The process of purchasing a home doesn’t end with finding your perfect location after dozens of home tours and budgeting tools; It’s only the beginning. The real battle that you fight when you are trying to purchase a home is fought alongside your Realtor at the negotiating table. Unfortunately, this becomes an extremely difficult environment when you enter a market that favors the sellers as we have now.
Homes are being sold almost as quickly as they hit the market, leaving little for sellers to need to do in terms of sweetening the deal. Considering there are currently more buyers looking than sellers selling, many traditional negotiating items just aren’t available now. It is probably a good idea to familiarize yourself with the recent changes in the way home purchases are being negotiated.
Selling Below Appraised Value
Sometimes the sellers of a home might be in a rush to get the property out of their hands. They may be looking to liquidate a rental property or free their hands of a recent inheritance, but whatever the reason is, they want cash fast. In these scenarios, it wasn’t uncommon for sellers to drop the price of their home below the appraised value of the home in order to increase their chances of getting a selection of bids allowing purchasers to pay less in mortgage fees and starting off with a bit of equity already built from purchase. Assessed value is tax assessed value in my mind, which is much lower than appraised value and purchase price.
In the current market, this is becoming extremely unlikely as bids are coming in days (sometimes hours) after listing a home due to the current shortage of available homes on the market. In fact, many purchasers are offering well-above asking price right out the gate in order to keep their bids competitive. Many selling agents are even encouraging purchasers to agree in negotiations to include escalation clauses in the terms of their contracts in order to instantly match and beat any potential competing offers to be able to lock in a deal fast. It is unlikely you’ll see any discount in cost in the current market.
If you find yourself in a situation where you are offering over list or market price, make sure you understand the financial and mortgage implications this decision will have.
Seller’s Credits Towards Closing Costs
When trying to lock down a purchaser for a home, a seller previously may have credited an amount from their proceeds towards the closing costs that the buyer accrued. This was usually in hopes of keeping the purchaser’s costs within their expected expenditure range to get them to commit to a contract. With sellers now receiving multiple competing offers, they have little incentive to cover the closing costs of the purchaser.
In fact, some purchasers have recently been offering to cover the costs of the seller like commissions costs and settlement fees. These added costs to closing can make it more difficult to secure a loan from a lender as you’ll need to be approved for more. It’s unlikely in the current market that you can expect any credit towards your costs.
If you’re in the market for a home right now, you will be up against a lot of competition to try and win negotiations to secure your dream home. Keeping in mind what “cards are already off of the table” will help you go into the transaction far more prepared with a realistic vision of what your costs will be. You can use this perspective to stay a step ahead of your competition and come to the negotiation table with more confidence to be able to win your purchase.