Buying a home is not easy, especially if you are new to the real estate market. It takes a lot of time to find a trustworthy broker, and even if s/he is reliable, it does not mean that you will find a property immediately. In a seller’s market, finding a property within your price range can be challenging, not to mention when the market is volatile with uncertainty. Earlier this year, the housing prices peaked across the country, mostly driven by inventory shortage and high demand. As we are entering the slow season, it seems that the market is slowing down a bit – many local markets are seeing drops in housing prices, including New York City. However, it does not mean that the 7-year-old real estate bull market has come to an end. Nor does it mean that buyers have more bargaining power. At the end of the day, it is all about the property you are looking to get and your competitors, in other words, other people who are also looking to bid on the home. In this blog post, we will discuss how to make the best offer for a home when the seller seems more powerful than you.
When it comes to negotiating, many people believe that to create a wider ZOPA (Zone of Possible Agreements), they have to bid lower, a lot lower, than the asking price. While it is true that the wider your ZOPA is, the more likely you will reach your target amount, bidding low is not always a good plan. In a seller’s market, it is very common to see multiple offers on a home, and if adopt the ZOPA strategy and bid a lot lower than you can actually afford, you basically have no chance of winning the deal. Remember, the seller is not going to waste his/her time on you when your offer is $200,000 lower than other people. In a seller’s market, the best bidding strategy is to come out of the gate with your best offer.
Many of you might wonder what makes the best offer. $50,000 lower? 30% less than what they ask for? Well, the truth is, there is no rule of thumb as to how much you should bid based on the asking price. While you believe that going $30,000 lower is moderate and safe, the seller might think differently. Remember, it is about the people. To make the best offer, you have to understand who you are dealing with, and that’s part of the reason why you hire a broker. Brokers not only know the market better than you do, but they also spend most of their day negotiating. Long story short, if you have no idea how much you should offer, ask your broker.
Of course, you don’t necessarily have to rely on your broker. Sometimes doing your own research is helpful enough. You can talk to the neighbors, find out how much they paid for their homes, and if they know anything crucial about the seller. You might also want to go through past transactions in the area and calculate the difference between the asking price and the final sale price. Most counties in the U.S. now have online property record databases. In New York City, for instance, the ACRIS system is a very useful tool if you want to learn more about certain properties or sellers. Listing websites like RealtyHop also compile price change data to help you track changes and make the right offer. If you see that most sellers in your target neighborhoods have increased their asking price in the past 30 days, that means the market is very competitive, and so your best offer needs to be in line with the price movement. If the asking prices have dropped, then maybe you have more wiggle room.
Buying in a seller’s market is not easy, and first-time homebuyers who lack experiences in the real estate market often wish that they had bid higher after losing the deal. While there is no magic formula to help you calculate how much you should offer, we believe that, by doing research, you will be able to find the right numbers and make the best offer you can afford. Even if the best offer you can make is lower than the seller’s target, it never hurts to give it a shot. You should also not be afraid of walking away. Indeed, in a seller’s market, the buyers are in many ways disadvantaged, but remember, you should never compromise. Buying a home is a big deal, perhaps one of the most important life decisions one can make. You should own a place you can truly call home instead of being resentful for the next 10 years of your life.
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