The Real Estate Encyclopedia
How Do I Benefit From A Buyer’s Market?
Category - Home Buying Questions - Search & Offer FAQ's

When there are a lot of homes for sale and it takes a long time to sell them – that's a "buyer's market." If it is a buyer's market where you live and you're looking to buy a home, you are in a strong position to negotiate for lower prices and incentives.  You can negotiate for incentives with the seller and the lender. 


When negotiating with your lender keep in mind that the guidelines for buyers' incentives vary from loan program to loan program, 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.  If you are putting ten percent or more down, you can ask the seller for up to six percent of the price of the home toward your non-recurring closing costs.  If you are putting less than ten percent down, you can ask for three percent of the price. There are no guarantees that you will get everything you ask for, but sellers are generally willing to negotiate and give you something.


The next thing to do is make an offer and ask for those incentive funds to be applied toward your non-recurring closing costs. By applying the incentives toward your closing costs, you lower the amount of out-of-pocket cash you need to purchase the property. Otherwise, you would have to come up with a down payment and the closing costs.


Non-recurring costs include points and fees that you only pay once and never pay again. Recurring costs include items like insurance and property taxes that you continue paying over the time you own the home. Most loan programs only allow you to apply incentives to pay non-recurring costs. FHA and VA loans are exceptions.


It is advisable to comparison shop your loan. Sometimes a lender may just inflate your loan costs to use up incentives you negotiated. You need to work closely with your real estate agent and loan officer to make sure you use all of those funds for your benefit.  For example, if the seller is willing to cover all or some of the non-recurring costs, such as closing points, you may be able to negotiate a lower interest rate on your loan by paying higher closing points.  Thus, you will be saving considerable money over the life of the loan in addition to the savings on the closing costs.


Your real estate agent should be able to help you negotiate with the lender, should this become necessary.  Agents are interested in closing the deal and will be glad to help.  Lenders look for referrals from agents and, therefore, are very willing to negotiate with them.


When asking for incentives, you don’t want to include too many contingencies in your offer.  An example of a contingency would be, having to sell your home to buy this one and making your offer contingent on that sale going through. Loading up your offer with contingencies makes it less certain you will actually close, so that makes it less likely the seller will offer you lots of financial incentives. The one contingency you always want to include, especially in this market, is that your offer is contingent upon the property appraising at or above the purchase price by the lender's appraiser.

Home Buying Questions - Search & Offer FAQ's
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