Dave Bakke is a financial columnist with Money Crashers, an online site specializing in consumer issues, who writes about trends related to small business, retail and the real estate market.
If you’re shopping for your first home, congratulations — it’s still a great time to buy.
Home prices and mortgage rates remain low (though both continue to tick up), and there are more properties available now than a few months ago. However, don’t start the chest bumping just yet. If you really want to score big, avoid common mistakes made by first-time homebuyers, and know the techniques necessary to negotiate the best price for your abode:
• Research comparable home sales. Know the neighborhood you’re looking to enter, and be fully aware of what its properties are fetching. Doing your homework on comparable home sales is a must.
Your real estate agent will be able to present you with listings of every house sold within a given period, including ones that have been sitting on the market. If you’re brave enough to buy your first home without an agent, you can research this yourself on sites such as Zillow. Entering into final price negotiations unaware of what homes in the area have sold for is asking to get taken.
• Get details from the seller. As with any negotiation process, knowledge is power. You or your agent needs to find out everything you can about the motivation of the sellers. Do they already have another home and are paying two mortgages? Do they have a new job waiting and need to move quickly?
Has the house been on the market for months, and how flexible are they willing to be on price and terms of sale? Or is putting the house up for sale just a let’s-see-how-much-we-can-get maneuver? Being aware of any backstory gives you an edge in negotiations.
• Keep your info close to the vest. On the flip side of sussing out the sellers’ backstory, your own should stay as guarded as possible. This is not a time to make new friends. If you’re simply in love with the property and dying to move in, don’t tell the sellers!
If you’re in a position to pay cash for the house, don’t divulge that either, until the very end. No one needs to know you’re pressed for time on a purchase or have already lost out on several other houses. Sharing more than you should is a sure way to pay more as well.
• Avoid a crazy lowball offer. When making an offer or responding to a counter-offer, go low, but not too low. A lowball offer could insult the sellers, or they may not view you as serious and discount you completely.
Even though home prices haven’t fully recovered, they have been on the rise, and inventory isn’t as high as it once was. In fact, according to the S&P/Case-Shiller 20-City Composite Home Price Index, real estate values have risen more than 12 percent over the last 12 months. Keep this in mind and how motivated the sellers are when making your offer. If you’ve fallen in love with a property, play it safe and offer near the list price.
• Ask for closing costs — at the end. You’ve gone back and forth on price, and you seem to have a deal. Now is the time for one more move to sweeten it. Tell them you’re ready to go on the offer, providing the sellers pay your closing costs.
At this stage of negotiations, they are more likely to agree to your proposal just to finish up the process — but be sure your sellers are motivated before you try this. Chances are if they don’t agree to cover all closing costs, they’ll split them with you.
If you’re on a deadline to purchase, be sure you’ve left yourself enough time to shop for just the right place. Even if inventory continues to improve, house hunting can take quite a while. The last thing you want is to feel pressured to rush into a negotiation because you’re under the gun to put a roof over your head.