Here are some steps to consider before making an offer on a home.
So you found the perfect house. It’s closer to the center of town than you thought you would get. Great schools; green lawn … and that backyard! You don’t want to lose it, you know that it’s perfect for you and your family and you want to move in now!
First thing to do? Take a breath and understand that as emotional as you might be about a new house, it’s still a financial transaction. That means you need to make sure you’re comfortable with the down payment, monthly payments and closing costs well before you make an offer to purchase. As a prospective buyer who just fell in love with something that will likely be the most expensive thing you ever buy, you’re potentially at a disadvantage. When you’re buying a car, it’s easier to walk away because the products are for the most part interchangeable – gets you from point A to point B … at least in my opinion! Buying an appliance … piece of cake, you can always find a better deal, plenty of big box stores to choose from. But your next home; well that’s another story altogether. The place where you’ll flop on the couch after a hard day? The place you’ll start your life with your spouse, maybe raise kids … have a dog … certainly among the most important decisions you’ll be making.
It’s critical to start off on the right foot. Falling in love with a home and preparing for the financial commitment of home ownership are two different things. Since making an offer is a major pro-active step that changes your relationship with the seller, let’s start with some simple ground rules. Remember, this is not a financial worksheet, but a brief discussion of how you should be mentally prepared before you send that offer over to the seller.
Here are five simple rules that may help you maximize your success buying a home:
Be mentally prepared to walk away. The stronger you are as a buyer in any negotiation the better deal you’ll likely get. Many buyers approach the offer with a bit of desperation because they don’t want to lose the house. Sometimes it’s like being between a rock and a hard place … can’t afford to offer too high and out of your comfort zone and can’t go too low and risk losing the house. So when you decide on the best offer after consulting with your real estate professional, be ready for rejection and be prepared to tough it out and walk away if necessary.
Offer slightly less than what you can afford. This will enable you to counter a rejection from the seller of your first offer. As long as you stick to what you can afford financially and give yourself some room to move your offer up to counter the seller counter, you’ll be in good shape.
Offer what you believe is a reasonable amount for what you’d be getting. Too often prospective buyers think about the dream deal, getting exactly what you want and paying less than you ever imagined. The operative word is imagine – throwing out a low, low number that seems unreasonable to you will potentially insult the seller, and more importantly get them aggressively looking for other offers. You have to make a realistic offer. Your real estate professional knows the market best. There’s a balance between what you can afford, what you want to get and what’s reasonable given the market and neighborhood.
Be knowledgeable about the neighborhood. This is one of the most important reasons to hire a professional. Even a brand new agent will have the institutional knowledge of the local office and be ready, willing and able to assist you. Knowing what similar homes were listed at and then what they sold for is critical to making a sensible offer. Don’t rely on estimates from real estate websites. You need to know the real numbers to get an idea of what makes sense in an area. Are homes selling for asking price? Are there multiple offers? If you’ve got a situation where there’s a high demand for a particular house and area, you’re offer may have to reflect that.
Identify some things that are wrong with the house … things you may have to fix yourself. Many prospective home buyers have a laundry list of fixes that they expect the seller to make before closing. In addition they want the seller to accept a lower offer. Best strategy is to focus on offering a reasonable amount that you can comfortably afford and seal the deal by highlighting the things you’ll have to spend money on after you move. Why let the seller fix the crack in the driveway and charge you with a higher selling price? Think about those things as “Negotiation Helpers” in order to get acceptance of your first offer. Can you live with the crack in the driveway floor? Maybe you can remove the unsightly bush blocking the view of the window boxes. Remember, either way, you’ll be spending money when you first move in so make sure you go into the offer with that knowledge. The term ‘House Poor’ comes from folks that offer the max, get the house and can’t afford to furnish the rooms.
To sum up, be prepared to walk away; offer less than your max; be reasonable; have local knowledge and take advantage of “negotiation helpers.” And most of all hire a professional and make sure that your attitude reflects the logic and strength needed to negotiate. Watch out for the desperation that could follow your falling in love with the house. You still gotta pay for it!
