Anyone purchasing a home has probably done it. You read all the real estate articles, ask as many people about it that you can, and over hear other potential home buyers ponder over it , as well. You sit there perplexed and ask yourself:
“How did they put in an offer for asking price, and not get an agreement from the seller?”
Even stranger to some is:
How did their offer get accepted when it’s so much lower than the one we made?”
Most people enter into buying real estate with a competitive attitude. “My offer will win over the others because I will offer the highest!” Unfortunately, this belief is often compounded by agreement from an agent/realtor. Of course, price is a high priority with getting a home off the market quickly (in our local market and all across the country, but sellers have many other items that they often consider when the offers start pouring in. It is often the first step toward disappointment when you believe that offering asking price on a home makes it a done deal. Keep these key points in mind to better your chance of a successful purchase on your dream home.
The first item a seller must consider is “a deposit paid by a buyer to a seller to demonstrate intention to complete the purchase.” In other words, this is good faith money or Earnest Money. This step is going to let a seller know exactly how serious you are about purchasing their home. The more earnest money you are willing to pay to the seller, the more trust you’ll gain from him. The seller wants to know that you have the funds to back up any offer that you make to him, and that you can complete your end of the deal with no problems before closing. It’s really security for the seller’s piece of mind.
Earnest money needn’t be confused with a hefty Down Payment. After years of a failing real estate market, sellers feel the need to be reassured. They have to consider:
“Can you be approved for a mortgage?”
“Is my house going to sit off market when I accept this offer, only to learn that the buyers can’t even get a loan for it?”
“Can they close this deal or will I end up wasting my time and my money?”
These are legitimate questions. In our local market alone, dozens of contracts fall to the wayside because a buyer can’t get mortgage approval. If this were to happen, the seller is left with nothing to show for months of waiting and negotiations. He’d have the same house back on the same market and have to go through the same process the next time. So, a large down payment is security, security, security! Once the seller is comfortable with your ability to produce funding for the home, you may feel the need to breathe a sigh of relief. Unfortunately, he still has more to consider.
Your Method of Financing is another item at the front of his mind. It’s easy to see why. The type of loan you apply for will directly affect how much money the seller may have to pay. For example, while FHA’s and VA’s may be very beneficial for the buyer, they can rapidly add to the out of pocket expenses applied to the seller. The seller is looking to make the most for their home sale, not pay out piles of money at closing. One way to smooth his trepidation is to meet his Requested Closing Date.
If the person selling their home is still an occupant of the home, he may want to sell later rather than sooner. In most cases though, the home is unoccupied, or not leased and therefore not bringing in any funds to the seller. This type of seller will want to close as quickly as possible. It is important to know the seller’s situation and to close when it makes him the most comfortable.
Now, you will especially need to agree to a seller’s terms for closing and everything else I’ve mentioned so far if you have a little thing called Buyer’s Contingencies in your contract. These contingencies can range from having to get bank funding to having to sell your home you have now first. This can drastically slow down an otherwise smooth process. Sellers, most often, are not going to want to wait for you to sell your home that you occupy now before you can close with them. That’s putting their money off and reads as a big question of, “What if they can’t meet the contingencies on time?” that’s why it’s sometimes too big of a pill to swallow for sellers.
Next on the list of things sellers will consider is a Buyer’s Motive for purchasing this home. Seller’s can become extremely attached to their house, and almost feel as though they are losing part of their family at closing. These sellers are looking for a buyer who is going to nurture and love this home, taking time to perfect every minute detail and turning it into a forever home. Meanwhile, other sellers have no emotional attachment and don’t care if the house is resold, used as a rental property, lived in, or even torn down. These types of sellers will fare well with investors a lot of the time. Investor’s want the home quickly, so they can make minor changes and resale for a high return. You may need to feel your seller out on this topic because everyone is different and everyone’s reasoning isn’t the same either.
Another big factor for decision making to a seller is Local Market Conditions. The local market affects both a buyer and a seller. A buyer will, of course, benefit in a buyer’s market. Things, such as, the number of foreclosed homes in the area, low bank APR (interest) rates, and new home discounts are just a few perks to buying in this type of market. On the other hand is the seller’s market which benefits the seller tremendously. When the housing market is booming, APR (interest) rates are up, and houses don’t stay on the market very long before there is a bidding war between potential buyers, then the seller easily calls the shots. Do your homework and know your local and national market beforehand.
Of course, if you’re in a buyer’s market and have an excellent buyer’s agent (an agent who works strictly for the benefit of the buyer) you can often find out a Seller’s Motive as to why he has decided to sell his home to begin with. This could be very good for you! Let’s say a seller needs to be out of the real estate game in a hurry due to job relocation, they may be more likely to take a quick close offer or a lower price offer versus an asking price offer that would take a long time. This is usually a well kept secret by listing agents though. They don’t want their seller to be undersold. You may have to have your buyer’s realtor do some investigative work on this one. Good luck.
Finally, be willing to comply with Negotiations. Very rarely is a buyer going to hold the Ace of spades up their sleeve and control the direction on the contracted deal. The seller feels in charge. They have what you want. And, in a sense, they do often have the upper hand. Don’t let your deal fall through over issues that are really trivial in the long run, but don’t be a doormat and get walked all over either. You know what’s important to you and where you’ll draw the line. Know your happy median when in negotiations. Sometimes, you have to give a little to get a little. Keep that in mind.
So, now you’re asking yourself how you’ll know all of this when the time comes to make an offer. You’ll be wondering what type of seller he is and what type of buyer he’ll want. Unfortunately, you really won’t know. That’s why coming up with best possible offer on a home is so important. It may seem like a bunch of smoke and mirrors designed to trick a buyer, but really it’s not. The point of this article was to give direction and advice. Just don’t get caught up into thinking that meeting asking price is the only important matter. Work with a good buyer agent and mention all of the areas I’ve touched on above. You’ll feel more confident and in control, and you’ll be headed in the right direction for home buying.