Negotiation is a fluid process that’s all about leveraging your advantages, controlling your emotions and making a deal.
Control yourself and your emotions. We all know about the grocery store impulse buy — imagine if you did the same with a house. You’d be out a heck of a lot more than a $1.50 candy bar if something went wrong. Keep your emotions at arm’s length and approach every aspect of the deal rationally. Take your time! There’s virtually nothing pushing you to close the deal. The seller may try to pressure you to make a decision, but don’t fall prey to faulty judgment because you were rushed.
Be realistic. Lying to yourself about your finances is a great way to get into a lot of debt very quickly, ending up with a foreclosed house or bankruptcy. Be realistic about what you make, what you save and what you can afford. Don’t shop for an ideal house above your means.
Pick your style. Some negotiators go into it wanting to win. You win, the seller loses. This ruthless, cutthroat negotiation style can get you a great deal. It might also close off certain avenues that might have otherwise brought you to an ideal home. The other tactic is the compromise; the “everybody wins” style. Make the best of the situation for both sides, cut deals that benefit both and work in all market conditions. Cutthroats are tolerated; cooperatives are assisted.
Deal in person, in paper. Phones are for appointments, not for deals. Don’t make or accept an offer over the phone. Oral agreements are valueless. They don’t hold up in court and they don’t reflect in paperwork unless that paperwork is crafted around the agreement. If it’s not in paper, it might as well not be true.
Making the Offer
- Good offers are realistic. Don’t lowball the seller with an expectation to raise the price later — the seller can easily say no and refuse to deal
- A good offer has factual finances behind it
- A good offer is open to future alterations if remodels and work is required down the line
You will, more likely than not, get a counter offer. This allows the seller to tweak the terms of the offer to be more to their liking. This could change escrow dates, prices and other details. You review and counter-counter-offer until the two parties agree. If details are too contentious to come to an agreement, that’s a sign the deal won’t happen.
Most of the time, you want to negotiate in a buyer’s market. This isn’t always possible. A buyer’s market gets you the best prices with a motivated seller.
Avoid low-ball offers. What is a low-ball? A low-ball is an offer that’s too low to be realistic. If a seller accepts it, you stand to make quite a bit of profit, in which case you’re probably in for a shock. Most of the time, they won’t accept. From a seller’s point of view, the buyer probably didn’t do their research. At best they assume your ignorance, and at worst they find the offer insulting.
Beware of Fake Sellers
Real estate is fraught with peril, and fake sellers exist. What do they gain from being a fake seller? You’ve probably seen fake sellers in other circumstances. The garage sale with everything priced near retail or eBay prices is a primary example. These are the people who like the idea of selling their home, but don’t realistically want to. Here are a few warning signs.
- Are the numbers realistic? If they’re selling a $250,000 house for $600,000, you’re not going to whittle them down — they don’t want to sell
- Are they motivated? People sell their homes because they need to, whether it’s financial stress or the desire to move. If the seller has no discernable reason to sell their home, they probably won’t accept an offer
- Do they have a time frame? Once again, sellers have a reason to sell, and often that reason includes a deadline. If there’s nothing pressing them to make a deal, they’ll hold out until you’ve wasted your time
- Are they genuine? Bad sellers hide details, lie about the condition of their home and generally make you focus on buyer beware. If you keep encountering bad surprises, back away from this fake seller
- Do they cooperate? If they’re uncooperative, they might have something to hide. It’s not worth the time
Excellent Online Resources
There are a number of excellent online resources you can take advantage of in your search for a home. These range all through the process, from personal finance to escrow.
- Realtor.com is excellent for searching house listings. It’s a massive national site with millions of listed homes, which gives you two opportunities. First, you can use it to browse homes in your prospective area to get an idea of property values and amenities. Second, you might even find a few homes to look at.
- FEMA, the Federal Emergency Management Agency, has information on disaster statistics for any given area. This will help you learn what disasters may occur in your prospective areas so you know what you need to insure against. It might also give your home inspector clues to look for damage in old used houses.
- The American Society of Home Inspectors is hands down the best way to locate a quality, licensed home inspector in your area. They know their stuff.
- The United States Department of Housing and Urban Development is a great resource for two things. The first is listing and assistance for those with disabilities and assisted living. Second, it’s great for finding any complaints about discrimination that have cropped up in your area.
Beware of online “how much house can you afford” apps. These may give you a basic idea of what you can afford, but they won’t tell the whole story. They don’t know your credit score or any flags in your credit report that can change your rates. They also don’t have your entire financial situation on hand, which can greatly affect you – which is why we published this extensive article for our homepage!
Things to Do After you Buy
The day is finally here. The escrow has been transferred. You’ve moved into your new home. Your new home! You are, officially, a homeowner. The majority of the work is done, but you’re not off the hook just yet. Here are several things you need to take care of as a new homeowner.
Maintain your budget. At the start of this whole process, you did a detailed audit of your finances. You learned your spending habits, figured out how to trim the fat off your monthly bills and hopefully learned something about responsible finances along the way. Now that you own a home, you should keep up with your budget. Maintaining sound financial habits will help you keep up with your obligations and keep some money on the side to continue investing in your future.
If you don’t have some already, you may want to invest in a budgeting program. It can be as simple as linking your bank account to Mint.com, as manual as creating an Excel spreadsheet or as automatic as buying and setting up Quicken. Feel free to try the temporary free versions of the various budgeting programs so you know if it works for you. The easier it is to maintain your budget, the easier you will find it to follow.
Set up automatic payments. This idea isn’t for everyone, but it works for most people. You’re going to be stuck with your mortgage for 15 or 30 years. During that time, it’s easy for paperwork to get lost. A bill lost in the mail or late can lead to late or missed payments. A one-time problem can cause a cascade of additional fees.
Most modern lenders allow you to set up a direct debit to your bank account, typically on a scheduled day of the month. This allows you some control, without risking errors. Automatic billing is excellent when you have stable income. Note that if you do lose your job and have trouble with your finances, you will probably want to remove automatic billing to avoid the risk of overdrafting an account.
Rebuild your savings. Chances are good that your down payment wiped out most of your emergency fund. Now that the house is closed and the purchase made, it’s time to start rebuilding that fund. You still have house payments to make, so putting away extra money will be important if you run into financial trouble. You should definitely consider this a top priority. Extra money once your fund is rebuilt can go to retirement, saving for another large purchase or entertainment.
You might consider, once your fund is back to a six-month buffer, applying some of your extra cash towards your principal. Paying it down earlier will reward you with lower overall payments and a higher degree of financial freedom. The longer it takes to repay, the more you spend on interest. The contract term, 15 or 30 years, is the maximum amount of time you have to pay it. There typically is no penalty for paying more than the minimum each month.
Calculate what 1/12th of your monthly payment is, then add that much extra each month, making sure it applies to the principal. Factoring in the lower interest over time, if you keep it up, that one extra payment each year will cut over four years off a 30-year term.
Ignore the junk mail. As a homeowner, you were immediately put on a number of mailing lists. You’re a member of an entirely new demographic. This means you become the target of a number of “services” offered to new homeowners. Some of these include:
- Mortgage insurance. If you bought your house with less than 20 percent down, you have to get mandatory Private Mortgage Insurance, or PMI. If you already have it, or if you paid with a 20 percent or more down, you do NOT need mortgage insurance. The offers you get in the mail as a new homeowner are typically overpriced for the meager amount of coverage they offer. Mortgage insurance might be a good idea in certain circumstances, but chances are you don’t need to bother with it.
- Home security offers. A home security system is a good idea to protect your investment. That said, the offers you get in the mail are aimed at new homeowners to scare them into purchasing an expensive security system. If you want to get a home security system, treat it like any other large purchase. Take your time, shop around, talk to security specialists and get quotes
- Refinance offers. You might get your first refinance offers within months of closing on the house, which is certainly not enough time for interest rates to change that drastically. Refinancing is always an option, but you shouldn’t refinance through a company sending you direct mail shortly after signing your first loan.
Keep an eye on interest rates and property values. These are two figures you should check every six months or once each year. Watch the local and national interest rates. If you have fixed-rates, you can attempt to refinance if rates drop below where they were when you signed. This refinancing might fail, but if it works, you’ll slash your house payments. If they rise, well, you can revel in your fixed-rates and ignore refinancing requests.
Property values have a different focus. When your property taxes are figured, they consider the estimated value of your home at the time. If property values are on the rise, your taxes may rise as well. On the other hand, if property values fall, you probably won’t hear about it from the IRS. In these cases, you should talk to the county tax assessor to get a reassessment. If they appraise your house at a lower value, your property taxes will decrease.
Keep records. This goes hand in hand with budgeting. Keeping detailed records, as well as receipts, is a very important task. This goes double for any purchases you make with an aim to improve the value of your home. You can use these records as proof of the value you’ve put into your home, which comes in handy for a number of possible purposes down the road.
Start maintenance early. If you set yourself a schedule for replacing furnace filters, cleaning the home, checking gutters and all the other little maintenance tasks, you’ll have two things. First, you’ll quickly develop a working knowledge of your new home, inside and out. Second, you’ll be able to recognize problems as they develop, rather than when they explode. Preventative maintenance early will save you a lot of time and money down the line.
Gather information. As a homeowner, if something happens, you need to handle it. That means you need to know who to call in the event of an emergency or an issue. Talk to your neighbors, find out whom they recommend for maintenance tasks. Gather a reference book of phone numbers for places like your power company, your water company, your appliance maintenance people and local businesses that help homeowners. Learn the names and numbers of your neighbors so you have someone to call in an emergency. You don’t need to write down 911, but the non-emergency numbers for the fire department, police station, school, doctor’s office and hospital are all useful to have.
Furnish your home, but slowly. You just spent a ton of money on a house. Now you have a small apartment’s worth of items to fill a large house. You might feel that your possessions are spread woefully thin. You buy a chair, and then a sofa. An entertainment center to support the TV. A couple of bookshelves, and of course the books to fill them, all follow. Soon enough, you’ve spent thousands of dollars furnishing your home, and find you’re still out of savings and have home payments to make.
Furnishing your home is a good idea. However, before you go out and buy a dining room set, figure out what you can afford. No one is going to pressure you into filling your house with stuff. Buy a piece here and there, refurbish old furniture, hunt through garage sales and flea markets — deals come to those who wait.
Start early with organization and storage. There is no better time to organize your stuff than when you’re first moving in and unpacking. Getting a head start on organization and storage will save you plenty of hassle over the coming years. Of course it’s going to slip and fade, but a solid base is easier to return to than it is to create out of a mess.
Enjoy your new home. The most important part of home ownership is enjoying your home. Sit back, relax and look around at what you own. You went through a lot of hassle to buy this, so you’ve earned the relaxation.