The Long Island Home Buyer's Playbook
This is going to be one of the biggest financial decisions you make, and the smartest thing you can do is prepare before you start walking through houses. If you want to sit down and talk through your situation, click here to schedule a one-on-one consultation.
We'll cover:
- Your budget and what you're comfortable spending
- Your timeline for buying and moving
- Market expectations for buyers like you
- Calculating your closing costs
- Building a personalized plan to get you on the right path toward becoming a homeowner
How much should you offer on a house?
The first thing I need to know is whether this is a house we saw together or whether you walked into an open house without me. Buyers aren't my prisoner. If you see an open house while you're out on the weekend and want to go inside, by all means, go look at it. But if I wasn't there, I didn't see what you saw, so I need information. How busy was it? How many people were there? Did buyers seem interested? A quiet open house doesn't necessarily mean there aren't offers, but if the house was obviously packed, that's useful information. We know there's attention on the property, and if you want it, we're probably going to have to be aggressive.
I'm also assuming we've already done the buyer consultation together. Before we start seriously making offers, I like to spend about a half hour going through comparable sales with a buyer, either together in person or on a Zoom call. We'll look at what similar houses have actually sold for during the last three months, and if we need more information, we'll go back six months. We'll compare the asking prices with the final sale prices, look at days on market, flip through the listing photos, and start developing an understanding of what buyers are actually paying in the area where you're shopping.
By the time we're looking at a house you want to buy, you shouldn't be completely dependent on me to tell you what it's worth. If we've been seeing that similar houses listed at one number are consistently selling $30,000, $50,000 or $60,000 over asking, you've already seen the evidence yourself. That gives us a much better starting point for deciding what a competitive offer might look like.
Then we have to talk about what that offer actually means to you financially. During the consultation, I show buyers how to calculate their own mortgage payment. When we're discussing an offer, I'll usually plug the numbers into the mortgage calculator with them so they can see what changing the purchase price actually does to the monthly payment. A $10,000 difference in purchase price may feel enormous when you're negotiating, but at an interest rate around 6%, that difference may move the monthly payment by roughly $60. That doesn't mean you should automatically spend another $10,000. It means you should understand the actual financial consequence before deciding whether that $10,000 is where you want to draw the line.
Sometimes we're only going to get one real opportunity to make the offer. I don't particularly like the traditional “highest and best” process because the buyer has to throw out a number without necessarily knowing what it would take to win, and the seller may never find out whether another buyer would have improved their terms. But when that's the process we're dealing with, I want the buyer to make an offer they can live with either way.
What I don't want is for us to lose the house and then spend the next three months talking about how you would have paid another $10,000 or $20,000 if you had known that's what it would take. That's especially difficult when you already understand from our consultation what that additional amount would have done to your monthly payment. I want you to be able to say, “That was my number. I put my best foot forward. If somebody was willing to pay more than that, I'm okay letting them have it.”
I'm not going to decide that final number for you. That's a personal decision. My job is to put you in a position where you understand the comparable sales, the competition for the house, what the payment will look like, and what you're likely going to have to do to win. Then you have to decide, individually or together as a couple, what makes sense for your finances, your family and how much you actually want that particular house. I'll support you through that decision, but ultimately it needs to be yours.
Loving the house doesn't automatically make it a good decision.
There are times when a buyer loves a house, can technically afford to go higher, and I still tell them that I don't think they should keep chasing it. There isn't one rule that determines when that happens. We have to look at the house, the price, the condition, the buyer's circumstances, and sometimes even the people we're going to have to deal with throughout the transaction.
Sometimes I simply don't think the house is worth what it's going to take to win it. I understand that market value is ultimately influenced by what buyers are willing to pay, but that doesn't mean I think every house is a good purchase at whatever number the market happens to produce that weekend. There are properties where I'll tell a buyer, “I know people are willing to pay this much, but in my opinion, you should never pay this much for this house.” I try to think beyond whether we can win today and consider what happens if the market eventually corrects. Some houses concern me because I don't think they would hold up particularly well at the price the buyer would have to pay.
I also look at whether the house makes sense for the buyer's life beyond right now. A small house may work perfectly for a couple today, but their circumstances can change. A child can come into the picture, the family can grow, and suddenly a house they bought two years ago no longer works. If they haven't owned it long enough for the appreciation to overcome the costs of buying and selling again, they can end up stuck in a house they've already outgrown. I've been doing this for more than 11 years, and I've watched people's lives and families change. If I think a buyer is about to put themselves in that position, I'm going to say something.
Condition matters too. If I see substantial deferred maintenance, deterioration, structural problems, or repairs that are going to require a lot of money after closing, I don't look at the purchase price by itself. We have to look at the total investment. If winning the house requires an aggressive offer and then we're going to have to put a significant amount of money into it afterward, there are times when I'll look at the numbers and say, “Guys, I don't know if this is worth doing.”
I even pay attention to the people on the other side of the transaction. How cooperative is the seller? Is the listing agent responsive? Are they forthcoming with information? Can we get basic questions answered? Are the people involved professional, or is everything already unnecessarily difficult before we've even signed a contract? Sometimes that behavior is a preview of what the next several weeks or months are going to look like.
I had buyers recently where I saw exactly that problem developing. The seller was a widower whose wife had handled almost everything involving the house. Whenever we asked a question about the property, his answer was essentially, “I don't know. My wife used to take care of that.” The home inspector had questions he couldn't answer, and the property condition disclosure had “unknown” checked throughout it.
That didn't mean the seller was lying. He may have been telling us the absolute truth. But the situation still gave me information. Maybe he was understandably overwhelmed by the loss of his wife and wasn't in a good position emotionally to deal with the transaction. Or maybe he genuinely had very little involvement in maintaining his own house. Either possibility created uncertainty that I wanted my buyers to understand.
Then we started seeing other warning signs. The attorney on the seller's side became difficult to communicate with and unnecessarily aggressive with our attorney. The listing agent was difficult to get on the phone. I told my buyers that if they weren't completely sold on the house, they should think carefully about whether they wanted to proceed because we could be under contract with these people for a while and it might not be pretty.
They understood the risk and decided they wanted the house enough to deal with it. And that's exactly what they did. The transaction became frustrating, communication was difficult, and many of the things I was concerned about actually happened. But that doesn't mean their decision to proceed was wrong. They knew what they were getting into and decided the house was worth accepting that risk.
That's an important distinction in the way I advise people. A red flag doesn't automatically mean walk away. My job is to identify what I see, explain what I think the consequence could be, and make sure the buyer understands the tradeoff. I will absolutely tell someone when I think they're making a mistake, but once they understand the information and decide they still want to move forward, I respect that decision. They have to decide what's best for themselves.