Let’s talk about one of the most crucial steps in the home buying process; making an offer and negotiating. You may want to sit down for this one! Making an offer on a home is an art form that deserves full attention and thoughtful skill. When you fall in love with a home it’s easy to get caught up in the emotions and the daydreaming of building your life here, but it’s important to be logical. You can only negotiate your purchase price once and we want to avoid buyers remorse at all costs. Consider this a marriage proposal; you want to think through your plan of attack so you don’t screw up one of the biggest yes’s of your life!
The first step in setting yourself up for success is by choosing the right Realtor from the get-go. Using a Realtor who is up to date on the current market, has hands-on experience with other homes in the area, and strong relationships with other local Realtors can make all the difference. Lean on them and trust their expertise. They’re regularly representing other buyers and sellers in this market and have a pretty accurate gauge on what to expect. Discuss their personal opinion of the home’s value and discuss the findings of their competitive market analysis (CMA report) or “comps.” This data compares similar homes that have recently sold in the area, including square footage, number of bedrooms and bathrooms, acreage, home condition, etc. Knowing the un-biased current market value of your potential home will be a baseline to work from when deciding what to offer.
Your Realtor’s next set of homework or due diligence would be to have a conversation with the listing agent (or seller’s agent) who represents the seller of the property. Finding out why the seller is selling, their motivating factors, their ideal timeline and what kind of interest they’ve had on the listing can give you some extremely helpful insight. If the seller has no emotional connection to the property (i.e. they inherited it or used it solely for investment purposes), they’re likely only focused on the numbers or offer price. If the seller is a family moving out of state and they haven’t yet found their next home, offering to extend their stay beyond the closing date (using what we call a “temporary occupancy agreement”) could seal the deal for them. When negotiating, the most important thing is to remember is your opposing party’s interest.
While your Realtor is doing their homework, your homework is to gauge how much you love the property. Is this the first house you’ve seen that you’ve liked in 6 months of actively searching? Would you be crushed if someone else bought it out from under you? Are you a little unsure about the whole thing? This is a good opportunity to do a second gut check. If your Realtor reports that you have some competition and need to come in with a strong offer to compete, it’s important to know where you stand. If your Realtor reports that the house has been on the market for an extended time and the seller is a bit desperate to sell, you may have the chance to work that price down! Picture making an offer like a couple’s dance. One partner is the current market value and the other partner is your heart. It takes two to tango and make the right offer.
There are other negotiating factors to consider in your offer besides price, such as…
- initial deposit (also called earnest money or trust money)
- financing and appraisal contingencies
- inspection deadline and contingency
- your down payment percentage
- closing date
- and anything else you’d like to ask the seller to include or exclude in the purchase
When making these decisions, find the balance of what you’re comfortable with that will also satisfy your opposing party (and don’t forget to ask your Realtor for advice!). Tweaking these items can either incentivize the seller to accept your offer or cause them to counter or down-right reject it.
Once the seller has accepted your offer, pat yourself on the back. It can be a stressful process! But remember that this is just the “engagement”. There are plenty of things that happen after this first step and it’s not final until you walk down the aisle. It’s all worth it in the long run for this long-term investment and you’ll be so thankful that you took the time to educate yourself on this step of the journey.