also want to get a sense of what you can afford. Meet with a lender, who will be able tell you whether you’ll be approved for a mortgage and at what interest rate.
Accurately value the property
Once you know how much you can afford, it’s time to make an offer and start negotiating.
The seller may have set the listing price high to allow for some negotiating room, or may simply think the house is worth more than it really is. To get an idea of what the home is actually worth, ask your agent for a competitive market analysis (CMA) of the home. It will incorporate comparable recent sales (sometimes referred to as “comps”), a history of the home’s previous valuations, and analysis of its current value based on the local market.
Local supply and demand will also impact what the house is worth—and how much the seller is willing to negotiate. Low inventories and inflated home prices may make the seller less likely to negotiate on price, while a decrease in demand and home values may have the opposite effect.
Do your research on the seller
The seller’s personal situation can provide valuable information you can use to negotiate the purchase of a home. Why are they selling? Is it for a new job? Do they have children who need to be settled in a new school by August? Is the home owned by a divorcing couple that is eager to move? Is the seller in a position where he or she can’t pay the mortgage?
Your agent can find out a lot from their agent, and an hour or so on social media can tell you a great deal about your sellers. You may want to determine how long the home has been listed, or if it was previously listed and removed. Has there been a price reduction? Have there been previous offers and, if so, what happened to those?
The seller’s counter offer will reveal how serious they are about selling to you. If it is too high to merit a response right away, you may want to wait it out, keep in touch, and let the market take its course before you counter. You risk losing the house, but the seller has greater worries. They might risk losing a whole selling season and have to start again in a year.
In your negotiations, don’t forget the personal touches. Write a letter that tells the owners how much you love their house and how you’ll take good care of it. Your real estate agent can present this letter with your offer.
During the negotiating process, use to your advantage any information that is uncovered in the home inspection. It’s likely your inspector will have a list of issues that need to be addressed, and you can either ask that these be dealt with before closing, or that you receive a credit for the cost of the repairs.
Steve Cook is editor of Real Estate Economy Watch and covers real estate and mortgage finance for leading news sites. He is a member of the board of the National Association of Real Estate Editors. Twice he was named one of the 100 most influential people in real estate. Cook was vice president for public affairs for the National Association of Realtors.