Bargain-hunting for a Home Can Backfire
It’s natural to want to save money when you’re making a purchase as large as a home. You want to buy the best home in the best neighborhood at the best price, and you may think the only way to accomplish your goals is to look for bargains. So you scour the market for FSBOs, short sales, foreclosures, or homes that have been on the Internet too long.
That’s a mistake. Here are five things you should keep in mind.
Low offers seldom work. Sellers don’t waste time with low-ball offers. You want the home you buy to appreciate in value, and sellers feel the same way. They want to net as much as possible, because they took a financial risk before you did. They feel they had the foresight to buy the same home you also want.
While some sellers may sometimes overprice their homes or act too tough in negotiations, they do respond well to respectful, reasonable offers. Show them the comparables you found that led you to make the offer. Be open to compromise.
While you’re going it alone, other buyers are getting professional help. Ninety percent of buyers use a real estate agent, so it doesn’t help much to drive around neighborhoods by yourself, or to call FSBO sellers who often aren’t home to take your call. Trust your Berkshire Hathaway HomeServices network professional to find you the right home. They know things you can’t know – like which homes are coming onto the market, which investors are planning to sell their inventories, and so on.
True bargains are rare. According to the National Association of Realtors, distressed homes, or homes in some stage of foreclosure, typically sell at a discount of 17 percent to other similar neighborhood homes. But distressed homes are often in poor condition, and may require expensive repairs and updates. In addition, a bank foreclosure or bank-approved short sale could take months to close, leaving you to pay more rent or lose the great interest rate you thought you had.
If a home has been on the market for a long time without a price reduction, there’s usually a good reason. You may have an unmotivated and most certainly an unrealistic seller, any of which could waste your time without resulting in a purchase. Move on to a deal that you can actually make.
The home needs work. Sometimes a home will be marketed “as is,” which suggests that it needs a lot of work. Beware when the seller doesn’t want to take responsibility for its’ condition. A home could also be well maintained, but it’s out of date, suggesting that the seller is unable to afford updates. In that case it may sell at a discount to other similar homes that have been better maintained or updated, but you’ll be paying for the improvements.
Are you willing to perform the work or pay someone else to do the work? Before you buy, get a home inspection and then get bids from contractors who can help you bring the home up to today’s standards. If the purchase price and repairs come to approximately the same price as a similar updated home in the same area, then go for it.
It’s not a bargain if it doesn’t suit your needs. A home is a good buy only if it suits your family’s needs. It should suit your needs and wants in terms of space, features, comfort, and function. If you buy a home without enough bedrooms or baths, you’ll pay more in transaction costs to sell the home and buy another that’s more suitable later on. Choose wisely in the first place because it takes time to build equity. Your home should meet your needs for a many years.