For most people, a home is by far the most important financial asset they own. Not only does it protect the family by providing shelter, it should provide capital appreciation, a hedge against inflation, and a nest egg for retirement.
Here is a scary axiom about buying a home.
The money you make when you sell your house was determined the day you bought it.
If you overpay at the time of closing, you won’t make as much money as you would if you had bought the home at the right price. This means less money to spend on an upgrade. It means less savings to fund your retirement.
If you underpay for your home. You will have more money to spend in the future. You can afford a more expensive upgrade or a more lavish retirement. (Or, maybe you decide to treat yourself to a high performance car.)
If you pay the right price, then both the seller and you win. When you sell, you will earn the capital appreciation that you were destined to earn from the day of closing.
Now, here is the existential bit. You don’t know whether you are overpaying, underpaying, or paying the right price at the time of the closing unless you are following a rigorous negotiation process.
The irony is that for such an important financial transaction, typical real estate negotiations often resemble that of haggling over a used car.
For example, the buyer offers 20% below the home’s listing price. The seller counters with 5%. They settle on 10%.
The first mistake buyers often make in a real estate negotiation is not questioning the validity of the home’s listing price.
Sellers have the advantage in the early stages of the negotiation. Their listing price is the starting point of the negotiations.
If you don’t do your homework and ascertain how they arrived at the listing price, then you are starting the negotiations on their terms.
For example, if the listing price was high, an agreement to discount the home by 10% results in overpaying.
The second mistake buyers make is trying to negotiate on their own behalf. I cannot stress enough. Never negotiate on your own behalf!
The prime minister doesn’t negotiate directly with other countries. He has a team of experts who do it.
A CEO doesn’t acquire a company without a slew of investment bankers, lawyers and accountants.
A strong buyer agent can negotiate in ways you cannot in order to get you the right home at the right price. The money and piece-of-mind your agent saves you will more than pay for the commission.
The third mistake people make is using a cousin or a friend as the agent.
Unless you have vetted ten qualified agents and found your cousin to be by far the most competent, and you are comfortable this deal won't destroy your friendship or cause a civil war within the family, don't employ friends and family.
Don't put them in the position of setting you up in the wrong home at the wrong price. This is the quickest way to end a relationship.
The fourth mistake is tolerating poor performance from a real estate agent.
Real estate is completely digitized today. This means every agent should have access to better pricing information than even that of the government. They have marketing tools and access that provide you with national and international reach to hundreds of potential buyers and sellers.
There is no excuse for an agent not backing up his or her advice with concrete, transparent facts and comparable market analysis.
You have access to free tools like X-Value on SRX.com.sg and several SPH media outlets.
If you aren’t using X-Value to ask questions of your agent and hold them accountable, it’s your fault if you don’t get the best performance from your agent.
It is your responsibility to require best practices from your agent. If you do this, you will get the right home at the right price.