Buying a home is a delicate balance between offer and counter-offer, revising the contract and negotiating terms until you find a magic combination that works for both buyer and seller. During this process, it can be easy to forget that you’re not the only person working with the seller, and yours might not be the winning bid. Don’t assume that just because you’re negotiating a contract, you’ll be able to buy the house. An offer is just an offer until you get the signatures on the contract.

Sellers are Free to Accept Offers Until a Contract is Signed

Maybe it’s a slow economy and you think you’re the only person looking at a house. Or maybe a house has been on the market for months and you assume that by making an offer, you’re the only one expressing interest in the home. Thinking this way can cost you your dream home. Never assume that you’re the only buyer working with the seller. Throughout every step of the negotiation process, be mindful that a seller has the right to accept any offer until a contract is signed, and that offer might not be yours. It’s in your best interest to get a signed contract as soon as you can agree to the terms.

Oral Agreements can Change

If you’re negotiating in good faith, it can be easy to fall into the trap of thinking that an oral agreement is binding. Unfortunately, you can’t assume that the sellers agree with this thinking. If you get the sellers to agree to terms, have them sign the contract as soon as possible. Sellers might agree to your terms, but then have an offer they like better come along before you get a chance to lock the deal. In most cases, without a signed offer, the sellers are within their rights to accept someone else’s offer. Don’t lose out by thinking that your oral agreement is binding; get it in writing and get the sellers’ signatures as soon as possible.

When you’re moving from a higher-priced area to a lower-priced locale, it becomes difficult to objectively judge home values. It’s human nature to judge values and prices based on what you know. Unfortunately, if what you know is significantly higher-priced than the area where you’re moving, you run the danger of overpaying. Everything looks like a great deal, and you may jump too quickly at a deal that isn’t as good as it seems. Recalibrate your sights based on the area where you’re looking; don’t bring your old property value guidelines along for the ride.  

Forget Your Old Neighborhood Property Values

The first thing you ned to do when you’re moving from a high priced area to a low priced area is to forget your old neighborhood’s property values. If you’re moving from a place like Boston or San Francisco where a 1-bedroom condo may be valued at $350,000, or more, a 4-bedroom home for $199,000 may seem like a killer deal. In reality, though, that killer deal might not be such a great deal for the new neighborhood; it only seems great in comparison to the prices you’re accustomed to paying. Forget your old home values when you move to a cheaper area and start from scratch.

Research the Market to Determine Home Values

When you move to a new area, the first thing you should do is research market values. You need to judge home values based on the market; not based on what you’re accustomed to paying. A $199,000 home can seem like a great deal, but you may find that in the new market, the home is really only worth $175,000. Working with a savvy real estate agent can help, but you should also examine market analyses, look at a wide sampling of home values and check comps to get a good sense for what prices should be in your new market.

Thinking that $200,000 home is a great deal because it’s better than the home that sold for $198,000 a month ago? Think again. Comparable home sales only tell a part of the story. That home that sold for $198,000 may have had $18,000 in seller’s concessions, making the real value of the property around $180,000. At that price, the $200,000 home doesn’t seem like such a great deal. Don’t be misled into paying too much for a home based on comparable sales data.

Learn the Whole Story on Price

Sellers who are motivated to sell are more likely to make concessions that aren’t necessarily reflected in price. To sell a $198,000 home, the sellers in one situation paid the closing costs, contributed $4,000 for an interest-rate buy down, and escrowed money for roof repairs. The total value of these concessions was nearly $18,000. That made the real value of the $198,000 home closer to $180,000.

When you’re looking at comparable home prices, ask yourself what you don’t know about the story. Were there seller’s concessions or other circumstances that led to the home’s value being different than the home’s price?

Is there a Change in Market Inventory?

Comparable home sales are only good for a finite period. Depending on what a real estate market is doing, comparable sales could be accurate for 8 months or 2 months. Ask some questions when you’re considering comparable properties. Is there a change in market inventory? Are homes staying on the market longer, or are there more homes on the market? Changes in market inventory may signal that price is moving up or down, and that comparable home values from a few months ago may no longer be accurate. Make sure you know what the market is doing when you’re considering comp values.

The Difference between a Low Offer and a Lowball Offer

A low offer might be less than the asking price, but not an insulting amount less. If a low offer is justified, it might not be a lowball; but if you make a low offer that isn’t justified, it’s a very fine distinction between a low offer and a lowball offer. You generally shouldn’t make a really low offer, except under certain circumstances.

It’s Ok to Make a Low Offer Based on Market Value

The only situation where it really doesn’t evoke heated debate to make a low offer is to make a low offer based on market value. If the homeowners have listed a home for $299,500, but comparable homes have recently sold in the $280,000-$300,000 range, then it might be acceptable for you to make an offer of $280,000.

If your offer is within the range of recent comparable home sales, it isn’t a lowball offer; it’s simply a low offer. A low offer that falls within the range of comparable home sales typically won’t insult a homeowner, although it may spark a debate over the value of the home.

Base Your Low Offer on a Comparable Market Analysis

If you do decide to make a low offer, make sure it’s based on a comprehensive comparable market analysis. Make sure the sales data is recent, and that the comp houses are similar to the home on which you’re bidding. Ideally, your real estate agent should have first-hand knowledge of comparable houses in order to ensure your CMA is accurate, and justify your low offer.

If you’re buying in a buyer’s market, you might be able to negotiate escrow credits with the seller. If buyers have the advantage in the market, some sellers might be willing to offer escrow credits to ensure that a home sale goes through. One useful credit that sellers sometimes offer is to negotiate nonrecurring closing costs in escrow.  

What are Nonrecurring Closing Costs?

Nonrecurring closing costs are one-time charges for generating your loan and buying your new home. These one-time costs might include: appraisal, credit report, title insurance, property inspections, or loan points. Closing costs on your home can range from 3% to 5% of your home’s total value, so these nonrecurring closing costs can add up to thousands of dollars.

When Do Sellers Pay Nonrecurring Closing Costs?

Sellers might be willing to negotiate a credit to pay nonrecurring closing costs in a buyer’s market, if sellers have had trouble making a deal or want to ensure the deal goes through. As a buyer, if the seller hasn’t offered to negotiate a credit for nonrecurring closing costs, it might still be acceptable for you to ask for this in negotiation. The only time you might want to avoid asking for an escrow credit for nonrecurring closing costs is in a multiple-offer situation, or if you’re buying in a seller’s market.

Price Reductions versus Credits

One common question about escrow credits is price reductions versus credits: why a credit, and when is a price reduction appropriate? Price reductions generally aren’t helpful if buyers are strapped for cash.

For example, if buyers have $50,000 to put down on a $250,000 home, that puts them at 20% down and reduces loan costs and insurance fees. However, if buyers also have to pay $10,000 in closing costs, that effectively puts them at $40,000 down payment, which means it only covers 16% of the loan. This can result in a loan at a higher interest rate, plus higher up front costs.

Reducing the cost of the home by $10,000 to $240,000 only reduces the 20% down payment to $48,000, which still means the buyers won’t have enough cash to cover closing costs and a 20% down payment. However, if the seller will cover the closing costs in escrow, the buyer has to come up with less cash up-front.

If your dream home is new on the market, attractive and reasonably priced, you might face competition for the property. What can you do to avoid entering into a bidding war and losing your dream home to buyers with deeper pocketbooks?  

Let comparable sales guide your decision.

First and foremost, you must make a decision about how much you’re willing to pay. Don’t let emotion sweep you away and tempt you to bid far more than your budget. Use comparable sales and fair market guidelines to determine the most you’re willing to pay, and don’t go over that amount.

Sweeten the deal with extras to entice sellers.

It isn’t always the highest price that gets the deal. Even if you can’t go above a certain price range, try sweetening the deal with little extras to make things easier for the sellers. Consider renting the home back to the sellers after escrow so they have longer to relocate, or arranging an extra-long escrow so they aren’t rushed into a new home.

Alternately, you could offer to pay a higher down-payment to show that you can obtain financing, or offer to buy the home ‘as is’ without asking the sellers to make corrective work. Get pre-approved for your loan so the sellers know you’re serious and have the cash to close. These little extras can make the difference between a rejection and an accepted offer – without exceeding your budget.

Make your best offer up-front.

Many buyers approach the home-buying process with the mindset of negotiating. If you’re looking at an attractive and well-priced home, you might want to consider making your best offer up-front. Going in with a lowball offer and negotiating up might be successful in a buyer’s market, but if you’re in a position of weakness, presenting your best offer up-front gets you a better chance of being considered.

Some sellers begin the process of selling a home with the best intentions, but position themselves or their home unrealistically. When the market doesn’t provide what they ask, they don’t adjust to the marketplace; they try to force the market to adjust to them. These sellers aren’t serious enough about selling their home, and can become a big waste of your time and money if you go through the process of making an offer.  

Make sure the sellers are realistic.

Many sellers simply list their homes for unrealistic asking prices. High prices are the number one reason that homes don’t sell. Some sellers price their homes unrealistically and then adjust the price when they find out their expectations are unreasonable. Other sellers simply refuse to budge, and those sellers typically don’t sell. Make sure the sellers are realistic in terms of pricing their home, or you might be dealing with fake sellers.

How motivated are the sellers?

Most sellers typically have a reason for selling their home. Maybe the family is expanding, or the kids have gone off to college. Perhaps the sellers are getting married, or divorced. Relocation is another common reason to sell a home. If the sellers are simply listing their home to see what they get, they’re less likely to adjust to the marketplace and be reasonable about making a deal. If you’re working with unmotivated sellers, beware; they might not be real sellers at all.

Look for cooperative sellers.

Cooperative sellers are willing to work with you to make a deal. They’ll disclose potential issues to the property, and work with you to resolve issues in order to push the sale through. Sellers who aren’t cooperative, or whose behavior is inconsistent, might not be real sellers at all. Sellers with ambivalence about selling their home typically aren’t really interested in selling, and may not be willing to make the deal you want. Save your time and money by avoiding fake sellers.