When I mention “currency,” what picture pops into your head? If you’re like most of us, you’ll envision a pile of gold coins or stacks of paper money.
We often forget that in the 21st century information has become a form of currency – often worth its weight in gold. Since the best information can actually help us save the physical currency we so readily envision, the savvy homebuyer gathers as much of the stuff as she can get her mind around before negotiating the price of a home.
Negotiating Requires Information
Go into the purchase negotiations locked and loaded with as much information as you can gather. First, have your agent prepare a market analysis.
Known as a comparative market analysis or CMA in real estate lingo, it is a compilation of homes similar to one another in size, age and location – adjusted for differences in amenities – that have sold over the past three to six months. The sales prices of these homes, when compared to the one you’re interested in purchasing, will give you the home’s market value.
Now, if the market is on the upswing and values are rising, you may be disappointed with the results of the CMA. But it’s important information, either way. It gives you a basis from which to negotiate the price of a home.
Look carefully at the section of the CMA that mentions “days on the market,” or DOM as it is called in real estate circles. This number is important because when a home has been sitting longer than the market average (ask your agent for this number), a lower offer is more likely to be accepted.
Negotiating Requires Answers
Buying a house is a huge purchase – one of the biggest you’ll make in your lifetime. That said, you’d be surprised how many buyers go into the process without doing any research whatsoever. Many folks research new cars more thoroughly than they do houses.
Remember, information is your friend and you can never have too much of it.
You may not get answers to the questions you should ask, but ask them anyway. Here are a few things you should snoop around about:
- Vacant? If the home is vacant, it’s a safe bet that the sellers had to move on with their lives and most likely can’t wait to get rid of a house payment on a house they don’t even live in.
- Motivation: Why is the seller moving? The answer to that question will tell you a lot about the home seller’s motivation. A seller who has a job waiting for him a couple of states away is pretty heavily motivated to get his house sold.
- Keep tabs on the local real estate market. Although it seems subtle, changes can happen quickly and we can go from a buyer’s to a seller’s market pretty quickly.
Are you uncomfortable when entering negotiations? Do you find them to be stressful and confrontational? Familiarize yourself with these real estate negotiation tips and tactics to retrain your mind for them. Your clients will be glad you did!
Know When to Stop Negotiating
Or, at least know when to consider it. Now that you’re smartened up with market information, you should determine just how high in price you are willing to bid. In fast-moving markets with lots of buyers bidding on the same house, you may get caught up in the bidding frenzy. Having an exact figure in mind – your top bid – will allow you to walk away from negotiating with a home seller and avoid overspending.
Everyone’s a Winner
Finally, if you really want the house and the seller won’t budge on price, give in. That’s right: capitulate on the price. Then, go deep on the terms.
Author Robert Irwin, in his book “Tips & Traps for Negotiating Real Estate,” tells the story of a gentleman who was about ready to give up on a bank-owned house he really wanted. The lender refused to negotiate on the price and the buyer didn’t have the money to both pay for the house and the subsequent work required to make it livable.
At Irwin’s suggestion, he agreed to the bank’s price and countered the terms of the agreement instead. He ended up getting the house, with cash back from the lender to make the needed repairs.
Negotiating is an intimidating process for many people, and when the item you’re negotiating for costs as much as a house, it can be truly frightening. Just remember to keep your emotions in check and arm yourself with the hottest currency in the 21st century, and you’ll do fine.