The Real Estate Buying Process - Step 1 Part A

1. Questions for the Seller- Is there any other interest on the property? Have any offers been made? Are any offers currently being considered? Have any offers been accepted? If yes, what happened to the contract? These are all examples of questions your realtor should be asking the listing agent because each is crucial to writing offer. Does the listing agent have to answer these questions? No, but the majority of these agents will. Below are a couple of examples why these questions are imperative to making a good offer and gaining acceptance.

Example: You are a buyer trying to purchase a two million dollar home that you need to have. This is the home of your dreams and you immediately go back to your realtor’s office to write up a contract. In the excitement you neglect to ask whether any other offers have been made. Your offer is presented, yet the seller’s accept another offer instead without entertaining any further negotiations. You are heartbroken and wish you would have offered more money and better terms.

What if the seller’s had received offers from two buyers a couple months before? The seller’s negotiated with both parties and finally accepted one. The buyer seemed motivated and the contract was strong. During the process, however, the buyer loses his/her job and can no longer get a mortgage. This prohibits the sale and the sellers now have to become actively listed once again. The second buyer, from a month earlier, is still looking for a home and wants to make another offer. This time the buyer stipulates that their offer is non-negotiable and in the event of multiple bids they will walk. The seller decides that they cannot afford to take the risk of losing such a motivated buyer and accepts this contract. 

This scenario is not that uncommon in real estate. The solution to this problem is asking these questions up front. Consider the same scenario, yet your agent is proficient enough to ask these questions. Remember this home is your dream home. You now know that these seller’s were about to accept another offer causing you to lose this house. You may be much more generous in the offer you make or you might ask the sellers what offer they would need to accept your offer on the spot. Who knows these sellers might be motivated by money and an extra $10,000 could win you the home.  If the home is worth an extra $10,000 you may decide to purchase the home; if not then you keep looking.

Whether or not you actually decide to buy the home is truly inconsequential. The point of these questions is to have enough information to make the right decision. Remember the more information you have the more power you have at the negotiation table.

2. The Current State of the Real Estate Market – Understanding the real estate market is the second crucial component to writing an offer.  Although many people believe the media is accurate in depicting a given market this is a misconception. Remember most media covers global, national, or regional headlines not local real estate trends. Sometimes these macro trends are not accurate descriptions of a local market. Understanding these trends is crucial to making an educated offer because using inaccurate information can cause you to lose your dream home.

Example: A clear example of the disconnect found between the media and the actual real estate market was in the
Summit, NJ area during the past two years. Many buyers watched, read, and listened to reports of a changing real estate market. These reports included statistics proving that the country, tri-state area, or even
New Jersey’s real estate market was becoming weak. “The housing bubble burst” is a classic headline during this period, yet these trends were not being seen in our area. In fact
Summit, NJ area homes were still selling in multiple bid situations. This was largely due to the fact that the Midtown Direct train line into the city made these towns a desirable location to live for commuters. Consider that during this same period the stock market and economy were doing well. This meant that stockbroker’s commuting to the city s were still receiving big bonuses allowing them to make better offers on real estate. 

What if a buyer found his/her dream home and, due to these reports, offered a ridiculously low offer? Soon two, three, or even more offers are presented and the seller decides to give everyone a second chance to come back with their highest and best offer. This buyer truly does want the home, but still believes that the market is weak. Consequently, the buyer presents a full price offer confident that no one will outbid the offer. The seller decides to accept another offer well above asking. The buyer is shocked because he/she never expected an offer over asking price to be offered in a weak market. The fact is that the market was never weak.

If the buyer’s realtors had researched the local market they would have found that the average home, sold over the asking price, sold approximately two percent over. With this information the buyer may have decided not to take any chances and offer four percent over asking. It all depends on what the market is telling you as a buyer and how you choose to use this information.

Example 2: Another example of how knowing the market can be crucial is when a buyer does not know what to offer. For instance what if a buyer knows that they want to buy the home, but does not want to overpay for the home?  This is a common question that realtors face because many buyers do not want to lose the home, but fear overpaying. The answer is simple. Their realtor should research the market to find the average days on market, list to sales price ratio, and rate of absorption for all homes recently under contract, sold, or active in the area. These stats may justify presenting an offer under the asking price. Consider a home that has been sitting longer then the average days on market without any offers. Making a full price offer may not be the smartest decision, yet a buyer unfamiliar with the market may make this decision to ensure an accepted offer. This buyer may pay more then was necessary to purchase the home.

As you can see each scenario leads a buyer to a different decision regarding the purchase price. The difference is an educated offer versus a non educated offer. Keep in mind that the educated buyer wins every time because they maintain control over the situation through the power of information.

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