Writing Purchase Offers in a Buyer's Market
Top 10 tips to seal the deal in a buyer's market
A buyer's market exists when there are a lot of homes on the market and very few buyers. It's likely that the days on market have been increasing as inventory—the number of homes on the market—has been rising.
Couple that with declining sales figures over previous months and homebuyers find themselves in an enviable position to negotiate. Buyers' market offers are composed differently from offers in a seller's market.
Request E-Mail Listings and Updates
Almost all homebuyers start their searches online, but many aren't aware that the data they're viewing could be dated. Many websites reboot every 24 hours, but agents sometimes leave expired and sold listings as active on other sites, hoping for ad calls.
Ask your agent to register your e-mail address so you can receive daily MLS changes of reduced prices and new listings and avoid wasting your time. This is one way to gain access to the same data agents receive.
Tour Price Reductions
Most buyers want to offer less than asking price. It's just human nature. But you'll probably be unsuccessful at getting a low-ball offer accepted if the home was just listed, even in a buyer's market.
Instead, tour homes that have had recent price reductions or have been on the market for at least 30 days. These sellers are more likely to be receptive to low-ball offers.
Obtain Comparable Sales
Ask your real estate agent to print out a list of similar homes in the neighborhood when you find one you want to buy. The list should cover the last six months and should be sorted by active listings, pending sales, and sold properties. It should include the property addresses, age, square footage, lot size, bedrooms, baths, and sales prices.
Now compare this data with online home value sites such as Zillow and RealEstateABC. You'll see right away why the data your agent gives you will be more accurate.
You're in the driver's seat in a buyer's market. Write your offer contingent upon the property appraising at the agreed-upon sales price and on obtaining your loan. Check with your lawyer to find out if you can ask for a loan contingency that will protect you all the way to closing.
Ask for a reasonable period to conduct inspections and to approve title, geological, and pest reports. Buyers can ordinarily back out during contingency periods without risking their good faith deposits.
Ask for an Allowance or Credit
Something about the property won't be perfect, but you won't have to take the financial hit of fixing it yourself in a buyer's market.
Ask the seller to give you a carpeting allowance if you find the perfect home but you don't like the color or condition of the carpet. Check with your lender before you write the offer to find out how to word a credit clause that's acceptable to the lender.
You can ask for more than it will cost to repair or replace items to cover your "hassle" factor. Many lenders will let borrowers receive up to 6% of the sales price as a cash credit against closing costs.
Another option is to simply offer less for the property, highlighting the issue as the reason. Maybe the hot water heater is on its last legs, or the garage is in serious need of repair. This can be a particularly valuable negotiating tool if you happen to know that the water heater in a nearly identical home you've looked at is in hale and healthy condition.
Reduce Your Closing Costs
Depending on your local area, there might be fees associated with closing that are customarily paid by the buyer. These can include title insurance, property taxes, recording fees, or escrow. They can add up to 1% to 2% of the sales price, and they're often paid out-of-pocket by buyers.
You can ask the seller to pay these closing costs in a buyer's market. Ask your agent if these fees are negotiable; then ask the seller to pay them.
Renegotiate After Home Inspections
All buyers should obtain home inspections. Most contracts give buyers the right to cancel the contract if the home inspection reveals repairs or defects that aren't acceptable to the buyer.
You might want to renegotiate the sales price or ask for a credit against your closing costs if the repairs are minor, however. But don't ask for a price reduction if the repairs were evident when you first saw the home. The seller might not be willing to negotiate with you in this case.
Sellers often feel that they have to give a little something extra to buyers to entice a sale in a buyer's market. Don't be afraid to ask for a home warranty protection plan that covers you in the event that an appliance breaks down or the plumbing or heating malfunctions. These plans normally protect you for one full year from the date of closing.
Ask for an Item Even If You Don't Want It
Did you like the sellers' dining room table? The china cabinet? The fish tank? Ask for it in your offer and use it as a negotiating tool. This draws the seller's thoughts away from price and directs them to the personal property.
Ask for the washer and dryer if the listing stated they weren't included in the sales price. Tell your agent to say, "OK, are you ready to sign an offer if we leave the washer and dryer?" if the seller balks.
Shorten the Acceptance Period
There's usually no reason to give a seller more than 24 hours to make a decision about your offer. Your agent might even ask for a decision upon presentation if the offer is being presented in person.
Don't give the seller multiple days to talk to Uncle Harry, their neighbor down the street, or the coworker who knows everything and absolutely nothing about real estate. There are a lot more homes available in this type of market and you deserve a fast answer.
The Bottom Line
A buyer's market is an extra, powerful tool in your negotiation kit. You can use it to your advantage in any number of ways. Pinpoint the factor that's most important to you and let the market sway the advantage to your side.