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Strategies for Making an Offer
Whenever buyers are ready to make an offer, their most common question is "How much should I offer?" Although it seems like a simple question, the answer is not so simple, because each and every transaction is different. No two real estate transactions are exactly alike. Before you can decide how much you should offer to purchase a house, it is important that you understand the basic factors involved in making an offer.
The Human Factor
By far the most important and variable element in any real estate transaction, the "human factor" must be first and foremost in a buyer's mind. Real estate is not the only avenue that shows, on a daily basis, that people are different in a variety of ways. People communicate, negotiate, live, and think in drastically different ways. Two sellers in the exact same positions might treat a contract with identical terms for $90,000 on a $100,000 house in completely different ways. One seller might accept your offer with no alterations, while another seller may be offended and refuse to even counter-offer. The only difference between these two offers was the individual seller. Often, people allow sentimental or even desperate emotions to get in the way of their negotiations. When you decide to make an offer on a property, your job is to keep sentiments out of the negotiation as much as possible; at the end of the day, buying a home is a business transaction, and cooler heads always come out on top in negotiations.
The Seller's Position
Someone's motivation for selling directly affects their frame of mind while negotiating. For instance, a family who finds their dream home and can't afford two mortgage payments may be quite open to negotiations. On the other hand, a seller facing foreclosure and in a financial pinch may not have any room to negotiate due to their situation. Then, there are sellers who are just mildly interested in selling, perhaps because their family is outgrowing their current home; they have no real reason to move, so no pressing need to negotiate the sale. Also, there are sellers who have already had to move, so they are footing a second mortgage payment that is eating up their savings. In this situation, you may be able to find a steal since they are highly motivated to dump that payment. The candidates least likely to budge during negotiations are those sellers who have inherited a home; they have no need for the money, and no factors like moving to consider. For these sellers, the money from the sale is simply a bonus, and they can wait for the perfect offer.
The Market Conditions
Today's market is in favor of the buyer in the Rolla-St. James area. In this case, most sellers are aware that selling their home will likely require negotiating more than they might normally. Buyers are able to make bolder offers in a market favorable to themselves. On the other hand, when the market is favorable towards the seller, homes sell much more quickly and the agree-upon price is much closer to the original asking price. In a seller's market, sellers are generally less agreeable to entertaining lower offers. In order to determine the status of the market in your area, ask your local REALTOR® for an update on market conditions.
The Community Element
Word travels fast in a smaller town or city, which typically works against you as a buyer. Most sellers have high opinions of their home's value; although this is justified at times, often it is not. People's opinions often lead them to compare their homes to the homes of their neighbors or friends across town. Barney and Betty may believe that their home is "better" (and therefore worth more) than Fred and Wilma's home, which was sold for $150,000. So, Bob and Betty approach the sale of their home with the attitude of "We should get at least $150,000 for our home." Unfortunately, there are many factors that sellers don't consider when they play the comparison game, and buyers usually come out the losers. You really can't let this affect your offer, but you do need to be aware that this is very common. Stick to your guns regarding your offer, and you may be able to bring this type of seller back to their senses.
Remembering these important factors when making a purchase will bring you to the negotiating table well equipped to make an offer that fits your needs.
Justin Renaud is a REALTOR working in the Rolla Missouri Real Estate market. He has been working with buyers and sellers full-time for the last three years. His website justinrenaud.com is a resource for buyers, sellers, and homeowners to find helpful advice as well as resources discussing the areas of Rolla, MO and St. James, MO.
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