If you've never bought a house before, much of the jargon and terminology could prove daunting. After all, who would give "discount points" or "5-1 adjustables" the slightest thought unless they absolutely had to? We've arranged this short primer on the basics of buying a home as a series of questions and answers that try to address the basic issues with which every homebuyer must grapple.
1. "Can I make an offer that's well below the asking price?"
If you're in the market right now for a home, chances are most of the properties that you're going to come across are significantly overpriced. If you have your eye on a home that has a hefty price tag, don't rule out making a low-ball offer. You may be surprised by the seller's response.
In fact, buyers can go as low as 25% to 35% below the asking price, says Robert Irwin, author of "Buy Your First Home." And they shouldn't worry about insulting the homeowner.
"I don't think in this market any offer will insult the seller," he says. "Sellers are so anxious to get any kind of offer that they may counteroffer and begin negotiations."
Before you make an offer, find out how much comparable houses in the neighborhood have sold for. To get this information, you'll need a comparative market analysis (CMA), which you can pull up on Web sites such as Cmafacts.com or HomeGain.com for free or by asking your real-estate broker. These reports are usually six months old, so you want to deduct around 5% off the prices to account for the continuing decline in the housing market, Irwin says. Then, if you decide to make an offer that's significantly below the asking price, you can show the CMA report to the seller to explain to him why he should accept your offer.
Keep in mind that the chances of your low-ball offer being accepted have a lot to do with the house's location. For example, you'll find many sellers who are anxious to get rid of their properties in California, Florida and Nevada, which have been hit hardest with unsold inventory and foreclosures, Irwin says. But in areas where real estate is still strong, like Manhattan, you'll probably have a tougher time getting the green light on a low offer.
2. "Do I really need to use a real-estate broker?"
The first thing you need to know about real-estate brokers is that they typically work for the people selling the home — not you. The standard practice is for the seller to hire a broker, who then takes over marketing the home and seeking out potential buyers. For this, brokers usually are paid around 6% of the sale price, which gives them a built-in incentive to find the seller the highest price they can.
That sounds simple enough. But as you begin to drive around town with seasoned agents, you'll quickly find that they act like they are, in fact, working for you. So don't get too cozy. You will probably be tempted to tell an agent the highest price you are willing to pay for a house or the size of down payment you can afford. Don't. The agent is obligated to pass those details on to the seller, which could hurt you in any negotiation. Also, don't feel obliged to buy a home through one particularly helpful broker. Use several to have the widest selection of possible homes.
You don't need to use a broker at all if the house you want is being sold by an owner himself. Indeed, you'll have a lot more room to negotiate on price if the broker's 6% fee is absent from the equation. It's also not that difficult to sell your house without a broker, though it is a significant commitment of time and energy — one you may not be willing to make. Check out “Going solo” for more information on what you can expect.
Are all brokers bad? Of course not. A good agent can be very helpful, if only because he or she has access to a large database of listings in your neighborhood of choice. Agents can also recommend schools, local contractors and mortgage brokers. (Although, you shouldn't rely too heavily on their advice; they've been known to take kickbacks.) And they can often help steer you through the homebuying process, while smoothing out bumps in the negotiations. Remember this, too: An agent's fees are always negotiable. Are you and a seller at loggerheads over who's going to repair that damaged furnace? Maybe it should come out of the broker's fee.
In the past few years, so called "buyer's brokers" have become more popular in certain parts of the country. Unlike traditional real-estate agents, they work for — and are often paid by — the buyer. They are supposed to help assure you get the best deal. They can be invaluable if you are moving to a town or part of the country you are unfamiliar with or have little time for house-hunting. Like a regular broker they are a font of listings.
The problem is, their terms often require that you use only them for a set time period. That's fine if you trust the broker and just want someone to screen homes for you. But it can leave you hamstrung if you'd like to go out and do some looking on your own or if you want to use a number of brokers. Also, compensating a buyer's broker can be tricky. Paying by the hour adds up, but paying a percentage of the purchase price gives a broker the wrong incentive: Getting you to pay the highest price returns the most to him. Sometimes, a buyer's broker will settle for splitting the fee with the broker who has the listing.
