How does one negotiate a home purchase? Negotiating the purchase of a house could be summed up in just one thing: mastering, almost perfectly, the art of giving and receiving, dialoguing and negotiating. Many buyers think that the purchase price of a home is the main bargaining point, but in reality that is only one piece of the puzzle.
Therefore, learning what the main points of negotiation are (and how to use them) will give you an advantage thanks to which you can create an offer that works in your favor and that the seller finds attractive.
What is the home purchase negotiation process?
And it is at this time that the real estate agent will try to negotiate a favorable deal for both parties. However, it is worth remembering that the agent works for the seller, not for you.
After all, the agent is paid to negotiate the best possible deal for the client; And this can mean that, when buying a home, you face an uphill battle to secure the price you want. Although there are ways to influence it.
First of all, if you want to know how to negotiate a home purchase it is crucial to do thorough research before embarking on any negotiation so as to know how to go about it, to make that easy we have taken our time to write and publish this article.
Make sure you’ve found out everything you can about the seller and the property before making any offers. Knowing the seller’s motivation for wanting to sell can also help you determine a strategy for negotiating a home purchase.
Do your own research
Many buyers interested in acquiring a property assume that there is no room for negotiation. Therefore, do not presume that you are getting a good deal and do your research, as you normally would, keeping these questions in mind:
- How many houses have been sold in that area?
- How much were they sold for?
- Why are other properties sold in the area?
- What are the attractions of the area that interests you? Do they affect the price of real estate?
- Is there a history of rising or falling sales prices in that area?
Understanding the market is crucial to negotiating a home purchase
It is vital that you take stock of the current state of the market. If there is a lot of interest in the area or the property that you liked, you will have less chance of negotiating a lower price for your new home.
However, if there are other possibilities, that is, properties in the area, you can handle the matter in such a way that the seller sees that you have lost interest, and that way he tries to improve the deal he offers you.
Price is perhaps the most important factor in negotiating a home purchase
Now, let’s take the most obvious factor out of the equation. Most buyers know that the price of a house is a suggestion of what the seller expects to obtain in the sale of his property and that in most cases it is negotiable. Unfortunately, price is where many deals can go awry.
On the other hand, for buyers an increase in the sale price can be distributed over the duration of their mortgage, thus greatly reducing the financial burden at the time of sale. For this reason, buyers can have more flexibility with pricing. However, if you decide to try a price negotiation, it is a good idea to have a strategy for doing so.
The offer to buy is an important part of the process to negotiate the purchase of a house
The offer to buy is basically a written contract that you sign and then present to the seller. This offer is accompanied by a certain amount of money, called a “security deposit.” With this act of good faith, you show that you are serious about buying the house.
Now, the written purchase offer indicates the amount you are willing to pay the seller for his property. If you work with an experienced real estate agent, he or she will usually provide you with a standard offer to purchase form that you can fill out, sign, and then give to the seller for signature.
If you are not working with a real estate agent, make sure you know the state laws regarding the information you must include in the offer.
Since the written offer forms the basis of a legal contract with the seller, you must be thorough. There are some important details that you should be sure to discuss with your agent that should be included with precision and detail in the offer, such as:
- The amount you offer for the house and how you will pay the seller (cash, check, etc).
- The contingencies (which we will talk about later), protect you in case you have problems with financing or if during the inspection significant problems are discovered in the property (the inspection is carried out after making an offer).
- Transfer of goods and objects, in case the house comes furnished or not.
- An expiration date, in which the seller must respond before your offer expires.
- Concessions, such as any closing costs or any other cost that you want the seller to bear.
- The amount of bail money you are offering.
- The size of your initial payment.
The security deposit can vary between about $500 and 5% of the value of the house, depending on where you are interested in buying and the state of the market. Generally, this deposit is used to cover closing costs; however, if you sign a contract with the seller and then breach it, you could lose this money.
Once you have the purchase offer ready, sign it and present it to the seller along with your security deposit (usually through your agent). The seller has the right to sign the offer as is, make a counteroffer, or reject it immediately.
If the seller accepts the offer to buy, it becomes a contract, and you are on your way to owning your home. If the seller counters the offer, you have the option of rejecting it or launching a counteroffer.
Now, if for any reason you forget to specify the contingencies in your offer, sometimes there are legal steps you can take to withdraw from the deal. In this sense, it is recommended that you ask your agent what your options and possibilities are.
Contingencies, How to Deal With Them?
If an agreement cannot be reached, both parties have the option to dissolve the contract and withdraw. As we’ve already mentioned, this is a concern for many sellers. For this reason, the willingness of buyers to be flexible with their contingencies gives them significant bargaining power.
Waiving an appraisal contingency means that the seller does not have to negotiate the sale price with a buyer if a home is appraised below the asking price.
Since appraisals are used by lenders to determine a buyer’s loan amount, this could leave the buyer in the dark for a larger down payment to make up the difference or force them to break the contract and lose their security deposit.
Consequently, always try to find a middle ground. For example, instead of waiving the inspection contingency, you could offer to shorten the contingency period.
Yes, this means that you will have to complete these inspections with certain inconvenience to you, but you will still be covered in case something is not right. A shorter contingency period also means faster escrow closing for sellers, which is a real benefit to everyone.
What about the Closing Date?
In this vein, the closing date becomes a matter of utmost importance if you are looking to move within a specific period. For example, if you have a definite start date for a new job or if you are trying to sell your old house at the same time.
Therefore, if as a buyer you do not have any time constraints around the move, it is a good idea to communicate this to the seller, especially since some sellers are looking for a longer closing period, or a “rent return”, if they are buying and selling a house at the same time.
Consequently, the ability to be and be flexible with respect to the seller’s timing could make the seller more open to compromise and accept your requests in other areas of the negotiation/transaction.
Prepare for the appraisal
Once the home contract is finally made, the appraisal will be one of the first steps in the closing process. Unlike the home inspector, who assesses the condition of the home, an appraiser is sent by your lender to determine the property’s value, since the bank will not loan prospective buyers more than it believes the home is worth.
So if the appraisal reaches or is above the contract price, the sale will go ahead as planned. But if the appraisal is lower than the contract price, it can delay or even derail the transaction.
Now with a low appraisal, you may be able to negotiate the sale price. Your agent may try to convince the seller to lower the price for the purchase to go through, rather than starting the process all over again with a new buyer.
Pay special attention to closing costs
Closing costs include the fees incurred during the transaction. These fees generally amount to between 1% and 2% of the total sales price and are divided between the buyer and the seller. However, how a buyer pays half of these costs can be another bargaining point.
As part of the agreement, the buyer can ask the seller to cover their half of the closing costs, or certain taxes or transfer fees, by subtracting that cost from the sale price (sometimes known as “seller’s concessions”).
This has a double effect for the buyer: it reduces the immediate expenses of his pocket, as well as the financial burden in the long term since it would decrease the amount that the buyer needs to finance, thus reducing his monthly payments.
Common mistakes when negotiating a home purchase
1. Ignore how long the house has been on the market
You should pay attention to the number of days that the house you are interested in has been on the market. If the time is relatively low, say, less than 21 days, you will need a strong offer. But if in the market for more than 90 days, then it’s okay to bid low.
2. Show that you can pay more than what you specified in your offer
Yes, you definitely want to be a strong buyer, and having a pre-approval letter in hand will give you credibility, but it is not convenient for the seller to know that you can pay much more than what is on the table.
Ask your lender to tailor the letter to the amount you’re offering, with the specific down payment posted. “Your lender should be happy to reissue a letter for every offer and counteroffer you may submit,”.
3. Assume that everything you see is included
If, for example, you like the sofas or chandeliers you saw when you visited the property, be sure to identify which items you want to include in your offer (and purchase agreement). “The seller may not want to part with them, but the time to discuss these things is when the offer is made, not the day before closing,”.
4. Talk about the negative aspects of the house
Oftentimes, potential buyers will try to justify the price of their offer by detailing how much time and money they will spend bringing the home to their standards. “They may want to improve the bathroom or kitchen”, “but none of this is of interest to the seller.”
5. Focusing too much on price
Bargaining is just one of many factors to consider if your offer is accepted. Instead of focusing on that lower number (which can put off marketers), there are other ways to get the same result. For example, see if the seller can pay a portion of the closing costs, or if they can speed up or advance a closing date.