Morris, a D.C. real estate agent and investor, writes an occasional column aimed at demystifying the home-buying process. In the first of two columns, Morris discusses the importance of taking emotion out of the process and treating a purchase as a business deal.
Recently, I worked with a client who had sold her large home in Bethesda and was looking to downsize to a smaller home in downtown Silver Spring. This smart woman, with the help of her former real estate agent, had made numerous offers for properties that were not accepted.
When we met for the first time, she was discouraged and wondered what she and her agent had been doing wrong, and what I proposed to do differently. Her questions and our regular strategy sessions got me thinking about the huge role realistic expectations, or lack thereof, play in the real estate process.
Buying a home is a highly personal experience. For many people, taking this step is the culmination of years of planning, saving and making decisions about the future. It is a long-term financial commitment that will also impact your lifestyle, happiness and perhaps even your identity. It’s very easy to get caught up in the intensity of the process.
But it’s also a business decision — so the more you’re able to put your emotions aside and keep a level head, the better off you’ll be.
Purchasing a home in the Washington area — particularly in this unpredictable sellers’ market — is a complex process with a myriad of details and emotional pitfalls on both sides of the transaction. Having a thorough understanding of the process, before getting started, is strongly advised. But keep in mind, the specific details of how your unique transaction will unfold is impossible to predict with 100 percent certainty. However, you are more likely to emerge from the process with a home you love and a minimum of drama if you have a plan and are flexible and willing to compromise.
In my experience, buyers’ expectation about the process of buying a home greatly influences their reactions to situations that come up during a transaction. Being mentally prepared versus being totally clueless about the typical ups and downs of the process can affect whether the purchase ultimately happens or not. Having realistic expectations from the outset can at least partially mitigate some of the potential anger, confusion and misunderstandings down the road. But most of all, having a realistic idea of some of the pitfalls and mentally preparing for them will not only increase the buyers’ chance of getting the property they want, but also their overall satisfaction with the process.
Here are some tips to help you win over the seller and maintain your sanity in the process:
- Understand that it’s not just about you.
Most buyers (and some agents) think that purchasing a home in a competitive market is all about offering the highest price. The truth is, sometimes it is and sometimes it isn’t. That basic strategy may be enough to get your offer accepted, or the seller might choose another offer for reasons other than price.
Try to imagine yourself in the sellers’ shoes. Research specifics about the sellers’ financial situation in order to make the most attractive offer you can based on their unique circumstances. Find out how long the sellers have owned the property, their purchase price and why they are moving. Based on what you’ve learned, what terms would be most important to you? For example, if the sellers have a mortgage, but have already moved out and purchased a new home, a quick closing would probably be attractive. Design your offer to meet the sellers’ specific needs, where possible.
Understand that an overpriced home is probably what the sellers honestly believe their home is worth. Depending on how long the property has been on the market, your lowball offer will either come as an unwelcome surprise, or be further proof, based on previous offers, that their home is not worth what they thought. In either case, provide a rationale for your low offer and comps from their neighborhood. A lowball offer with no backup information may insult the seller and influence the tone and outcome of the negotiations.
- Avoid making offers in round numbers.
Small variances in offer price can have an outsized effect on outcome. Before I discuss this tidbit, I must admit that it doesn’t make much sense intellectually. But that’s because selling a home is just as emotional as buying one. So keep that in mind when submitting an offer.
Low ball offers should never be round numbers — for example, $401,650 feels much better than $400,000. In a competitive situation where price is the most important factor, a few extra hundred or thousand dollars may put you just ahead of your competitors. Similarly, when employing an escalation clause in a multiple offer situation, a $1,000 escalation factor is essentially matching the next highest offer, which could make your offer a toss-up with the next highest offer. If you’re willing to escalate, create some daylight between your offer and the next highest offer as long as it is in your budget and you really want it.
- Don’t take the contract negotiations personally.
One of the few consistencies in real estate sales is that the buyer wants to purchase the property for as little as possible and wants the seller to repair as much as possible. The sellers’ objectives are exactly the opposite.
Just because you have done your research on the sellers, the comps, and how much your upgrades are going to cost does not mean the sellers will agree. Assume that the sellers may have other ideas about what their home is worth, which may or may not be reality-based. Expect to haggle.
But most importantly, try not to lose sight of the big picture. Don’t expect the sellers to agree to everything or even most things on your list of repairs, and please don’t get hung up over a $200 repair or a less than pleasant seller or listing agent. I have seen buyers walk away from their dream home over minor disagreements, and later regret it. If you love the house, attempt to let those annoyances roll off your back as much as possible and keep your mind focused on Sunday afternoon barbecues on your spacious deck.
- Look critically at what inspections you choose to request.
As the buyer, you have the right to request any inspection that you wish, and there are dozens to choose from. In fact, inspections are the only way to truly know the condition of the property. I would never tell buyers not to request an inspection that was important to them. However, keep in mind that on the other side of the table is a seller who is evaluating whether to get into a transaction with you.
If you request a home inspection, radon inspection, lead paint inspection, formaldehyde foam insulation inspection and a post settlement air conditioning inspection, you may look like a scary prospect and someone to avoid.
Tuesday: What to expect after your offer is accepted.
Djana Morris is a real estate agent with Long & Foster and a real estate investor. You can contact Djana through her Web site: www.WhereToLiveInDC.com.