Now that you have found the house you are interested in buying and the price seems reasonable you need to proceed with an offer. It is scary buying something that costs multiples of your salary, but hopefully you have thought through renting vs. buying before now.
Agent or not
So at this point you should already have worked out whether you are using an agent and how much, if any, of a rebate they will be giving you. If you have an agent all communications should go through them since they are familiar with the process.
First offer
Your first offer really depends on the market and how much you like the place. In the Bay Area houses almost always sell for more than asking, so submitting an offer of full ask may not even be enough. However, here in Austin I’m pretty sure a full ask offer would get you the property. Currently it is a seller’s market here and properties move pretty quickly, so it would be tough to go too low without someone beating you. I’d recommend trying something below the full price. Even if it is only $1,000 less that is saving a Hamilton a hundred times.
If using an agent I’d ask for their recommendation but be a bit skeptical as their incentive would be to get you in the house. An interesting thing is that the selling agent has their incentives aligned with you. They would much rather sell something faster for $10,000 less which is only a $300 commission difference for them than wait months longer to get a full ask offer. In Freakonomics the authors showed that agents leave their own homes on the market longer than they would for a client.
When talking with the sales agent for the builder he said that the managers wanted the full price they he told us and were not willing to budge because they had already lowered the price by more than 10%.
Accepted or try again
Hopefully they accept your offer and you can move forward, but what is more likely is that they will say thanks, but we are only willing to come down to this other number. Now your negotiation has begun. I would recommend moving fast to avoid someone coming in and offering more.
We offered 1% less than their ask and just as the sales agent said they would they refused the offer. We noticed that there were very few people looking at the house so we felt alright waiting to see if they would come back to us. However, nothing happened so a week later we offered full price.
Other costs
There are many costs to home closing that will add thousands of dollars. Be clear who is going to pay for them upfront. For instance, working with a title company, which you’ll need to do, will cost you over $3,000. Will they pay it, are you, or will you split it? These decisions will make a big difference. The builder was very clear with us that they will not be paying any closing costs, so they were all up to us. That amount comes to about around $6,000 in our case.
When my parents bought their home they wrote that the seller would need to pay all the closing costs and everyone agreed and signed. However, during closing they said that it was customary that the buyer pay certain fees. He refused and said he would walk away from the deal because that isn’t what they agreed to. He ended up with the house and no closing fees.
Conclusion
I would have loved a story where I got a price below asking and didn’t have to pay closing costs, but I do think it was a good deal. We paid $216 a square foot whereas most of the neighborhood is going for over $250. We liked the layout and despite some shortcomings were willing to pay their full asking price. I think the price was low for a few reasons and we got pretty lucky. The prices listed on Redfin were much higher than the price they were asking, but the only way you would have known is if you went to the house. Furthermore, in order to see the home you’d have to be there when the salesperson was there, which wasn’t too often. Hopefully everything goes smoothly and we will be homeowners in no time.
Next up, I’ll go over the financing.