Many people don’t realize there’s a fairly simple way to save tens of thousands of dollars on your new home — and it has nothing to do with your homeowner’s insurance, your closing fees or your cavalier decision not to get a mold inspection.
A simple way to drastically — and immediately — reduce the price of your house is as old as haggling itself: Low-ball the seller. And yet most home buyers don’t even try it, for fear they won’t succeed. A low-ball offer will save you a chunk of money on both the property and the mortgage interest, but you have to do it right.
I recently finalized the purchase of my own first home — and I took advantage of the fact that it’s absolutely still a buyer’s market to make a decidedly low offer. Follow these easy steps to make a low-ball offer on the home you want, and see how much you can save.
1. Research, research, research
Whether you’re low-balling on a house, a car or someone’s old mattress on Craigslist, research needs to be your starting point. Here’s what you need to consider before figuring out a starting number:
Who: Who the seller is will affect your bargaining strategy. For example, if you’re dealing with a private seller, there might not be as much flexibility on price. On the other hand, a company selling a repossessed property will be more amenable to low-ball offers on the house.
What: What condition is the house in, and can it be used to negotiate on the price? A house in immaculate condition might not have much room for movement on price, but a house that needs specific work will have a lot more financial flexibility. When you’re touring the house, make sure to take lots of notes about the structure, fixtures and fittings, as you can use these as negotiation points.
How long: How long has the house been on the market, and what were the price drops to date, if any?
Where: What’s in the local area? What’s the neighborhood like and is it a decent place to live? What’s the proximity to schools, services, transport routes? These are all things to keep in mind when you’re going to be negotiating on a price.
2. Hire a rival realtor
This step is especially important if you are a first-time home buyer and aren’t trying to sell your home. In order to become more familiar with the current local prices and real estate situation, you can hire a realtor to act on your behalf as a buyer. Realtors will even do a lot of the above research for you, or even go so far as to bid on your behalf if you don’t want to get up close and personal in the negotiations.
There will be a cost to hiring a realtor, but this will be far outweighed by the savings you will reap by having a knowledgeable party on your side.
3. Get your finances in order
If you’re considering making a low-ball offer, you need to be financially ready to back it up.
Have your mortgage ready to go, with your deposit set aside for the new purchase. When you make your offer, you’ll be able to say the deposit is in your savings account and you’re prepared to hand it over, giving the seller more incentive to accept your offer as soon as possible and get the ball rolling on the sale.
If you’re already a homeowner, it is highly recommended that you sell your house first so you have no major obligations to take care of. As long as you’re happy renting for a few months until you secure your new deal, this will be incredibly beneficial in getting your low-ball offer accepted.
4. Start low and keep it slow
This is your mantra; repeat it to yourself in the shower. Make a starting bid of about 85 percent of the property’s value — the total value, of course, depends on the value of the house itself, its condition, the vendor’s situation and a few other factors.
Ideally, the seller will accept your first offer, though that’s not likely. Plan ahead by estimating where the counteroffer will land, and what your next step will be if you need to go slightly higher.
Be patient. When you make offers and receive counteroffers, it can be tempting to immediately get on the phone and make a higher offer, especially if you really want the property. Don’t. Leave a few days between negotiations. Keep doing your research, going out and looking at other houses, and tell the vendor or vendor’s estate agent that you are doing that. You don’t want to appear too keen, or you’ll lose your buying power.
5. Know when to stop
If you’ve set a price limit in your mind for that particular property, do not let yourself go any higher if the seller doesn’t want to come down to that level. You might say to yourself that it’s only another couple thousand dollars and won’t matter much in the long run, but a couple of thousand dollars on a mortgage can mean you are paying back double that amount by over the life of your loan. Don’t go any higher than your original threshold, no matter how much you want the property — there will be another home for you.
If there are other parties interested in the property, too, it’s not an ideal situation to be making bids; you do not want to get into a price war, as it will artificially drive up the price of the house. In this situation, it’s recommended that you pull out of the sale once counteroffers start coming in.
So, does it really work?
I recently bought my first home, starting the bids at about 87 percent of the asking price. I ended up finalizing the sale at 89 percent of the asking price — a bargain.
At one stage, I didn’t accept the counteroffer and told them I’d think about it as I go to view other properties. I received a phone call that afternoon informing me that the seller was willing to accept my last offer. I was bidding low on about three other properties at the time, too, and only one was accepting of my strategy — but it paid off, big.