Once you have gone through the pre-qualification for a property, you are officially on the hunt!
Assuming you are working with a real estate broker or licensed agent, they will be able to provide you with a queue of homes that meet your criteria.
Once you narrow your search and look at the homes that pique your interest, you will then have your broker or agent provide a comparable market analysis, otherwise known as a CMA, to write up the offer based on.
Homes typically appraise based upon the comparable sales in the area, so without going to the depth that an appraiser would go, you can gain a general sense of comparables based upon square footage, price per square foot, lot size, finishes, and the like.
Once you have an idea of this analysis and how the home you are looking to purchase compares, you will want to look at what the home needs and what repairs you will either need to negotiate or those that you will need to plan to take care of upon closing.
Now, this is important; base your negotiations on what the market value of the repairs will be, not based on what cousin Eddy would or could complete them for.
Beyond understanding the home\’s value and what the home will need repairs-wise, you will also consider terms related to the purchase. What the home will or will not include, what inspections you would like conducted, and whether or not a home warranty is of value to you.
Unless you are unrepresented, your broker or agent will be the one drafting the terms of the agreement and actually communicating with the seller\’s agent, so don\’t worry if you are not great at confrontation or have concerns about your offer offending someone.
When going through the negotiation process, don\’t be surprised if there is a counter or two to the arrangements you\’ve set forth. The actual negotiation, or back and forth, is just part of the process.
The Chicago Tribune had an article that highlighted how to negotiate when buying a home where they outlined five key aspects that I thought were also helpful;
- Don\’t limit your options to just a few houses. Review your options methodically, so you know the right house when you see it.
- Don\’t negotiate on the basis of the asking price. Do negotiate based on the total cost of the transaction and the total cost of owning the house.
- Don\’t focus on the house that fits just right at the moment. Do focus on a home that can grow with you.
- Don\’t negotiate just about money. Do negotiate with an array of terms.
- Don\’t spill your budget and priorities to every agent you meet. Do contract with an agent to represent you and you alone.
Now, don\’t be afraid of the negotiation process.
Once you are prepared with the market analysis, the home\’s condition, and the additional aspects that are important to you to include in the deal, proceed with caution and optimism.
I understand that the current market conditions are atypical and not balanced, so in many markets, there are institutional buyers, cash buyers, and a lot of competition. This competition has led people to bid up the asking price, waive inspections and even appraisals, as well as sweetening the deal with all kinds of other interesting ways to get the owner\’s attention.
Real estate, like any other asset class, is cyclical. That doesn\’t mean you have to wait until there is a market correction or leveling-off; it just means that you need to be much more diligent to know your market, study the market you want to be in, and be ready to act once the opportunity arises.
CTA:
My call to action is to be actively involved in the process of negotiating for the property that fits your specifications, but make sure that you don\’t allow emotion to overpower logic, causing you to overpay or purchase a property that doesn\’t fit your requirements.
Citation:
Cleaver, Joanne. \”Here\’s how to negotiate when buying a home. (Spoiler alert: It\’s not like on HGTV.).\” Chicago Tribune, 7 Feb 2018, https://www.chicagotribune.com/real-estate/ct-re-0211-buyer-negotiation-20180117-story.html.
