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Mike Mitte
Mike Mitte
Real Estate
Lynnwood, Washington
Perfectly helpful
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Buyers – Take advantage of the turmoil in the real estate market

It is currently a buyers market for real estate and the buyer is king.  Buyers should be able to get a great deal on a home and save thousands off the list price by pre-qualifying the sellers. 

Written Mar 25, 2008, read 0 times since then.

 

 

Buyers – Take advantage of the turmoil in the real estate market
 
The housing market has taken a dramatic shift in the past year.   The area I serve, South Snohomish and North King County, went from one or two homes for sale per qualified buyer in 2006 to over 12 homes per qualified buyer in many areas and price ranges in 2008. Since this is now a pure buyer’s market (many more sellers than buyers), and information on available homes is easier to access than ever before, an astute buyer should be able to find a great deal on a home and save tens of thousands of dollars.
 
Sir Frances Bacon said, “Knowledge is power,” and he is correct. Buyers need to get involved in the purchase of their new home by doing their homework. Find a website that offers access to the Multiple Listing Service (MLS) there are hundreds of these sites. Begin looking at what is available on-line. You can look at all homes by size, number of bedrooms, baths, etc in your price range. The MLS has all listings from all agents. Drive the area so you know what streets you like and the ones you do not like. Begin this process before you ever contact a real estate agent so you have some knowledge of the market in the neighborhood you want to live in. 
 
Second, go on-line and get pre-approved for a loan. You can get pre-approved for financing at no cost. You need to do this and then you need to have a long conversation with yourself about how much you want to borrow and how much you are willing to pay each month in loan payments. Just because you qualify for a $500,000 loan does not mean you should borrow that much. You may be able to get what you want and borrow less keeping your loan payments at a comfortable level. Don’t overreach just because the bank says you can. This is the major reason we are in the mess we are in now, with foreclosures at an all time high. 
 
Once you have done your homework and are pre-approved for financing you need to find an agent who will work for you and help you get a good deal. If you have a family member or a close friend who is an agent use them. If you don’t you should pick your agent carefully. 
 
A quick note on using the listing agent when you buy, don’t do it. If you as a buyer use the listing agent you are giving up a powerful tool in the purchasing process. The listing agent works for the seller and not for you. Even where the listing agent becomes a “duel” agent they do not work for you exclusively. Every buyer should get their own agent. If you get the right one, they will make you money. Your agent should be willing to do the following:
 
  • Help you find homes that meet your requirements and get the information you need about the seller so you can get a great deal
  • Make low offers on qualified homes with pre-qualified sellers
  • Engage in negotiations that lead to the best deal for you         
 
A proven buying method includes pre-qualifying the seller of each home you are interested in buying. Your agent is a key partner in this process. If you and your agent use this process it can save you tens of thousands off the list price. The required information is available to any agent, but the agent needs to know how to use the information and they need to be willing to work for you to get the best price. The information your agent needs to get includes the following:   
 
  • How long has the home been for sale? (the longer the better)
  • Has the price been lowered? (shows they are willing to bargain)
  • What did the seller pay for the home? (their cost)
  • How much money does the seller owe on the home?
  • What is the seller’s equity? (difference between the asking price and what they owe - your room to negotiate)
  • Is the home vacant? (loan payments must be made each month it stays on the market) 
  • Is the seller local or out of town? (out of town sellers maybe more motivated to sell)
  • A list of like home for sale in the same area for comparison 
 
All this is important in deciding how much you will offer. You can make low offers by pre-qualifying the seller. Some key qualification points are: If the property has been on the market for over 60 days, the seller is out of town, the property is vacant and the seller has a lot of equity in the property. To get this information your agent must be willing to do some work. You may not need all these factors, sometimes a few are enough. The essential factor is the owner equity.  
 
This is not about cheating the seller. It is about getting a good deal. If the seller has owned the home for 5 to 10 years and is making $200,000 in profit maybe they will agree to make $170,000 and let you save $30,000 on the purchase of a home. In this market where every buyer has ten or more homes to choose from many sellers will take less than their asking price. 
 
Three things can happen when you make a low offer and two are good:
 
  • Seller refuses to reply (move on the seller refuses to negotiate)
  • Seller makes a counter offer (good – you just made money)
  • Seller accepts your offer (really good – you just made a lot of money)
 
Your agent needs to talk to the listing agent. Many times the listing agent has been authorized by the seller to tell prospects valuable information that is not in the listing. I had one listing agent tell me the seller is interested in seeing all offers. You might not know this if your agent doesn’t talk to the listing agent. 
 
A cover letter can be a great tool when presenting low offers. Most offers have no cover letter. A low offer with no explanation will probably not be accepted and the seller may not make a counter offer. If the offer has a cover letter listing the benefits and why it is at the reduced price, and a list of other like homes in the price range, many sellers will take this into consideration. Sometimes sellers will find a reason to come down on the price, if you and your agent help them. Maybe the seller would rather have the $170,000 in profit now and not wait to see if they can get $200,000 later?  
 
The other factors that can have an impact on how your offer is received are:
 
  • The inspection
  • The buyer’s loan approval letter
  • The earnest money deposit
  • The time to close escrow
  • The down payment – the more you put down the better
 
These factors along with the price all play a part in the seller’s decision on accepting your offer or making a counter offer.
 
The home inspection is critical and all buyers should have an inspection. One way to use this to your advantage is to state your intentions not to ask the seller to repair or replace any minor items on the inspection report. You can still disapprove the inspection report and cancel the deal if there are major items on the report.
 
Loan approval letters matter. How the approval is stated in the letter is important. Being pre-approved is far better than being pre-qualified. Further, if you are pre-approved you should be able to get the loan quicker and close escrow quicker.
 
The earnest money (or good faith deposit) is the amount the buyer agrees to put into escrow. This can have a major impact on the seller. A large deposit gives the impression the buyer is serious and qualified. 
 
If the purchase and sale agreement has a short escrow period this too is a benefit to the seller.           
 
Finally, remember you as the buyer have an advantage in this market. You should find an agent who is committed to getting you the best possible deal on a home, not just showing houses and writing up an offer. To do this you need to do your homework and make low offers where the seller has a lot of equity. If one seller will not come down, find another property and another seller. 
 
If you use the above method for pre-qualifying sellers, making low offers, using a cover letter with your offer, you can take advantage of the current market turmoil and get a great deal.