When real estate sales are slow and there is a glut of homes for sale, buyers may have an opportunity to pick up a house on the cheap. The operative word here is “opportunity”. There are times when you should pounce and times when you should show restraint and avoid an impulse buy. Knowing the difference could save you thousands of dollars.
In this article, we will give you five tips to follow if you have the good fortune to be house hunting during a downturn in the housing market.
Do Your Homework
Buyers generally have the advantage in a down market, but this doesn’t mean you should walk into a transaction blindly. Prospective buyers should search the internet for listings, inquire with a real estate agent and also check the local newspapers to gain insight on a particular area.
The objective of this research is to get to know the price range for the area. You want to learn what is considered excessive and what is considered low. This research will help you make a reasonable bid and also provide the first inkling that there is bargaining room on a particular home.
Remember, you are probably not the only bargain hunter out there. You may have an edge on the sellers, but another buyer could snap up your great deal if you delay the buying process. To make sure that you’re able to pounce on a deal at a moment’s notice, it makes sense to get a preapproval for a mortgage and to have an attorney on retainer to handle the closing paperwork.
Watch for Motivated Sellers
Some homeowners may want to sell their homes in a hurry. This gives you additional bargaining power. In a situation like this, it makes sense to ask if the seller will throw in the lawn mower, furniture or fixtures that you like. You can also ask the seller to cover closing costs in total or in part. Of course, the listing price is always negotiable as well.
Here are a couple of signs that the seller is motivated:
- The home may have been on the market for several months and has undergone several price reductions.
- At the showing, the home is empty, which suggests the seller has moved and may be holding two mortgages.
It’s very difficult to determine exactly how much leverage you have in any given situation – after all, there are many reasons why someone could be selling. However, your agent can give you a general idea of the seller’s motivation.
Negotiate With the Agent
When houses are selling at a slow pace, many real estate agents are also struggling. In such an environment, both agents and firms may be more inclined to knock a percentage point or two off of their commission schedule to get a deal done.
The Consumerist.com offers these tips for increasing your leverage when negotiating with a real estate agent:
- You may be able to get a discount by using the same agent to sell your current house and buy a new one.
- Smaller real estate firms may be able to approve lower commission rates more quickly because they have fewer layers of bureaucracy.
- If one agent won’t negotiate, find another who will.
Bonus Tip – Avoid a Bidding War
When you are shopping in a down market the last thing you want to do is let your emotions get the best of you. A bidding war is almost always an unnecessary waste of time and, in the end, money. Down markets are all about getting a really good deal, so to fritter away that possibility because of ego, or the desire to simply win a bidding war is foolish.