By Ellen James Martin
Smart Moves
Posted: 04/24/2011 12:00:00 AM PDT
After living together for more than a decade, a couple of renters in their 30s decided to marry. Now they're looking for a modest ranch house with a pool in a suburban area with lots of foreclosed properties and markdowns galore. Still, they worry about overpaying and want to make sure they negotiate the best possible deal.
How can this pair of restaurant managers make the most of a market loaded with many willing sellers? By learning as much as possible about price trends in their chosen neighborhood, says Eve Alexander, a real estate broker affiliated with the National Association of Exclusive Buyer Agents (www.naeba.org).
"When you make a bid, you need ammunition to intelligently negotiate a great deal," Alexander says.
Once they've selected the home they like, she says the couple should wait to decide on their bid until they've examined data on the closing prices for homes that have sold recently in the immediate area. These are known in the real estate field as "comparables" or "comps."
"Start with 10 comps, and then work your way down to the five most similar ones. Don't forget to include foreclosed properties and short sales," Alexander says.
If you're planning to buy in a neighborhood with widely varied properties, it's helpful to compare the homes on your list on a price-per-square-foot basis. Then adjust for differences in size and home features, such as a two-car garage versus a one-car garage.
After estimating the current market value of the property you wish to buy, it's time to decide how aggressive an offer you want to make. Alexander says that will depend on how enamored you are with the home.
On the other hand, "It's always easier to negotiate without emotion if you can find second- and third-choice houses you also like," she says.
Once you've made a firm decision on your bid, she recommends you attach a brief but friendly letter that explains your position and draws on comparable sales data to support it. This is especially important if you're venturing a "lowball" bid.
Here are a few other tips for homebuyers trying to obtain the best available deal in a neighborhood with lots of inventory:
Learn as much as possible about the sellers' equity position.
If you're interested in a home but have yet to submit an offer on it, Alexander says it's wise to get information on the sellers' ownership stake before you bid. As she says, those with more equity have more potential room for compromise.
One source of clues on the owners' equity position can be found by searching local government land records. At the minimum, these records (usually available online) should tell you when the current owners purchased the property and the original price they paid.
Have your agent ask questions of the listing agent.
When owners have an urgent need to sell, it's normally against their interest for that information to be shared, which could weaken their bargaining position. Even so, Alexander says many listing agents readily will disclose such client information in response to questions.
Another way prospective buyers can gauge the sellers' level of motivation is to ask nearby neighbors. Alexander recommends that the buyers pick a Saturday to walk through the community, chatting with a few residents about the pros and cons of living there. In the course of the conversation, they'll likely tell you why homes on their street are for sale.
Rule out properties owned by "market testers."
Eric Tyson, co-author of "Home Buying for Dummies," says that even in neighborhoods with an abundance of properties up for sale and numerous foreclosures, there are still sellers who won't budge from an unrealistically high price.
Tyson recommends you ask your agent if previous offers have come in on the property you want. If the owners already have rebuffed one or more decent offers without so much as a counter bid, this indicates they'll probably resist with you, too.
The good news for buyers is that information on past offers is often readily available through the listing agent, who might discuss the "clients' negotiating position and whether it's worth your while to do a low bid," says Tyson.
He says you can waste a lot of time trying to persuade people who won't entertain a fair offer. It's better to look for someone eager to sell.
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