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7 Insider Secrets for Bargain-Seeking House Hunters 8 Posted under: Home Buying | August 9, 2010 1:40 PM | 5,720 views | 19 comments Email Alerts Send to a Friend Post to Facebook Post to Twitter RSS
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1. Get - and stay - clear on what "bargain" actually means. Learn the difference between the asking price and the fair market value of a home. Many buyers think a bargain is any sale price below the asking price. But a home's asking price is an indicator of the seller's intention, and can be roughly the same as, greater than or less than the actual market value of the home. In fact, a bargain is a home that you buy at a discount from the fair market value, or one you get with some other perks. If the list price is set high, a below-asking sale price could still be above-market, and if it's set low, you could pay more than the asking price and still get a great deal!
Also, get clear on what "bargain" means to you. Are you looking for the biggest home at the lowest price (i.e.,low price per square foot)? The lowest price in the best neighborhood? A home in move-in condition for the price of similar homes that need work? A home with all the furniture and electronics thrown in? There are many ways to skin the "bargain" cat.
2. ‘Regular' sales may present better bargain opportunities than foreclosures and short sales. Contrary to popular belief, individual home sellers have more leeway and, often, more motivation to accept a lower offer than bank negotiators do. (In a short sale, the bank is the ultimate arbiter of how low the seller can go.) The banks often must adhere to guidelines, including that they may only accept an offer X below the fair market value - many banks have a policy of slightly reducing the list price and re-market the home before taking a lowball offer.
Individual sellers have no such limitations, and often take bargain-priced offers because they must move quickly, or are otherwise motivated. Also, individual sellers have the ability to bargain on other transaction points, as well - you might pay the fair market value to an individual seller, but get them to agree to paint the place, complete the pest repairs and fix the furnace. Chances you'll get a bank to do that for you? Somewhere between slim and none.
3. Look for sellers who have demonstrated their flexibility on price. When you house hunt online, don't limit your search criteria to beds, baths and square feet. Search for price-reduced homes or, at the very least, sort and prioritize your search results by the dollar amount or percentage by which the price has already been cut.
These discounted digs might already be a bargain, and in some cases, the sellers might be willing to deal even more!
4. Find a motivated seller - look for homes with longer-than-average Days on Market (DOM). Talk with your broker or agent and have them educate you about the average number of days a home in your area stays on the market. Homes that are lingering on the market for much longer than that may hold the potential for negotiating an even deeper discount, as their sellers might be very, very antsy and ready to take even a below-asking offer.
5. Don't insult the seller. It might feel like you're an ace wheeler and dealer when you make a lowball offer on a home for sale. Buyers can get bravado, like, "Ha, Seller, you want X? Well, I'm only paying X minus 40% - deal with it." Or, you might think, "I'll offer you 40% less, then we'll go back and forth 7 or 8 times, and I'll be happy with a 20% discount off the asking price."
But when those bottom of the barrel offers come in, both agents often detect a novice buyer at work. What they know - that you may not - is these two things. First, many sellers on today's market don't even have that much room to negotiate - they're already selling at a loss or very, very close to what they owe on the place. If they have to write a check to sell it to you, they'd simply rather not sell.
And, second, many a seller will simply refuse to sell to someone who they feel has insulted or disrespected them. That insult can be inferred from a lowball, below-market-value offer, or from a buyer's running commentary on all the things they would change about the place if it was their house. (Note - you already know not to rave and gush to the sellers when you see a house you like. Neither should you trash it.)
And it's not any different when it comes to institutional sellers, like banks selling foreclosed homes or approving short sales. They don't take lowball offers either - most lenders say a 10% discount off the market value - not the list price! - is about as low as they'll go.
6. Give to get. Have your agent interview the seller's agent to glean as much detail as possible about why they are selling, what their priority is (e.g., fast close or most cash?), and what the motivating facts are surrounding their sale (e.g., are they upside down, relocating for work, getting divorced, or any other facts that may be relevant)?
Then - especially if you're going to ask for a big chunk off the asking price - give them what they want! Try to close when they want, if possible (trust your real estate pro for a reality check on this - short escrows are nearly impossible for all but cash buyers these days). Go as-is, if it makes sense, without waiving the right and the time to obtain inspections. Decide what is most important to you, and if it's a discount, give the seller what they want on the rest of your the transaction's terms.
7. Sell yourself. Even when they have multiple offers, today's sellers will take a lower offer that looks certain to close over a higher offer that has no chance of closing. No seller wants to waste their time on a buyer/offer who can't close and then have to put their home back on the market 30 or 40 days later.
If you want a bargain, sell yourself and your offer - make a convincing case that you are likely and able to close the deal! Make sure your agent presents a polished, computer-prepared offer (if that's the standard in your area) - this demonstrates that they have the professionalism and up-to-date market knowledge it takes to get a sale closed these days. Make sure the offer package presented to the seller includes a polished, thorough loan approval letter, which confirms that your credit, employment, income and down payment funds have all been verified and approved for a home loan.
Also, make sure that your agent and loan broker emphasize features of your qualifications and your offer that render it more likely than average to close. Some sellers frown on FHA and VA loans, because they have a reputation of being tough to close. If you are approved for a conventional (i.e., non FHA) loan, your offer should say that. If you have a large down payment, or are paying cash, your offer and your agent should bring that to the listing agent's attention, too.
