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Some Tips for Taking Advantage of a Buyer’s Market
Presently we are experiencing what many in both the media and industry circles term a buyer’s market. Very simply, it is the first lesson from Marketing 101; when demand is high and supply is low, prices will increase, but when demand is low and supply is high, prices decrease. If you want to increase your price, you need to either increase demand or reduce supply. The challenge we face today revolves around the high number of people forced to sell for various reasons, and the perceived fall-out from loose lending practices.
As a potential buyer in this market, you are afforded a number of advantages over the seller that typically are unavailable. Before we go any further, I want to address a common mis-conception the buying public learns from mass-media outlets and certain market gurus… A buyer’s market does not mean you will receive any concession from a seller at all regarding price, and you may still end up paying top retail price for your next home. Nice homes in great locations will always command top prices, and if you think otherwise, you may be easily outbid by another, more aggressive buyer. We’ll return to price in a moment.
In this buyer’s market there are other significant ways in which you can save money and increase your purchasing power, and that is the focus of this article. First, let’s look at some options from a seller’s perspective. The seller’s goal is to make the maximum amount of money in the shortest time with the least investment into the property they intend to sell. To make any sort of investment in the property, the seller will need access to capital resources to fund the updates or repairs. A seller can avoid spending the cash or tapping a credit line for this venture and offer you the buyer a credit on price or in the form of a decorating allowance if they choose.
What typically happens, though, is the seller will not make the repairs or updates and leave it up to the buyer to either accept the home as-is, or to ask for some concessions in the purchase contract. My first tip for you in this buyer’s market is to therefore ask the seller to give you a credit for a decorating allowance, or to make the necessary repairs before closing. Now you may think I just wasted your time and gave you a useless piece of advice, but you would be amazed how many buyers are too timid or afraid to be aggressive with these types of concessions. If you do not ask, you will never receive. The worst that can happen is the sellers will say no.
Another way to save money in a buyer’s market is to include a provision in the purchase contract that requires the seller to pay all or part of the buyer’s closing costs and/or prepaids. This can have a tremendous impact on your buying power because these costs associated with buying a home are what makes the first few years of homeownership unprofitable. If you save this money, you will more quickly realize the benefits of appreciation and the reduction in your debt obligation to the lender. It is very important to coordinate with your lender, your real estate agent, and your financial adviser to determine exactly what to ask for so you receive maximum benefit. It is also critical that the contract be written precisely correct to ensure the seller cannot avoid paying certain costs on a technicality.
Let’s revisit price and look at why the buyer’s market hype will not affect an educated seller. Most sellers who have elected to list their home with an agent will have access to very detailed market data. It will be obvious to even the most novice seller what the market indicates their home is worth. If the sellers take the time and make the effort to prep their home to sell properly, and they heed the market data, they will most likely settle in on a price that a competent buyer will fairly pay. This means you will probably not be receiving any break in pricing from this type of seller.
But you are a savvy buyer fully informed on the market and fearless in your negotiations. You will realize that the asking price is fair for the market and attempt to save money in the other ways mentioned above. Sellers are funny… They will settle in on a price, but will turn right around and give concessions worth thousands of dollars when confronted with a strong, motivated buyer and a signed purchase contract.
While I have remained general in my suggestions, you can easily tailor these ideas into your specific situation and confidently save money, ask for and receive repairs or updates, and increase the value of your purchase. Never forget that quality and location bring a certain value to the sellers, so don’t make the mistake of low-balling your dream home and then losing it because you offended the sellers. Be fair with the price, but get your concessions and savings in other, more creative ways. This is how I believe you can best take advantage of this buyer’s market.
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