Home Buyer Bootcamp ~ Negotiating the Deal Part 1
You found the right home. Your real estate team is in place, and it's time to make an offer. It is now when your teams experience matters most.
Many home shoppers experience both excitement and fear when they find what could be their next home. The prospect of owning their first or next home is undoubtedly an exciting moment. The fear part comes in many forms. Will we get the house? What if something's wrong with it? Should I be buying a home at all? The first two questions are tangible, and your Realtor can assist in the process of finding answers. The third question no one can answer but you. Things get pretty real at this stage, and you will see the real benefit of being prepared long before visiting the home.
Your Realtor will contact the listing agent and ask if there are any offers on the property or any expected. The answer they receive will help in shaping your proposal. Your agent finds out there are two other offers on the home and another on the way.
It is at this time when I ask my buyer client how much they want the house. I hear things like, "If it is meant to be" or "My world will end if I don't get that house." Remember, an excellent representing agent is on your side and not trying to sell you anything so be as honest as you can with them regarding your feelings about the property.
So What's Next ~ The Offering Price
For our example, the asking price of the home is $200,000 and has only been on the market for three days. It is a home you love, and you want to give it your best effort.
Critical Point: An offer situation is not an auction. The seller's agent will NOT tell us our offer was not high enough and asked if we want to make another. When there are multiple offers on a home you are bidding on; you only get one shot to make your highest and best offer.
Because the home has only been on the market three days and has multiple offers, it is likely to fetch higher than asking price. Your agent performs a market analysis and discovers the home is priced well. Your mortgage lender qualified you up to $225,000, so that is your limit. You have several options: Offer full price, more than a full-price, or consider an Escalation Addendum.
The best option may be an Escalation Addendum. An example of how an Escalation Addendum is as follows: You offer $200,000 but are willing to go $1,000 higher than a competing offer up to $210,000. If the highest competing offer is $205,000, then your offer is automatically $206,000. If the competing offer is $211,000, your offer caps out at $210,000. If your's is the chosen offer and the escalator is activated, the seller's agent has to show us the competing offer that was responsible for the increase.
Note About Seller Credit
Approximately 45% of all home sales in Berks County and Reading, PA include a seller credit. Without the ability for sellers to pay a percentage of a buyer's closing costs, many home sales would not take place. The decrease in sales would inevitably lead to lower home sales prices across the board.
Often, home buyers are not aware that when they offer full seller price with a 3% seller credit, they are only offering 97% of the asking price. In our example, a 3% seller credit to the buyer would be a $194,000 net offer ($200,000 minus $6,000 seller credit = $194,000).
If you need a seller credit to purchase a home, there are ways to make it more attractive for both the buyer and seller. There are also lender credits and in some cases, grants available for closing cost assistance.
There is much more to purchasing a house than the price, of course. Unfortunately, I am out of article space and will have to pick this up in next weeks installment of Home Buyer Bootcamp.
Knowledge is Power!
Jeffrey C. Hogue