How to Save Thousands When Buying a Home

 

"When you analyze those successful home buyers who have the experience to purchase the home they want for thousands of dollars below a seller's asking price, some common denominators emerge."

5 Simple but Effective Strategies for Saving Money

If you are like most home buyers, you have two primary considerations in mind when you start looking for a home.

First — you want to find a home that perfectly meets your needs and desires. 
Second — you want to purchase this home for the lowest possible price.

When you analyze those successful homebuyers who have been able to purchase the home they want for thousands of dollars below a seller's asking price, some common denominators emerge. Although negotiating skills are important once an offer has been submitted, there are three additional key factors that must come into play long before you ever submit an offer.

These Steps Will Help You Save Thousands When You Buy a Home

  • Make sure you know the difference between what needs and wants. As simple as this sounds, many homebuyers do not have a firm idea in their heads before they go out searching for a home. When you go shopping for a place to live, there are actually two homes competing for your attention: the one that meets your needs, and the one that fulfills your desires (wants). Obviously, your goal is to find one home that does both, but in the real world, this situation does not always occur.

When you are looking at homes, you may fall in love with a few homes for entirely different reasons. Is it better to buy the 4-bedroom home with room for your family to grow, or the one with the big eat-in kitchen that romances you with thoughts of big weekend family brunches? What's more important: a big backyard, or proximity to your child's school? Far too often people buy a home for the wrong reasons, and then regret their decision when the home does not meet their needs.

  • Satisfy your needs first. Do not shop with stars in your eyes. If you are lucky, you will find a home that meets your needs and fulfills your desires. The important thing is to understand the difference and prioritize each before you get caught up in the excitement of looking.
  • Do not rely on 3rd-party online search platforms. Online search engines available to the public have their place but they are often full of outdated or incomplete information that can cause you frustration and even money. By working closely with your agent and setting up a search through the MLS that meets your criteria, you be notified about homes as soon as they come on the market and the information will always be up to date.  Often your agent will know of homes that are not yet listed on the MLS.  These homes may not be turn-key, but you may be able to save thousands of dollars if you are willing to act quickly – you can then carry out updates that fit your lifestyle after settlement.

To help you develop your home buying strategy, use this form:

What do I absolutely NEED in my next home:

  1. ______________________________
  2. ______________________________
  3. ______________________________
  4. ______________________________
  5. ______________________________

What would I absolutely LOVE in my next home:

  1. _______________________________
  2. _______________________________
  3. _______________________________
  4. _______________________________
  5.  _______________________________

Next, for you to understand how much to offer for a home, it is important to understand the psychology that sellers use to price their homes.  Here are 4 common scenarios you need to consider as you begin to view homes:

  • Clearly Overpriced

Every seller wants to realize the most amount of money they can for their home, and real estate agents know this. Sellers will often interview multiple agents, some of whom will overinflate the value of the home in order to win the listing. This is done far too often, with many homes that are priced 10- 20% over true market value.

This is not in the seller’s best interest, because in most cases the market won't be fooled. As a result, the home could languish on the market for months and buyers begin to question “What’s wrong with it?  Why is it still on the market?”

Seek the counsel of your agent before pursuing such a home.  Sellers who utilize this strategy may be able to wait out the market which means that buyers who submit offers based on appropriate market pricing are likely to be disappointed.  The sellers are gambling that the market conditions will eventually rise to their asking price or that someone will go ahead and pay above fair market value.

  • Somewhat Overpriced

About 3/4 of the homes on the market are 5-10% overpriced. These homes will also sit on the market longer than they should.  One of two factors is usually at play here: either the seller genuinely believes that the home is worth this much despite what the market has indicated (after all, there is a lot of emotion caught up in this issue), OR they have left some room for negotiating.  

If you are viewing these properties, discuss the matter with your agent and consider making an offer based on fair market value.  Sellers do not get serious about negotiating, nor do they realize that they are not going to get more than market value, until they receive an offer.  Keep in mind that the seller may not be willing to negotiate until after the home has been on the market for a while. 

  • Priced Correctly at Market Value

Some sellers understand that real estate is part of the capitalistic system of supply and demand and will carefully and realistically price their homes based on a thorough analysis of other homes on the market. These competitively priced homes usually sell within a reasonable timeframe and close to the asking price. 

  • Priced Below the Fair Market Value

Some sellers are motivated by a quick sale. These homes attract multiple offers and sell fast at, or above the asking price and usually in a few days.  If the inventory of available homes for sale is limited, it is especially important for you to be pre-approved for a mortgage before viewing homes that are priced below market value.   Leverage the resources of your agent to find homes that are not yet on the public market and be prepared to act quickly.

By taking the time implement the three key points and to recognize the pricing strategy of how sellers price their homes, homeowners can avoid wearing rose-colored glasses yet affordably move into the home of their dreams.