How to Negotiate Buying A House
Merriam Webster describes negotiating as “to arrange for or bring about through conference, discussion, and compromise.” When entering into a negotiation the main goal of all parties involved is to draw out and agree on a mutually beneficial compromise.
Get A Grip On Your Finances
Prior to engaging in home buying efforts, you should first work with a lender to determine his/her buying strength. Identify your own financial well being.
What’s your debt to income ratio? How much of a downpayment can you afford to pay and how does that affect your monthly mortgage payments? Is your lender charging you fees? If so, how much? Understand points and the effects on your wallet over time.
Explore your options. Are you considering a Seller financing strategy? Are you considering zero down, 3% down or 20% down? What about a Lease Option or Subject To arrangement?
Understanding your limits goes a long way towards identifying your property price points and will determine how you approach your negotiation tactics.
There are three main points covered in the negotiation of the sale of real estate and these are:
- Timing – Yours and the Sellers
- Your competition. – How many other homebuyers are vying for the property?
- Contingencies – Your “If’s”, “And” or “But’s”
- Closing Costs
Tactics That Will Kill A Sale
Negotiation is a subtle art in real estate and should never be approached as a win/lose the competition. Skilled negotiators look for and find some common ground that satisfies all parties.
On the other hand, using the wrong negotiation tactics can sink a deal pretty quickly. Here are some negotiation tactics buyers (and real estate professionals) should avoid:
- Lowball offers: Going far below market value when you make an offer damages your credibility as a buyer and can be insulting to the seller. The seller has a range in mind that they’ll accept, and if you’re not even approaching the low end of that range, they won’t even consider the offer.
- Incremental negotiations: Don’t continue to go back to the seller with small increases in your offer ($1,000 or less). The constant back-and-forth can grow tiresome and lead the seller to consider other opportunities.
- “Take it or leave it”: Try not to draw a line in the sand with your initial offer. The seller can get defensive and consider other offers if you immediately show that you’re unwilling to budge. Even if it’s true, don’t make a show of it.
- Nitpicking after inspection: Obviously, if the inspection reveals a major issue, it should be factored into the final sale price. But insisting on a lower price for every minor repair can put negotiations in a stalemate.
- Asking for more, more, more: Some buyers will request that the sellers throw in add-ons like furniture or appliances that weren’t included in the listing. Try to avoid giving the seller a reason to build up resentment and think that you’re being greedy.
- Don’t let your emotions get the best of you. You’ve found the home of your dreams and fallen in love with it. However, when negotiating with the seller, cool heads must prevail. The biggest thing to mind is this is a business transaction. What you agree to today, is what you will live with for the next ten or more years.
Win The Day
As a Realtor, I always like to know the reason behind a homeowners decision to sell. Not all negotiating relies on price. Sometimes, timing is also just as important.
Whether you are a first-time homebuyer or a seasoned veteran, the negotiation part of the transaction can be a little daunting and stressful. However, it is necessary that you remain realistic and stay within your pre-determined limits.
What To Negotiate
- Closing costs. Your closing costs are determined by a variety of factors, but you can expect it to be between 2% to 5% of the purchase price. Ask the seller to cover some or all of the closing costs upfront or request a closing credit that can be used to make specific updates and fixes to the home.
- Furnishings. Love how the seller has furnished and decorated the home? Buyers often negotiate keeping couches, fixtures, landscaping items, patio furniture, appliances, and more. And many sellers agree, wanting to make the home more appealing.
- Inspection and closing timing. Buyer offers that include a quick inspection and close timeline are often more attractive to sellers who have been going through the process for far too long. Just ensure you allow yourself ample time to get your financing in place and complete proper, thorough inspections.
- Home warranty. Sellers will often agree to pay the premium on the home warranty at closing and then hand it off to the new homeowner, who is responsible for the deductible on any future claims.
- Repairs. Your inspection may uncover small or large repairs needed to bring the home up to standard. You can negotiate to have these items fixed before closing or ask for a price reduction to cover the costs.
Remember, whenever you are presenting your offer, try to point out the benefits to the other party. Presenting your pre-approval along with your purchase offer is the best way to sell the other party on how secure your finance is.
If they fear that the offer will fall through, let them speak to your mortgage originator for some reassurance that the mortgage will be approved. If the seller has an emotional attachment to the house, let them know you will care for the house and love it as they did.
When negotiating for residential real estate with individuals, don’t be critical of the property. Always be polite, likable and respectful. Some people will go out of their way not to sell to people they don’t like.
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