Let’s Make a Deal - Crafting an Offer in a Buyer’s Market Part 2

December 6th, 2006 categories: Home Buyers, Real Estate Market

Like any good detective, either you or your buyer’s agent have gathered intelligence about the seller, the home you wish to buy and the marketplace. The information you’ve obtained will not only help you in developing a price to pay but it will also help you determine a strategy.

What goes into an offer? Price, deposit amounts, contingencies (mortgage, inspection, attorney approval, etc.), inclusions (appliances, pool equipment, etc) and closing date.

Price. Before you submit your offer, determine the maximum amount you are willing to spend and work backwards from there to come up with an initial offer amount. The maximum amount can be the listing price or the amount you and your agent determined to be the real value. Take into consideration the average list price to sold price ratio in your area. Don’t forget to factor in condition and repairs you may need.

Other Terms & Contingencies. Know in advance your must-have’s and what you can give up. If the seller won’t close by the date you need to, are you willing to walk away or compromise?

Get it in Writing. You can put in a verbal offer on a house but it means nothing and same with a counter-offer from the seller. Until the offer is in writing with your earnest money deposit and signatures of both parties, you do not have a valid contract.

Know the Goal. People often get hung up on price. If your goal is to live in the house, there are other factors to consider besides the price like school district, neighborhood, comparable properties, lifestyle and timing. You began your search with a dream house in mind. If the house you are considering fits the bill, should you really haggle over $5,000 and lose out on it, only to start looking again and possibly never find a house like it again?

These are some strategies that can work. They depend entirely upon the motivation of each party. If you have to buy a house in the next month, playing too many games can be risky if there are no other homes that suit your needs. In any case, the goal with your first offer is to entice and not offend.

Don’t Put Your Best Foot Forward. Even if you are offering close to asking price, you will want to save something to negotiate, like the closing date or deposit amount. That way, the seller feels you’ve given up something even if you really haven’t.

It works like this: you offer $15,000 lower than asking price, put $500 down, ask for a closing date 2 months away, and load the contract with all sorts of contingencies. The seller comes back and says OK to everything else but the price - they want $10,000 more. That is their counter-offer. You then say to the seller, I’m sorry, but I can’t afford that much. I can give you more of a deposit down to show you I’m serious and I’ll close earlier. They may agree to this or you may continue to negotiate.

Ask For Something You Don’t Want. You already have a washer and dryer but asking for the seller’s may give you a tool to get something of importance to you, like closing costs or a little off the price. If you ask for them and the sellers say no, now is your chance to negotiate back. “We’ll agree to not get the washer and dryer if you agree to $1,000 in closing costs.”

Ask for Extras. Need help with closing costs? Want the patio furniture? Want the seller to pay for a special assessment on the condo? Don’t be afraid to ask for things you like in the house or for a little extra cash to help with expenses.

Lowball if…Real estate agents hate lowball offers because they make us look unprofessional. However, it’s not about us, is it? I don’t have an issue with lowball offers if the buyer is willing to make the offer look very attractive otherwise - closing in 30 days, pre-approval in hand, large deposit, low mortgage amount or cash or no home to sell. Price isn’t always the most significant factor. If a seller sees that you’re committed to the purchase via a large deposit or other favorable terms, he/she may be able to overlook your lower offer.

Lowball offers work best if the house has been on the market for a long time or the seller has to sell immediately. If a house just came on the market, a lowball offer is likely only to offend. Similarly, if the seller has no mortgage on the property or can wait out a sale, a lowball offer will not attract them to negotiate with you.

Time It. You’ve seen a house 2 or 3 times and you want to put in an offer. If you’re not overanxious to put in an offer and are OK with losing out on it, sometimes it works wonders to wait. If a seller is really motivated to sell, I’ll get one or two phonecalls asking if my clients are interested in putting in an offer. If my buyers want me to, I’ll play coy and say “well, they’re thinking about it. It’s more than they want to spend and they’ve seen another house (I do give them a real house) and that one has (insert something better.) I’ll let you know what they decide.” I can’t tell you how many times I’ve gotten a call back saying that the price has been reduced.

Impose Time Limits. You can include in your offer a time limit - offer expires in 24 hours, for example. I don’t always like to use time limits as they can easily backfire, causing a hesitant seller to reject your offer too quickly. But a time limit does two things really well - makes the seller act very quickly so you are free to submit other offers and prevents the seller’s agent from using your offer to get other higher offers. If these are concerns of yours, a time limit can be helpful.

Negotiate the Inspection Report. If the seller has disclosed defects to the property or you noticed needed repairs or updates in your showings, price your offer to accommodate these likely expenses. However, additional defects may be uncovered in the inspection. In Connecticut, buyer’s have three days from the completion of the inspection to give the sellers notice of an unsatisfactory inspection. Use the report to have items repaired before closing or to get extra money at the closing to have these items taken care of yourself.

Remain Calm. Negotiations can easily get out of hand, if allowed to. To prevent this, prepare for the negotiation process, and know your responses to a counter-offer(s) and what your response will be to unsatisfactory inspection items. And don’t take anything personally.