You’ve been on the hunt for months, searching with your partner for the perfect dream home. Finally, after doing walk-throughs in nearly 15 different homes (all of which have fallen within your price range)… you step into THE ONE. It’s not too big. It’s not too small. It has a two car garage. It’s in a safe neighborhood. The kitchen is spacious. The backyard is stunning. And… there is even a basement. You’ve already hired your Chicago movers and you got everything squared away!…
Except… there is only one slight problem. The home you just so happened to fall in love with is the only home that falls outside of your budget… what’s a pair of first time home buyers to do?
In this post, we are going to give you a rundown on everything you need to know when it comes to negotiating housing prices by supplying you with 7 tried and true tips that should be instrumental in helping you make a lower offer on a house.
Before we dive too deep, we first must discuss something you probably heard in high school economics (if you took high school economics). It is something called supply and demand.
To use an example, let’s say tomorrow, the world decided to stop making blue bubble gum. We know… it’s very unlikely… but let’s pretend for just a moment shall we? If this were the case, the blue bubble gum that was still left on Earth would double, triple and even quadruple in price. Why? Because while the demand for blue bubble gum would remain the same… the supply would have dropped.
This same idea can be applied to housing and is extremely important to understand because it will ultimately determine how much you can negotiate on a house. If you live in a buyer’s market, it means that there are more homes than buyers, which means buyers can generally bargain for a lower prices. But, if you live in a seller’s market, it means that there are more buyers than there are homes, which means buyers generally have to pay more for a home that they want. So, first thing’s first, you need to know what type of housing market you are in.
Before you ever type into google, “homes for sale near me”, you should be pre-approved for a loan and you should be very aware of your budget. Yes, it might sound rather obvious, but you would be surprised by how many first time home buyers don’t do this before starting their search.
When you receive pre-approval for a loan, it means that a mortgage lender has looked closely at your credit reports, employment history and income and has decided on how much of a loan you can borrow and what your monthly interest rate will look like. If you know you are pre-approved and you know your budget, it makes you better suited for negotiating house prices.
This tip obviously depends on what type of housing market you are in. If you are looking at homes in a seller’s market, realize that homes go up for sale and are sold quickly… so when you see something that you like, that also happens to be in your price range, you should immediately start negotiating house prices. Also, be aware that in a seller’s market you’re going to have a tough time making a lower offer on a house. Why? Well, because instead of having one or two parties looking at particular home, there could be as many as five or more.
By asking why the seller is moving, you can determine how much of a rush they are in to sell it… which in turn can allow you to make a lower offer on house. Let’s say the seller has taken a new job in another city… chances are they will be more willing to negotiating house prices to get the home sold. Very few people have the money to own two homes at once and are more apt to sell one of them quickly even if it is for lower than their asking price. Think about it for a moment… would you want to be paying two mortgages? We didn’t think so –– it’s important to be aggressive in these situations.
This is a tip that your realtor should be very aware of. Just because someone has listed their home for $150,000, doesn’t mean it is worth $150,000. It could be worth $100,000 or $120,000 or $130,000.
In order to determine the value of a home, you can take a look at what other homes in the neighborhood have sold for, and do some additional research by checking out sites like Zillow, Trulia and Realtor.com.
When it’s time to make a lower offer on a home, you’re going to want to come prepared with all the relevant information that you gathered. Think of the info you gathered as back-up to prove your offer. If a house is listed for $150,000 but every other house in the neighborhood has sold for $100,000… you can better explain to the seller why your offer is lower than their asking price. Does this make sense? Good, let’s move on.
Sometimes, first time home buyers can get too caught in receiving the lowest price for a home… that they start fussing about $1,000- $5,000. We will use an example to give you an idea of how silly this is. Let’s say you borrow $150,000 and agree to pay it back over the course of 30 years at a 4% interest rate… your monthly payment would be $716. Now, let’s say you borrow $155,000 instead and agree to pay it back over the course of 30 years at a 4% interest rate… your monthly payment would be $740. So, the $5,000 difference is a whopping $24 a month… or a monthly Chick-Fil-A meal for two.
In other words, if you are going to negotiate, go big or go home. Shoot for $10,000+ off a home… not a few thousand bucks. Another way to look at it (using the example above) –– would you want to miss out on living in your dream home just because you don’t want to pay $20 extra a month? We didn’t think so.
We have noticed that a lot of first time home buyers are scared to ask for what they want. But, it’s important to remember that seller’s aren’t mind readers and ultimately, they want to get as much money out of their home as possible. So, in other words, they aren’t going to open up negotiations and say –– “hey I feel like you want this home for $15,000 under the asking price so let’s agree to that!” If you want to start negotiating house prices, it is your job to do so… not the seller. If you don’t start the dialogue it simply won’t happen.
What is reasonable to offer below asking price?
We’ve just about reached the end of our article, but before we leave you for the day we wanted to answer a question we see a lot… what is reasonable to offer below asking price? Now, this is obviously going to vary depending on the housing market you are in and whether or not the seller is being ridiculous about how much they are asking for. With that said, a good rule of thumb is between 5% and 10% below asking price. More than 10% below asking price happens but is fairly rare. If the price has been on the market for a while… this will have an impact on how aggressive you can be as well!
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