Tips and Traps When Negotiating Real Estate: Buyers – Load Your Weapons

How to Win a Bidding War: Buyers – Load Your Weapons

If you’re a buyer in a hot seller’s market, you need to arm yourself for negotiating warfare. You have four weapons at your disposal, and all of them must be ready.

Market Knowledge: What Should the Home Sell For?

In order to be competitive in a seller’s market, a buyer must know the market. My suggestion is that before you make an offer, you spend weekends touring with an agent(s) looking at homes for sale. Get to know what’s available and what it should cost. That way, when a home comes up for sale, you won’t need to waste time trying to determine whether or not it’s priced fairly, too high, or too low. You’ll know because of your experience in looking at other homes. Also, read the real estate sections of several local newspapers. Find out what the columnists say about the market.

Talk with at least three different agents, not about specific proper­ ties (although that will certainly come up), but about sales. How have they been? How fast is the turnover of houses in the multiple listing service? (Anything over five or six months is considered high and indi­cates a slow market. Anything under 60 days indicates a hot market.) Are sellers getting their prices, or are homes selling far below “asking”? Are multiple offers on homes a common occurrence? Or do houses sit for months with no interest in them? Prepare your offer accordingly.

Financing Knowledge: How Much Can You Spend?

It doesn’t matter if you can get a home for a piddling $175,000 if you can’t get a big enough mortgage to cover that amount. Talk with at least one mortgage broker. Get yourself preapproved. Today a preapproval letter is no longer a plus; it’s a necessity. Expect all com­petitors for the home to have one. Once you know the maximum you can afford, you can bid more realistically.

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Have your cash for the down payment and closing costs in hand. And be sure that your mortgage broker is ready to fax you a preap­proval letter for just the amount offinancing you need (and can get) for the special deal you want. (The letter shouldn’t be for more than you’re offering. The seller will immediately see you can afford more . . . and may ask for more.)

Personal Knowledge: What Are Your Alternatives?

The key to any kind of effective negotiating strategy is to have alter­ natives. If you don’t get this house, can you get that other one? The worst position to be in is to feel that this is the only house in the world for you. If you feel that way, then almost certainly you’ll pay too much.

TRAP

If you have alternatives, it will be easier for you to walk away when the bidding gets too high. Sometimes buyers involved in a bidding war become irrational. They stop making sound judgments and get caught up in just winning. Having alternatives helps keep you from falling into this trap.

Some agents suggest that you rate the house on a scale of 1 to 10 with 10 being the ideal home for you. (Remember, that “ideal” is a very lofty goal.) If the home rates a 5 or 6, then you’ll certainly bid differently than if it’s a 9 or 10.

Seller Knowledge: What’s the Seller’s Motivation?

There can be a hundred different reasons why a seller wants out of a property. The exact reason itself isn’t necessarily important. What is important is how much pressure that reason puts on the seller.

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For example, a seller faced with a job transfer, loss of income, or even foreclosure is going to be highly motivated. That seller will be anxious to conclude a sale. On the other hand, a seller who is employed and who simply wants to move up to a larger home is likely to be less motivated. This seller may be far more willing to refuse to negotiate a lower price no matter what you say or offer. The motivation simply isn’t there.

TIP

Real estate agents are always talking about “motivated sellers.” A highly motivated seller is one who has to get out soon, or even immediately. A seller who lacks moti­vation can simply sit on the property and wait for the right deal to come in. Smart buyers don’t just look for a good property; they also look for the highly moti­vated seller.

Of course, the really tricky part about motivation is finding out what it is. Occasionally a seller who is highly motivated will instruct his or her agent to broadcast that fact as far and as loudly as possi­ble. “Tell everybody I’m motivated. Bring in those deals!” But sometimes this is just a ploy to get buyers to make offers. The seller is trying to convert those buyer hopes into higher prices through a bidding war.

TRAP

If, as a seller, you tell people you are highly motivated, you will get more offers. But the offers might be of lower quality. And you might have greater difficulty in negotiating a higher price because the buyers you attract will tend to be only those looking for a “steal.” Ask your agent if he or she knows the seller’s motivation. Often agents will snoop around and get a good idea of why the seller wants out.

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