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Home Buying Basics – Computing The Reservation Price June 10, 2011

Posted by minnesotarealty in MN Realty.
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One of the most important components of the home buying process includes making the right offer for your house. Minnesota real estate experts encourage all homebuyers to take the time to research prices in the area and make their own reservation price, or the highest price they are able to invest for the house. A reservation price lets you bid more efficiently and stay within your financial budget, making it easier to negotiate with your seller or seller’s agent when it comes to making an offer.

Barron’s ‘Smart Consumer Guide to Home Buying’ explains that it is traditional for buyers to cut the price of their offering price to create some room for negotiation when making the deal; there’s no rule on how much the discount needs to be, but it will depend largely upon economy conditions and how much you really like the the house.

Here is a basic process for calculating your reservation price so you can negotiate the best price for your dream home:

1. Jot down the amount you can manage to pay each month. This may be close to what you’re paying at this point, or what you are comfortably willing to spend per month on housing costs.

2. Calculate your tax and insurance rates. Barron’s ‘Smart Consumer Guide to Home Buying’ gives the following tips for computing the tax as well as insurance costs. Make use of a factor of .68 for locations with higher taxes and insurance rates; .85 if the tax and insurance rate is comparatively cheap; or use the standard .75 for a rough estimate. Multiplying this rate by the amount in Step 1 gives you the affordable loan P&I payment.

3. Compute your typical mortgage loan term as well as interest rate. Jot down the loan term in years and also the interest fee. You will need to locate the right charge from the loan payment tables which are relevant to this loan term and to the interest fee.

4. Calculate your total mortgage loan amount. This may also be seen in the loan payment tables; you can also get this from a mortgage company.

5. Include your cash available for the down payment. This will help provide you with a final sum of the amount you can afford to pay for the home.

After completing the computation from Step 5, you can compare it to Step 1 and see what the difference is. This will the negotiating range which you can use when making a offer. If the amount from Step 1 appears higher than Step 5, you may be able to get an offer by bidding a higher price than the seller offers. However if the amount from Step 1 is lower than Step 5, you’ll need to focus on reducing the final price to a more affordable range.

Calculating your reservation price is an important part of the homebuying process and can help you negotiate the best possible deal for your situation and get the home you want. Think about using the above calculations for each home you’re considering so you have the confidence to overbid or negotiate for a low price with your budget in mind.

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Homebuying Basics – Negotiating The Best Price For Your Home October 17, 2009

Posted by minnesotarealty in MN Realty.
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After you’ve spent enough time doing all of the research about your prospective MN home and are comfortable with working with the seller, it’s time to make the offer. However, the home buying offer isn’t the end of the sales process; you may be involved with negotiating a price after making the offer if the seller refuses to accept it, so you’ll need a plan to get the price you want – or close to it – well before you extend your initial offer.

Studying the contract in detail and having a back-up plan are just two ways to prepare for the negotiation process. Barron’s ‘Consumer’s Guide to Home Buying’ explains that it is best to be prepared for price negotiations even before submitting an offer by creating a checklist of items to consider when negotiating. Here are some items you need to take into account when negotiating for the price of your new home:

1. Knowing who the decision-makers are in the transaction. Understanding who really calls the shots is a critical element in any negotiation. Is the seller working alone or do they involve their lawyers, accountants, agents or any other third parties in their transactions? You can adapt your negotiating approach and gauge the trustworthiness of the seller if you know who the decision makers behind the contract are.

2. Do you have a contingency plan? If the seller refuses all of your offers, do you have other options? It can be frustrating to not be able to get what you want from the negotiation, but you also need to know when to back off and pursue another direction. Outline exactly how high you are willing to bid for the home and don’t go beyond your decision just to win.

3. Read the whole contract in detail. Know what you’re getting into before you sign your name on the contract. Review the contract in detail and take note of any provisions that are not clear to you. It is best to clarify all terms in the contract with the seller than to assume the meaning of the terms yourself.

4. Develop a relationship with your realtor. Realtors have the experience to give you professional advice about your prospective home. Spend the time to develop a positive working relationship with them. Voice out your concerns to your MN realtor well ahead of the negotiation process to give your realtor time to help you in making an informed decision.

5. Be prepared to handle negotiation setbacks. Poor communication happens in any negotiation often and you have to learn how to deal with it. There are other things as well that make negotiating difficult. It is important to remain impervious to negotiation setbacks but you have to know when to stop negotiating when you think the transaction is not going anywhere.