- Never sign anything with a real estate agent unless you are making an offer to purchase.
- Make sure you fully understand your financial capabilities before searching for a property. Get a pre-approval from a bank and make sure that they confirm with you that you can get your financing fulfilled by the bank before making the offer.
- Make sure to find an extremely good, extremely honest lawyer and property inspector. This will be important when doing shopping. Make sure to research the real estate documents. An example of this is the OREA Forms.
Ask several real estate agents to be included on there distribution lists. They will email you listings as they become available. This will allow you to be sure that you are getting access to the most up-to-date real estate listings as they come available. It is, also, important to sign up with several agents mailing lists in order to ensure you are getting the most recent postings. You can also make bookmarks on potential properties, and potential neighborhoods to view frequently.- Begin tracking the real estate market in your area by frequenting different home listing websites frequently. Track open houses and visit the open houses as well. Track all your results in a easily defined database. By doing this you are building a list of comparable market prices to see if you are getting a good deal or not.
- Contact the listing agent to get a showing of the house that you are interested in. If the listing agent refuses to show the house to you without you having a listing agent, then threaten the listing agent by telling them that you will contact the owner if you aren’t able to see the property. How do you think the owner will feel about his agent refusing to show the house to a pre-approved potential buyer.
- When you find a house that you are interested in making an offer on, then determine what the fair market value is of the property. Use your market analysis to help you determine what some comparable properties are, and what the comparable property prices are. If you have been actively tracking properties, then you probably have a better understanding of the market than most agents. Ask the seller to complete a property information sheet. An example of this type of document is the Seller Property Information Statement.
- Make an offer. The agent may request that you sign either a buyer’s representation or a buyer’s customer service agreement. Only sign this agreement with the listing agent and no other agent. If you sign with another agent, then you would have thrown away all your hard work finding the property. Also, ensure that the form is for the specific property only. If the deal falls through and you do not get the property, then you will be stuck with a buyer’s agent. Your offer should be 2% to 2.5% than what you originally would of offered, and this is because of the difference in fees. This would mean that your maximum offer is at least 2.5% lower than the fair market value of the property based on your analysis. Make sure that you make the offer conditional on financing, inspection, and review of the offer by your legal representative.
- Once your offer has been made, now it is up to the seller’s agent to try to cut a deal with the seller. The seller’s agent will try to convince the seller to take the low priced deal by possibly getting a kick back from the real estate agent. Let the seller and the seller’s agent do the negotiation of the offer. The seller’s agent will also work harder for you because of the increased commission that they will receive. The worse case scenario is that neither the seller nor the seller’s agent is willing to renegotiate, and you have to walk away from the property empty handed.
- Obtain financing, clear the inspection, and have the lawyer review all the documents. If everything goes according to plan, then you will be able to waive the conditions, and you will be moving into your new home.
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#1 by Felix on May 26, 2009 - 10:07 pm
Could you clarify point 6 and 9 with respect to presenting a good offer price and negotiating (will the buyer need to talk with the dual agent regarding the commission they will receive? Does the buyer know of the commission they will receive before making an Offer?)
#2 by admin on May 27, 2009 - 7:24 am
With Real Estate agents, they know on all properties what the commission rates will be on the property before they send you the listing. This amount is usually a percentage of the sale price of the property.
The buyer does not know the exact commission the agent will get paid, but it is usually 3% for the seller’s agent and 3% for the buyer’s agent.
The buyer will need to negotiate with the listing agent the total commission that they will receive. For example, the total commission for both the selling agent and the buyer’s agent is 6%, and you negotiate the seller to do both jobs for only 4%. The total commission the agent receives is based on the negotiations that you have with the agent.
Be forewarned. Most listing agents will resist doing this and you have to be fairly skilled in your negotiation abilities in order to complete this.
Most times, they will try to refer you to another agent at there brokerage because that agent will give them a referral back on a later deal. Don’t fall for this trap.
#3 by Felix on May 27, 2009 - 10:41 am
Thanks for your reply,
I see that the plan is to get the listing agent to become the dual agent and to have them get a bit higher commission and cut out the buyer agent’s commission
I am actually a bit confused with your point 8.
It says:
“…Your offer should be 2% to 2.5% than what you originally would of offered…”
Did you mean the initial offer should be 2-2.5% MORE than the market value (the price of the property without ANY commissions marked up)?
Ex:
The seller wants 300k for the property. Listed with MLS, the property is listed for 315.789k (5% of that listing price is 15.789k)
Now, my max offer should be what the seller wants (300k + 2-2.5% (to compensate the seller’s commission) = 306.122k – 307.692k approximately
And depending on what I think the “market value” should be, this offer should be varied. Ex. I think the seller is asking too much, the property is only worth 290k. In which case the offer would be 290k + 2-2.5%.
You also mentioned: ” … This would mean that your maximum offer is at least 2.5% lower than the fair market value of the property based on your analysis…”
By fair market value, you mean the price of the property without any commissions marked up that a knowledgeable seller is willing to sell at to a knowledgeable buyer who’s willing to buy.
And if so, you mean the max offer should actually be in the above example, 290 – 2-2.5%? Or are you referring to the listing price of 315.789k to take the 2-2.5% off?
Also, do listing agents usually just inflate the seller’s offer by the 4-5% and list it on MLS?
Thank you so much for your replies,
Felix
#4 by admin on May 28, 2009 - 9:36 am
In order to do the calculations, you have to understand that the sale price has usually been increased twice from the actual price on the MLS.
The seller first has a value for the property in mind before they list. They usually derive this value from the going rate in the neighborhood. This is usually a good estimate on the actual value of the property.
The seller then inflates the price by another 5%-10% because everyone thinks that they have the best house on the block.
The seller’s agent always trys to get a higher value to earn a higher commission, so they will increase the buyer’s price by an additional 5%-10% over the fair market value of the area.
This means the initial price has been marked up anywhere from 10%-20%.
The seller’s agent will mark this up even more if they think that they will be able to move the property.
Keep that in mind when making an offer.
When you make an offer you will want to subtract the mark-ups and the buyer’s commission.
Listing Price – increases- commission = Fair Market Value
The first offer you make on a house with fairly low competition against your offer should be 22.5% below listing. (20% for mark-up and 2.5% for the buyer’s agent commission)
The seller’s agent will advise you the odds of this getting accepted, or will tell you what will get accepted.
You need to negotiate with the seller’s agent what the discounting will be exactly and undercut this.
Negotiating a property that has high demand will be difficult, but a house that has been listed for 30+ days will be easier for you.
#5 by Tina on June 18, 2009 - 6:58 am
I am trying to buy my first home without a buyers agent. the home was selling for $135,00 on mls. i made an offer of $130,000, ask the seller to pay 3% of my closing cost, and title, escrow, home warranty service plan, inspection and termite . They have accepted the $130,000 but they are said they are not going to pay the 3% closing cost. They are willing to pay for the title, 1/2 escrow, and a home warranty service plan. Is this a good deal or should i stick with the 3% closing cost and what they are willing to pay? please help me.
#6 by Top Home Loans on June 18, 2009 - 9:48 am
This depends on the demand of the property and how much you actually want the property. With your offer, you have it at 96% of the listing price, and some extras included; however, if in your area, the average listing is going for 90% or anything below 100%, then this is not a good deal.
There are a lot of different variables that you have to look at, but the best advice is to speak with the seller’s agent.
The seller’s agent will be working for you, not the seller, so they will have a good idea on how far the seller is willing to bend before they say no.
If the seller is not willing to deal at a certain level, then have the agent try to talk the seller into it. If the seller’s agent cannot talk them into your terms, then you may have to take what is being offered.
#7 by Tina on June 18, 2009 - 12:39 pm
Is escrow the same as closing cost?
#8 by Top Home Loans on June 20, 2009 - 8:58 am
Escrow is mainly for property taxes and insurance. Closing costs would reflect escrow + all the other fees involved in moving (legal, appraisal, inspection, moving fees, taxes, etc.)