“Do you want to make an offer?” When harried home buyers finally find a property that merits a resounding “yes” to this question from their real estate agent, they may think the house hunt is finally coming to a conclusion. Not so fast.
Before submitting an offer, buyers should employ consumer smarts, because thoroughly researching how much a house should cost and bidding accordingly can save a buyer thousands, says Joseph Eamon Cummins, author of “Not One Dollar More! How To Save $3,000 to $30,000 Buying Your Next Home” (Kells Media, $19.95).
Intelligent bidding should also help a buyer feel more secure and confident about the purchase. That’s because before submitting a bid, buyers should know exactly how much similar homes in the area have sold for, what concessions they want from the seller, and what’s ahead in the purchase process.
Some buyers don’t have much of an appetite for negotiating. “I have seen some buyers make their best offer right away, and that’s it,” says Peter Steinhagen, general manager of Re/Max Partners, Berwyn.
In the Chicago area, though, a back-and-forth bidding volley is commonplace.
A buyer can expect a counteroffer from the seller to his initial bid, and the volley often goes back and forth a couple of times. In some areas of the country, says Sis Jones, an agent with Prudential Burnett Realty, Buffalo Grove, homes sell at list or within 1 percent of list, and such volleys are at a minimum.
Indeed, the fact that a home’s list price isn’t the expected sales price is the raison d’etre behind the bidding process. The seller hangs out a price tag, hoping to get as close to it as possible; the buyer wants to make an enticing offer that is nevertheless below the listed cost.
An informal poll of area real estate agents reveals that actual home sales in different locales in the Chicago area tend to average varying percentages below list price. For example, “In Gurnee, homes tend to sell at about 96 percent of list,” says Karen White, a Baird & Warner real estate agent.
In western Cook County, it’s a notch lower, about 95 percent of list, says Steinhagen. Whereas in the northwest suburbs, final prices have been averaging about 97 percent of list, says Carol Buchen of Century 21 Anchor Real Estate, Arlington Heights.
The typical amount of a first offer often depends on how close to sales price homes actually go for, notes Ray Felson, president of The Buyer’s Agent, HomeBuyer Connection, Chicago. A usual first bid falls somewhere between 90 and 93 percent of list, he notes, with buyers realizing the actual sale may come in at whatever the typical average under list is for that locality.
Author and consumer advocate Cummins contends that buyers should start from a tough negotiating position and strike an initial bid that’s about 15 percent below list. The actual price that’s agreed on after the counteroffer volley stands a better chance of being lower with that strategy, he says.
However, Realtors say that they have seen some sellers become so angry after receiving a very low initial offer that they refuse to negotiate at all with the buyer. Even Cummins agrees that a low-ball bid is only appropriate if the market isn’t “hot” (a hot market is one in which most homes sell in a matter of weeks) or if the buyer is confident that he can walk away and easily find another attractive purchase on the market.
In fact, Realtors underscore that averages and typical practices are just that–the norm for home purchases overall. A buyer should thoroughly research how fairly a particular home is list-priced and adjust his bid accordingly.
To illustrate, Felson relates that a buyer he recently represented was interested in a home priced at $310,000 in Naperville–where sales average 97 percent of list. “We went into the tax database (on a computer) and found that the owners had bought the property just 14 months earlier and paid $285,000 for it. No improvements were made, and the buyer made a low initial offer, and he ended up getting the house for $295,000.”
That’s just the right strategy, concurs Cummins. He suggest attaching an addendum to the bid that explains any facts that justify a lower price.
Cummins also suggests buyers invest some time and energy to investigate why a particular home is on the market, and how fairly it may be priced. “Go out and knock on neighbors’ doors, and talk to the local shopkeepers. That’s where you get really solid information.”
Buyers do indeed do that type of legwork, reports Karen White, an agent with Baird & Warner, Gurnee, and it’s especially common for transferees to an area to talk to area residents, police, etc., to glean as much information as possible.
Computer-savvy buyers use the Internet to scope out facts on home prices, taxes and other data. Real estate agents also may be able to search various databases.
Illinois real estate agents have had more latitude in offering buyers frank advice on how much a home is worth since the “Brokerage Relationships In Real Estate Transactions Law” went into effect in 1995. Before that, unless they were specifically designated as buyers’ representatives, real estate agents were actually working for sellers, and were legally bound not to advise buyers of their own best interests.
“My job is to look at the marketplace to see what the property is worth,” explains Patti Zurla, with Re/Max Advantage, Antioch. “In the past, we had a fiduciary responsibility to the seller. If a buyer asked, `What will they take?’ I could only give them the list price. Now, I can say, `Well, it’s listed for $200,000, but it was purchased just a couple of years ago for $150,000.”
One bit of research buyers should expect from their agent before bidding is a listing of what comparable homes in the vicinity have recently sold for. And, because Realtors usually operate in a particular locale and have their ear to the ground, they can pass on any pertinent scuttlebutt: a seller’s motivation for moving, whether a new highway is planned nearby, etc.
Moreover, if a real estate agent knows something is faulty about the house itself, such as a leaky roof, says Zurla, he must share that information with the prospective buyer.
Although the new law gives agents more freedom to serve buyers’ interests, it doesn’t go far enough, observes Felson. He is a specialized buyer’s agent, meaning that he will never take a listing to represent a seller, nor will anyone in his firm.
Indeed, unless they specialize in buyer representation, real estate agents may serve as buyers agents even while they have active listings of houses for sale. If, however, someone wants to bid on a home listed by his buyers agent, that agent must step away and ask another agent to represent the buyer in the bidding, unless the buyer and seller agree to the agent serving as a “dual agent” and representing both parties in the negotiations. When dual representation does occur, “I become more of a facilitator than an adviser,” says Zurla.
Of course, when a buyer makes an offer, it’s not just the price that can entice the seller, but other factors, such as when the buyer wants to actually close and take possession of the home. Realtors say most offers are contingent upon an acceptable home inspection, appraisal, and the buyer’s mortgage approval.
One way to really dilute the appeal of an offer is to have the buyer make it contingent upon the sale of his current home, notes Buchen. If a buyer has a current contract on his home, but makes his offer to buy contingent on the final sale, the offer is weaker, but not as flimsy as it is if it is contingent on the sale of a home that isn’t yet under contract.
Felson says he also likes to include a time limit of 24 hours on any buyer’s offer. “That way the seller doesn’t have time to shop the offer,” he explains. “The listing agent can’t call other agents who are representing interested buyers and tell them he has an offer, but that their buyer can still get the property if they come in at full price.”
The ultimate strength in negotiating is the ability to stop the process, notes Cummins. If a buyer has strict parameters on what he’s willing to pay, and won’t go a penny above that figure, he will probably get his price, says Cummins. Most real estate agents will recommend that buyers become prequalified or preapproved by a mortgage lender so that they are then able to determine exactly how much they can afford to pay.
When Hugh and Ann Miller recently bought a home in Skokie, they had a firm upper limit in mind, relates Ann. They carefully pored over listings on comparable homes in a 10-block radius, she says, and were then able to better determine the worth of the home they ultimately purchased, which had improvements and extra features. Without such diligence, the Millers wouldn’t have the satisfaction they now enjoy of buying the right home at the right price.
