A “buyer’s market” occurs when there are a lot of homes for sale and they are staying on the market for a long time. During times like this, home buyers are in a great position to negotiate for lower prices and incentives.
The guidelines for buyers’ incentives vary among loan options, so make sure to get pre-qualified first so you can ask your loan officer about the allowable incentives for your loan program and down payment. Not sure what you can ask for? Here are some ideas:
If you are putting ten percent or more down, you can ask for up to six percent of the price of the home. If you are putting less than ten percent down, you can ask for three percent of the price. This “cash back” could be used to cover your non-recurring closing costs (things like points and mortgage fees that you only pay one time), or to cover the cost of extensive repairs to the home, if they are needed. Most loan programs will only allow you to apply incentives toward non-recurring closing costs. Your Realtor will make sure that the incentive request is spelled out clearly and thoroughly in your offer to purchase the property.
If you are paying cash for a property, you have much more negotiating power when it comes to the selling price if you state in the offer that you will be paying cash. In a buyer’s market, sellers are generally seeking a quick and “painless” sale: i.e., one where they do not have to worry that the deal may fall through due to credit or loan problems.
When asking for incentives in an offer, it is important to make sure you do not get taken advantage of by a lender who may inflate your loan costs to “use up” the incentives you negotiated. An experienced and perceptive Realtor will be able to help make sure you are protected. Be sure to avoid “loading up” your offer with a lot of contingencies (such as offering to purchase the home, but only after your current home has sold), especially when you are pursuing incentives. Doing this makes it less certain you will actually close, so a seller will be less likely to offer financial incentives in hopes of a quick sale.
The one contingency you always want to include, especially in a buyer’s market, is that your offer is contingent upon the property appraising at or above the purchase price by the lender’s appraiser.