Thursday, 27th of March 2008 at 11:25:39 AMIt’s no secret that it’s a full blown “buyer’s market”. So I thought I’d share a few thoughts with you that might help when your ready to negotiate for that perfect home.
Everyone wants to think that they’re getting a good deal and lately buyers are thinking they should “steal” a house that’s for sale. Always remember that there’s such a thing as “fair market value”. The definition of fair market value is: The price established in a free market between a buyer and seller in an arms length transaction where neither one is compelled to buy or sell.
Basically there is a price that the seller is willing to sell the house for and a price a buyer is willing to buy the house for. If the two numbers line up, then there is a market and the house can change hands. If they don’t match up, then there is no market and the house remains with the original owner.
Here are some steps to take before making an offer:
- Obtain or make a Comparative Market Analysis. This will help you understand what the market has been for similar homes recently sold and help you gauge your own opinion of what a homes worth is.
- Assemble all information about the history of the property, i.e., how long it’s been on the market, how many price reductions, sales transfers, last sale price, date of last sale.
After you’ve reviewed the above, arrive at an offer price that is lower than the highest price you would be willing to pay. This should be a fair price based on your research.
Determine what other factors in the offer might help in your negotiations.
Cash or financing? If you can pay cash, or have a large amount of money to put down, then you are in a stronger negotiating position. Closing time is another factor that can be used.
Today, almost all offers include a Loan Status Report, a letter from your lender stating that they are confident that you will be able to get a loan for the amount you are looking for. The only time you don’t want to include this is in a all cash deal and in that case, you want to provide proof of funds. Again, you are establishing yourself as a qualified buyer that won’t waste the time of the seller.
Will you pay the title insurance or will the seller? This is completely negotiable. A good rule of thumb is that if the offer is substantially lower, say 10% to 20% than the asking price, it would help negotiations if the buyer were to pay the title insurance.
Home Warranty, I’m a big fan of all homes that are sold should have a home warranty. This protects both the buyer and the seller from after market issues and makes everyone’s lives better. This is another one that follows the same rule of thumb as title insurance.
Making the Offer
You’ve done the research and worked out the details, now you’re ready to make the offer.
Often, the offer is so legal that people have a hard time relating to the offer and feeling compelled to accept it. A new tool is to include a cover letter with the offer to help make it personal. In this letter, you want to introduce the buyer, explaining who they are and where they worked. Then expand with why the buyer wants to buy the home. Finally compliment the seller by mentioning some of the parts of the home that you enjoyed. Close the letter by saying that you look forward to working with them toward a successful sale of their home.
Now it’s time to package your offer to present to the seller or the seller’s agent. This should include the cover letter, the Loan Status Report (or proof of funds) and the offer. You may want to include any supporting documentation of your offer. For example if you are offering less than full price and the Competitive Market Analysis supports your offer, you should include that. This will help the seller understand how you achieved your price. Never include any documentation that does not support your position and offer price as this will hurt your negotiating position.
Negotiating in Good Faith
If the seller doesn’t take your first offer, but makes a fair counter offer, you should do the same. Remember, you have that highest price you are willing to pay. So make your counter offer wisely. If you have reached your highest price, you have other areas that can be part of the negotiation, more money down, you pay title insurance and/or home warranty, quicker close. You can always ask if there is something else that the seller would like to have besides money. When you’ve reached your final and best offer, then let the seller or the seller’s agent know.
Knowledge is power. You are in a much better negotiating position when you know all the facts about the home you’re purchasing.
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