But before I go into the progression of how we got to the final sales price for our home, I wanted to share some tips that were very useful to us before we even were ready to submit our initial offer.
Study the market
As soon as we moved to Raleigh last spring, I started checking out local real estate sites, to see what homes matching our wish list were going for. I even signed up to receive emails when new homes that met our criteria were listed, when they had a price change, and when they finally sold. If your local real estate companies offer a service like this, I highly recommend signing up for these types of emails. Over the course of the 9 months before we actively started looking at houses, I was able to gather data like how long it was taking for these homes to sell, how many times and how often the prices were being lowered, and by how much, and was able to just get a good overall feel for what prices were reasonable for our area.
Research the neighborhood
This is pretty obvious, but I wanted to mention it anyway. Check out real estate websites to see what the houses in the neighborhood have sold for recently, as it might guide your price negotiations. Your realtor can also provide you this info, but I wanted to be proactive, so I tracked it down myself. We learned that there were some houses that had sold in the past 6-12 months in our new neighborhood that were a comparable square footage to our home, but sold for up to 25% more than our house was listed for. This is a good indication of how well the home you're looking to buy is priced, and for us, we knew that even though it needed updates, the home was already a pretty good deal for the neighborhood it was in.
Think about key price points, and make sure you don't insult the sellers by offering too low
Right now, it is a buyers market. Which means that typically you can get away with offering a lower price than the listing price, and expect to end up somewhere still south of the listing. But that doesn't mean that you want to go too low, as you might end up insulting the sellers. They want to get a good price for their home, just as much as you want to get a good deal for the home. So try to think about the offer you're planning to submit from the seller's point of view. Chances are, they've loved their home, and still have a sentimental attachment to it, so don't offer them such a low price that they end up thinking you don't value all that their lovely home has to offer. From the research I did, the general rule of thumb is that anything more than 10% less than the list price is going to be insulting. It definitely depends on the situation, but that was the best guideline I could find online.
Also, it's good to keep in mind key price points, again, thinking from the seller's point of view. I'll touch on this more when I get into our actual negotiations, but in short, think of it like how stores price products. From a buyer's point of view $9.99 sounds a lot better than $10. But to the seller, it's the opposite, $10 is going to look like a lot better offer than $9.99, even though there's actually very little difference.
Research the sellers
This part is so important when trying to figure out what your initial offer, and subsequent counter offers should be!
Early on, we'd asked our realtor to feel out the seller's realtor, to see if the sellers were motivated, and if there was going to be some flexibility on the price. We already knew that the house had been on the market for quite some time, but the price had only been lowered once, back in late September. And according to what their realtor told ours, their realtor had been trying to convince them to lower the price again, but the sellers hadn't wanted to. To us, this meant either they wanted to leave it at the current listing price, so they would have more room to negotiate when offers came in lower, or else it just meant they weren't going to be very flexible in going lower than the list price.
This was just the first step in painting the picture of who we were going to be dealing with.
Next, I tried Googling the seller's by their names. I didn't come up with much, except that they are in their late 60s (based on US Search). But it was another clue, since people in their late 60s are generally at retirement age. So perhaps they need to downsize to a smaller home, or perhaps they've been itching to move to Florida or something, and need to sell their current home to move on with their retirement plans.
Also, be sure to check your county's government website, to look up the tax information on the home. This can provide useful info like if there are other names listed on the deed, how much the current owners purchased the home for, and in what year, what the appraised value and tax rate is, and if they've done any additions that required getting a permit.
You should also look at the county's Register of Deeds site. This is where you can look up the history of deeds on the house and the mortgage history by searching by the seller's names. Here you can see what the amount of the mortgage was when the sellers purchased the home, refinancing, and second mortgages. My mom, being the smart accountant and controller that she is, took the research even a step further with this little tidbit of info:
In 2007 they took out a 30 year mortgage for $XXX,000. Since they probably didn't use the money upgrading the house they probably needed it for other uses, which means they may need the money out of the house now. Assuming their mortgage was 6.4%, the FHA historical rate for May 2007, they now owe about $XXX,000 on the house. I did a loan amortization in Excel to calculate that info.
I'd found that they'd taken out the mortgage in 2007 on the Register of Deeds site, but I didn't even think to find out the historical interest rates and do the amortization calculations. All good info though, and brings me to my next tip.
Ask for advice
Especially if you're a first time home buyer, and probably even if you're not, it can't hurt to ask others for advice. Who knows what valuable info you'll get from them, like the amount still owed on the mortgage that my mom gave me. We spoke to our friends who work in real estate, and my husband asked his parents for advice too, since they just retired and are looking to sell their home and move soon. Getting the advice and opinions from anyone who has had experience buying and selling a house could end up being invaluable, or at the very least, will give you additional points to consider when crafting your offer to purchase.
The Offer Negotiation Process
So, here's more than you probably wanted to know about how we negotiated the final sales price of our new home. I'm going to illustrate the back and forth offer prices as a percentage of the original listing price, since I think that will be more useful for you to apply it to your own situations, as me talking in actual dollars would mean a lot less to you if you're in a different price range than we were in.
Here's the first graph, showing the house's listing price when we went to make our offer:
Initially, before we finished all of our research about the owners, we were thinking about putting in an offer that was 6% below the listing price, or as expressed in my graph, 94% of the asking price.
However, once we did the research, and we took into consideration that the house was already well priced for the neighborhood, and that the 6% below list price offer we were thinking of was just below a significant price point that the sellers might not want to go below, we decided to go in with a little higher of an initial offer, at 4.7% below the list price, or at 95.3% of the original asking price. We also put in our initial offer a request that the sellers get the septic tank cleaned, since we'd learned that they had no idea when it was last cleaned. We were not familiar with septic tanks, but relying on Google, found that they're supposed to be cleaned every 3-5 years, so we wanted to make sure this was something the sellers would take care of.
We submitted our initial offer mid-morning, and by late that evening, we'd already received a counter offer back from the sellers.
They came back at a price just 1.9% under the listing price, or at 98.1% of the asking price. But they did agree to get the septic tank cleaned. So this was a step in the right direction, if a small one.
We decided to have a call with our realtor the next morning, to discuss our next steps, and then we stayed up late that night discussing our new strategy. We decided, based on this new counter offer, exactly where we wanted to end up after all was said and done (which was still halfway between the listing price and our initial offer price). We also made a list of the things we would ask to have the sellers fix, in case they were not willing to come down more on the price. Then we would at least have something to negotiate further with, and still get something out of the deal, even if it wasn't on the price of the home.
The good news was, at this point, the seller's 1st counter offer was slightly under the max price we said we would pay, so from that standpoint, I guess we'd already won.
After we had our call with our realtor the next morning, we decided to come up on the price, to 3.1% below the listing price, or 96.9% of the asking price, but we also added another stipulation to the offer. On top of getting the septic tank cleaned, we wanted them to get an inspection report on it stating the age of the tank, the type of tank it was, and the condition. Usually these reports can be done at the same time as the cleaning, so it wouldn't be that hard for the sellers to provide, but it would be one less inspection we would have to pay to have done ourselves before purchasing the home.
That afternoon, we got our second counter offer back from the sellers. They did agree to get an inspection report done on the septic tank, on top of the cleaning, but unfortunately they only came down slightly from the last price they'd countered with, and they stated it was as low as they could go.
But their second counter price was super close to the halfway point between the original list price and our initial offer price. Only 0.1% more than that magical halfway point we were looking for. So we decided to go back to the sellers, agreeing to to the price they had countered with, but also asking that they have the broken and unsightly dog fence/pen in the backyard taken out.
From there, it was only about an hour or so until we heard back from the sellers about our counter offer. They accepted!
We had a done deal at a price that was 2.2% less than the listing price, or 97.8% of the total asking price. Plus they were going to get the septic tank cleaned, and provide an inspection report on it, and remove the ugly fence that would have been a pain for us to dig up and dispose of ourselves. Considering our research on how well the house was already priced in the neighborhood, and that we ended up so close to our goal of splitting the difference between the list price and our initial offer, we were very happy with how things turned out. And were even more happy that only about 17 hours elapsed between the time our initial offer was submitted and the time we had a done deal!
So, that's how our home price negotiations all went down. Hopefully my graphs made it easier to understand than all of the percentages I was throwing around, and you were able to see how all of our back and forth offers went. And feel free to let me know if you have any questions, or if any of this didn't make sense!
Our next step, now that we're in the middle of getting all of our home inspections done, will be to probably research the negotiations process for when you want to go back to the sellers and have them fix/pay for a few issues that came up. Nothing major has come out of our inspections yet, but we might not have as long of a lifespan left on the roof as we initially thought, so we're getting licensed roofers to come out and do a more in depth evaluation. We might ask the sellers to knock down the price of the home a little, or contribute to our closing costs (as of now we haven't asked for any seller's assistance on the closing costs, so we have some room to negotiate there, as it's pretty common these days for buyers to ask for closing assistance up front). Oh, and while I'm on the topic of lifespans of home components, I'll share this useful list of general lifespans for various home items that we've found useful (thanks Mom!).
But we'll see how that all pans out after the roofers come out, plus, we're still waiting on the septic tank report, radon testing results, appraisal and survey, all of which we should be getting within the next week. I'll keep you posted on if we decide to negotiate further though. I figure I might as well make this documentation of our home buying negotiations as complete as I can!
Have any of you gone though the purchase price negotiations process? How did yours compare to ours, was it easier or harder? And did yours take longer? We were expecting it to take closer to a week, and were surprised we were done in less than two days.