What every home buyer should know before buying property is crucial. Start by researching the market, and learning about the target property.
Q: In your recent column, you gave wise counsel on making a second offer when the asking price on a house is over fair market value. I thought you might want to hear an example of the importance of that researched and well-considered offer.
Our son and his wife recently found a starter home they wanted to buy. Their dilemma: the owners had purchased it as a second home for nearly double the value a few years ago, just before the real estate bubble burst, and had invested significant money into a total (and excellent) renovation.
Our son’s Realtor knew that there had been only one previous offer (half the asking price and closer to the potential current market value) more than a year earlier, which had been rejected. The owners had more recently lowered their asking price, even though it was still somewhat above market value.
Further, “fair market value” was an issue, because there are no homes even remotely comparable to this one within a several-mile radius. The home was built in 1930. The property is unique and near a waterfront. The extensive recent renovations on this house have set a very high standard for the neighborhood with top-quality furnishings.
We did some online research and discovered that the owner very likely was holding three mortgages. Armed with that, the Realtor’s knowledge that the owners’ job status had changed, and the significant drop in the asking price, we figured that the economic crush was starting to weigh on them and they were getting anxious about selling off the property and taking the loss.
We advised our son to make an offer that was fairly near their asking price but to include the contents of the house in that offer. We reasoned that someone with three personal homes in three separate states was probably stewing over how to dispose of an entire home’s contents. The owners eventually realized that this offer was very near their asking price, so it looked good on paper and solved a problem they had with disposing the household contents. Our son received a real windfall for a young couple just starting out in their first home.
The appraiser understood that the home truly had no comparables and his lender was offering a terrific mortgage, so he called our son to ask what the contract price was and proceeded to appraise the home at their final offering price.
With a little research, and an understanding of the homeowners’ possible issues, we were able to show our son and his wife how to negotiate an offer that was a win-win. The previous owners even iced the cake, not just by leaving the garage contents but also leaving a note saying much the house had meant to them and wishing the young couple every bit of happiness in their first home.
A: Thanks for your letter sharing your son and daughter-in-law’s story. There are lots of lessons other home buyers (and sellers) can learn. Let’s start at the top.
We agree that the more information a home buyer has and can obtain will assist them in the home buying process. Your son and daughter-in-law did their homework, with your help, understood the process and learned the business of buying property.
We frequently say that buying or selling a home has quite a bit of psychology built into it. Understanding the sellers’ circumstances and motivations in selling a home can go a long way to making a deal. You might not get it right and at times your assumptions might be wrong. But over a lifetime of buying and selling, understanding motivations and circumstances will take you pretty darned far down the path.
Another important part of your letter stresses having a good understanding of the overall home buying process. Many buyers simply look at their situation and never consider the seller’s point of view when buying a home. But a lot of times it’s the seller’s circumstances that hold a key to what will help make your offer successful.
We’ve frequently seen sellers sell their homes with all of their furnishings along with it. Not always, of course, but in second home locations or in locations targeted by retirees, you might see it more often. We’d venture to guess that your research might have resulted in a very different offer if you knew that the sellers used this home as their primary residence or was a short sale or the seller was being transferred by his or her employer. As a third home, there was more flexibility.
Savvy home buyers would do well to follow your lead in researching the market, knowing as much as possible about the target property, seeing if you can understand the seller’s motivations in selling, and understanding the seller’s timing for the sale. Each sale can and will be different, but knowing as much as possible can help you in the successful purchase of a home.