The vast majority of properties that
are for sale have a listing price that is more than the market value.
This is because most home sellers want to make as much profit as
possible, and they realize that most offers will come in below their
listing price. As a buyer, you will need to know as much as possible
about the property you're interested in so as not to waste time with
an offer that has no chance of being accepted, and yet not offer more
than is necessary to interest the seller. To do this you will need to
do some research, and ask the seller some key questions.
Important areas to research include
the following:
-
Recent home sales. This web site
provides a valuable tool to assist you. Do properties sell within one to
two months of being on the market? Is the property value
appreciation rate consistent with the county, or higher?
-
Community changes. Are there any
changes, for better or worse, in the community that will affect real
estate values?
-
Pride of ownership. Are homes in
the area being well maintained? Are home in the area being
remodeled?
-
The crime rate. Is it going up,
down, or stable?
Important questions to ask the owner:
-
Why is he selling?
-
How long has he lived in the
house?
-
How is the neighborhood?
-
How old is the house?
-
Has he had a home inspection
performed?
-
Has any major work been done
recently?
-
Are there any problems with the
property?
-
Has the house been appraised
recently?
-
How long has the house been on the
market?
-
What is the minimum he will accept
if the buyer offered all cash?
Be tactful when asking these
questions. It would be best to casually ask these questions as you
walk through the house with the owner, taking mental note of the
responses. As you ask these questions, be sure to allow the owner to
fully respond. The idea is to gather information regarding the owners
motivation to sell, and any issues that will affect the value of the
property. This information will be useful when you make your offer.
By knowing the market value of a property, you will also know when it
is time to walk away. Realize that some sellers are simply
unrealistic about the value of their property.
Prior to submitting an offer, be alert to signs that might indicate
that you have a highly motivated seller. Highly motivated sellers are
more likely to accept less than market value, which could mean that
you would be making money on the purchase. Signs of a highly
motivated seller include, but are not limited to, the following:
Once you've done your research,
you're now in a position to make an offer. When working with
properties for sale by owner, there are a lot of negotiable conditions
(price, terms, closing costs, etc.). Of course, your main concern is
the price. If the property is in good condition, landing somewhere in
the range of 5 to 10% below market value would be great. If the
property needs work but there are no major problems, paying anywhere
in the range of 10 to 20% below market value is not bad. Of course,
these figures are mere rules of thumb. You should be guided by
factors in your local real estate market.
If you are in the range with your
offer, expect the seller to counteroffer. The counteroffer might
involve a price change, or it could stipulate specific conditions. Be
realistic in your expectations. Remember that negotiating is part of
any business deal. Never take anything personally and don't be overly
demanding. If the seller has stipulated conditions in addition to
asking for more money, your first counteroffer might accept some or
all of the conditions, yet leave the price unchanged.
When looking at a counteroffer, watch for any special clauses that can
work in the seller's favor. Remember, an offer is a sales contract
and is binding if accepted. Never sign an counteroffer without fully
reading it and making sure that you understand what is being stated.
If you sign an counteroffer that you fail to read, you could be bound
by terms that are extremely unfavorable to you. Since offers can be
complicated, you should consider using a real estate lawyer to review
any counteroffers with you and make sure that your interests are
protected.
Prior to making an offer, make sure that you have been
pre-approved for financing. An offer from
a pre-approved buyer will command attention. It will be taken more
seriously than a higher offer from a buyer that has not been
pre-approved.
