The path to homeownership involves a deep look into your financials, extensive market research, a homebuying dream team, negotiations with sellers, and so much more.
This may all seem overwhelming and intimidating, but it’s the only way to officially gain that homeowner title. Plus, behind every home purchase is a great team of real estate professionals that can help every step of the way.
Negotiating on the home price, in particular, can seem daunting and overly aggressive, especially for first-time buyers.
While it can be tempting to immediately say, “thanks, where can I sign”, your mortgage will have a big impact on your bills for many years to come.
Overall, it’s worth the initial discomfort and you’ll be happy you did it 20 or even 30 years down the road.
Here are some tips to use at the negotiation table.
Real Estate Counter Offer Etiquette
When we talk about negotiating, it usually happens in the form of back-and-forth counteroffers.
More often than not, the sellers will make a counteroffer to your initial bid. This could include the sale price, certain contingencies, escrow amount, closing date, etc. The most important term change being the price that the buyer will pay for the property.
But, just as a seller has the opportunity to give a counteroffer, the buyer does as well. Essentially, you can counter the seller’s counteroffer. The seller can then counter your counteroffer, and so on and so forth.
There is no limit to the number of counteroffers that can take place. This is the initial negotiation period, and it will go on until an agreement between the seller and buyer has occurred.
Even after this initial agreement, the buyer can renegotiate depending on certain findings from the inspection, appraisal, etc.
Buyer’s Market vs Seller’s Market
Negotiating tactics are directly correlated to the type of real estate market currently happening. This will affect the amount of interest in the home, as well as the amount of room to negotiate on the price and other details.
In a buyer’s market, the homebuyer has all the leverage. More people are looking to sell their homes, than people are looking to buy. In turn, this opens the door to ask for lower prices, more contingencies, repairs, and other incentives. Buyers can get a great deal in an environment like this.
In a seller’s market, it’s the complete opposite. Demand is high, and inventory is low. With more interest and more offers, there is less room to negotiate. In fact, buyers will often have to sweeten the deal in order to get the house out of multiple offers.
How to negotiate price real estate price in a Buyer’s Market?
Get the Seller’s Story
The more you know about the seller and why they’re moving, the better you can negotiate. You could ask your real estate agent to do some investigating or ask the listing agent directly at the open house.
They may be in a rush to move for a number of reasons, like they bought a new house, divorce, financial stress, etc. Regardless, if the seller wants to get out as soon as possible, you may be able to get a better deal on the price. Especially, if there are no contingencies or potential hold ups that could delay closing.
Typically, the buyer is responsible to cover all the closing costs, in addition to the down payment. These are expenses stemming from the lender, real estate attorney, appraisal, inspection, etc.
And closing costs are not cheap. They could reach thousands of dollars, depending on your loan amount.
In a buyer’s market, you could ask the seller to cover these fees completely or chip in partially. If you’re unable to cover these dues and the seller is looking to close quickly, they may agree to it. If they don’t, you could always ask your lender to roll the closing costs into your loan.
Leverage the Inspection Results
The inspection report can be used as a key negotiating tool. It’s an opportunity to readdress the final sale price, especially if there are big ticket items that need to be repaired.
The home inspector will visit the property for several hours, examining every major aspect of the house, including the heating, air conditioning, foundation, doors and windows, outdoor areas, and more.
If the report reveals any issues, you can ask the seller to fix the problem or lower the sale price.
Sometimes, the inspection will show a disastrous, hidden problem that may cause you to walk away completely. Make sure your purchase agreement has an inspection contingency, allowing you to cancel the sale with no penalty.
Negotiating Tactics in a Seller’s Market
Submit a Personal Letter With Your Offer
Most sellers have special memories living in their home and want the right buyers to continue to take care of it and make their own memories.
A personal, handwritten letter will add a unique, sentimental component to your offer. You can explain why you love the house and how you envision living there. The sellers will view you as an actual person, rather than a dollar figure.
Here’s an example of what the letter could say:
I have been looking for many months to find a house that truly feels like a home. I found that here. This home has exceeded my expectations with its charm and character. Not to mention, the neighborhood seems so welcoming and truly like a close-knit community.
I see myself building a life here, raising a family here, and growing old here. I fell in love with your home and hope we can work this out.
Sellers love an all-cash offer. It shows that you are a serious buyer who will have no trouble securing the funds to move forward with the purchase.
It makes the entire process simpler and more straightforward, ultimately leading to a fast closing.
The fact that your offer is not dependent on a loan approval will be more attractive to a seller with multiple offers.
Sellers typically prefer to close within 30-45 days. If you are a first-time homebuyer or an all-cash buyer, this generally indicates a quick, uncomplicated closing. It will make your offer more competitive.
You could even take things a step further and offer a 25-day closing timeline. This will show the seller you are determined to close quickly as well.
Waive Certain Contingencies
This is the riskiest strategy. If there is a ton of interest in the house and you feel comfortable waiving standard contingencies, like a home inspection or loan approval, it will make your offer stand out among the others.
This shows the sellers you want the house no matter what, making your offer more appealing.
But it comes at a cost. If the house ends up having a number of issues or the appraisal values the home less than what was offered, you cannot back out of the agreement without a penalty.
The penalty often comes from your earnest money deposit.