House price	$ 250,000
3% commission	$ 7,500
2% commission	5,000
BIG SAVINGS =	$ 2,500

As you can see, you SAVE BIG if you simply negotiate with your agent before they negotiate for you. By doing so, you could have $2,500 more to put toward your house. It might even be enough to cover your closing costs. One easy way to get the 1 percent back from your agent is to have them credit it to you at closing. Agents are familiar with this simple procedure and will know just what to do if you negotiate such an arrangement. The settlement attorney who closes your loan will simply cut your agent a check for 2 percent instead of 3 percent, and credit the difference to you.

Do You Need an Agent at All?

I know real estate agents are hating me about now, but you may not need an agent to help you buy a house at all. There. I’ve said it. There’s too much money at stake to be polite. Whether or not you need an agent depends on how extensive your search will be and how intensive your negotiations will be. I’ve done it both ways. (Selling a house without an agent is a blockbuster money-saver, too, and I’ll discuss that in detail in Chapter 10.)

Remember how I said an agent helped me fill out the offer form for my condo, the first home I ever purchased? Well, there’s more to the story. The seller countered my offer and I didn’t think the counteroffer was good enough. So I walked away. Disheartened, I stopped my search for a couple of months. The contract I had entered into with my agent expired. I found I was still daydreaming about that perfect condo and it was still on the market.

So I approached the seller directly. Remember, I already lived in the community. We were neighbors. I could see the condo I coveted from the bedroom window of the one I rented. I asked the seller if she’d like to sell it to me on a for-sale-by-owner basis. She wasn’t comfortable with that because her agent had done a lot of work marketing the place. We struck a deal to pay her agent 3 percent and discount the price by another 3 percent, since my agent was out of the picture. I saved about $5,000 on the deal. See?

Benefit of Working without a Buyer’s Agent

Price paying two agents commission (6%)	$ 179,000
Price paying one agent commission (3%)	173,630
BIG SAVINGS =	$ 5,370

My own story came about in a backwards sort of way, but here’s how you could put the idea to use. If, for whatever reason, you don’t need much help searching for a home, consider looking on your own. Properties that are for sale by owner could be the best deals of all, because the owners can be more flexible with the price given that they don’t have to pay an agent. Or you can make an offer on a house that is represented by an agent, but ask that he take only his 3 percent commission. Believe it or not, when people don’t request this, seller’s agents sometimes scoop up the entire 6 percent commission, even though they haven’t done any extra work.

If you don’t use an agent, you may still want some help writing up the offer. As I said, in many jurisdictions it’s just a basic form. But if you’re not confident doing it yourself, hire a real estate attorney to help you. We all know lawyer’s fees are high, but not as high as real estate agents’ commissions. You’ll pay by the hour for a couple of hours of work. I bet you’ll spend a tenth of what you would on real estate commissions.

The All- Important Offer

Once you’ve found the right house, it’s time to focus on paying the right price. This is exciting stuff because, since it is the single biggest purchase you will make in your lifetime, it could be the single biggest savings. You’ve already chosen a home in an appropriate price range. Now let’s see if you can push the price down even further.

Who’s Got the Upper Hand?

Your first step in determining your offer is to figure out who has more power. Is it a buyer’s market, where there are more homes for sale than there are buyers? Is it a seller’s market, where the opposite is true? Or is it a balanced market with roughly equal supply and demand? The state of the real estate market determines your entire approach.

Don’t base your conclusions on what you hear on the national news. Even if real estate nationwide is sluggish, it is possible for local neighborhoods to be hot and vice versa. So you need to focus in on the local data. For instance, a good indicator is the number of days houses are remaining on the market before selling. Agents call this the days on market (DOM). Find out the DOM for the house you are interested in, but also for the entire neighborhood.

If it’s a buyer’s market, you will be able to make an offer significantly below the asking price. On top of that, you can also request that the seller pay some or all of your closing costs. You even have the upper hand in choosing a closing date that is convenient for you. (But you may want to give the seller the closing date they want in exchange for an even lower price.)

If it’s a seller’s market, wait until it’s a buyer’s market. Just kidding. Waiting could save you money, but it might not, because if homes keep appreciating, the entire market will be higher priced when you finally jump in. If you are settled and secure and your family is ready to buy a home, go for it, as long as you plan to live there for at least five years. In a seller’s market, the key is to make a clean offer, free of messy complications like demands for repairs or waiting for your existing home to sell.

What Are the Seller’s Needs?

Even in a seller’s market, the seller may have problems or needs that give you power. For example, divorces and deaths can create opportunities for buyers because sellers often want out fast. In addition, vacant homes often mean somebody is making more than one housing payment. Contact the seller’s agent to learn about the seller’s needs so that you can better plan your offer.

Here are some examples of needs that can spell opportunity for you. Perhaps the seller needs a long escrow period before moving out of the home. Maybe the seller has had previous real estate transactions fall through, and will be comforted by a substantial good-faith deposit and a lender’s preapproval letter. You could encounter a seller like my husband, who absolutely hates to deal with home repairs and would lap up an as-is offer.

Skip Home Warranties

If the seller is offering a home warranty, ask for a cash credit toward closing costs instead. Home warranties have so many exclusions and age limits that you’ re better off using the cash to pad your own home maintenance fund. For 10 years, Jackie H. paid $375 annually for a home warranty. When her air conditioner blew, she figured it was about to pay off. Sure enough, the technician said her AC unit was hopeless and needed to be replaced. But then came the let down. The warranty company refused to cover Jackie’s air conditioner because it was 21 years old. The policy only covered appliances up to 20 years old.

If possible, find out how much the sellers paid for the property. If they haven’t lived there long, you can guess that they are probably concerned about getting enough money out of the house to recoup their closing costs and pay off their mortgage. If they bought the house decades ago and didn’t put any major money into it, you will know that they are looking at a nice potential profit. Perhaps they have more price flexibility.

Finally, find out if there are other offers. It doesn’t make sense to make a lowball bid if you have competition. In fact, if you’re trying to bag a bargain and there are multiple offers, maybe it doesn’t make sense to bid at all.

I believe you should cater to the seller’s needs as much as possible, because it’s free. These little concessions don’t cost you anything. In the end, price is paramount, but if your price is close enough and you’ve offered the sellers everything else they want, there’s a better chance they’ll accept.

The Opening Bid

Which brings us to price. If you’re working with a real estate agent, don’t expect her to tell you how much to offer. Some will, but many decline. Why? For fear you won’t get the house and will be mad at them for suggesting too low a price. Or that you will get the house—too easily—and will be mad at them for suggesting too high a price. Besides, it’s your money and your mortgage payment, so it should be your decision.

The most helpful thing you can do to decide how much to offer is to look at comparable sales in the neighborhood. Appraisers look only at comparable sales that have taken place in the past six months, and you should, too. Be sure they are substantially similar to the home you are interested in. There will always be differences, and the toughest task is to assign dollar amounts to those differences. Then add or subtract those dollar differences from each house.

Buy December through February for a Better Price

According to the National Association of Realtors, winter is the slow season for home sales. For one thing, people go Christmas shopping instead of house shopping. For another, many buyers want to wait until summer and move when their kids are out of school. People with homes to sell can get downright desperate. You could use this to your advantage.

Finally, take the average of all your adjusted comps and see how that compares to the house you want. Is the asking price above or below the average comparable figure you’ve come up with? One more number you can look at is the gap between the asking price and the selling price of homes in the neighborhood. If you see a clear pattern—maybe every home sold for about 5 percent less than the asking price—that is very instructive.

Once you’ve determined the price you want to pay, many experts suggest making your opening offer 10 percent less to leave room for negotiation. I think that’s a reasonable rule of thumb. I would always err on the low side, because I’d rather offend the seller than overpay. There’s so much money involved that I’m not worried about helping anybody save face.

Asking the Seller to Pay Some Closing Costs

In a slow real estate market, you may very well be able to get the sellers to chip in and help you buy their house. I know, it sounds goofy, but it happens all the time. It’s all psychology.

For example, Phil C. and Mary B. of Florida coveted a cute St. Petersburg house with an idyllic deck and luxurious hot tub, but they needed to get the price down. Rather than ask the sellers to lower their price beyond a certain point, they asked them to help pay their closing costs. Phil and Mary recognized that this way, the sellers still got to brag that they sold their house for an impressive price. That price is what would be published in fine print in the local paper and so on. But this savvy couple knew that they had actually paid thousands less than that because the seller contributed to their closing costs.

There are a few different ways to structure this closing cost assistance.

1. In a super-slow market, you can ask the seller to cover all the closing costs.

2. In a balanced market, you may come to a compromise in which the two parties split the closing costs down the middle, even the ones traditionally paid by the buyer.

3. Another option is to have the seller credit you back cash at settlement which can be used for closing costs.

4. And finally, some people ask the seller to pay one or two points (1 or 2 percent of the purchase price) toward closing. The deal is often structured this way if the purchaser wants to use this money to buy down the interest rate. (More on paying points in Chapter 4.)

Never Skip the Home Inspection

Even in a seller’s market you don’t have to give up your home inspection. During the real estate surge, when prospective buyers were getting into bidding wars, many buyers were waiving their right to a home inspection to make themselves more attractive as buyers. Terrible idea! And unnecessary! Do a pre-inspection instead. Hire a home inspector to check out the property before you make an offer on it. That way your offer is not contingent upon a home inspection. Rather, if the inspection uncovers horrible flaws, you won’t make an offer at all.

Negotiating the Final Contract

Your offer should give the seller no more than 24 hours to make a decision. Any more than that is torture—for you. The sellers will either accept your offer, reject it, or make a counteroffer. If it’s a counteroffer, veteran negotiators suggest raising the price of your next bid by less than the sellers lowered their price. Psychology again, to show you have more resolve about your price than they do.

Whatever happens, many experts suggest you should only offer two prices beyond your initial one. Prolonging negotiations past that point is fruitless, unless the two sides are just going back and forth about logistical details like the closing date and who gets to keep the freezer in the basement. (Hint: You want the freezer, so you can SAVE BIG by stockpiling groceries, as described in Chapter 23!)

BIG TIPS

• Negotiate to pay your agent 2 percent instead of 3 percent.

• Consider buying without the help of an agent.

• Learn the seller’s needs and play to them.

• Offer 10 percent less than what you want to pay.

• Ask the seller to pay some closing costs.

Saving Big on Real Estate Agents’ Fees

Do You Need an Agent at All?

The All- Important Offer

Who’s Got the Upper Hand?

What Are the Seller’s Needs?

The Opening Bid

Asking the Seller to Pay Some Closing Costs

Negotiating the Final Contract