Buying a house? Negotiate your next home like a pro
Negotiating a better deal is every homebuyer’s goal. In today’s competitive real estate market, if you aspire to own your ideal home, you need to master negotiation basics and strategies, while avoiding common mistakes. (Yes, everyone makes mistakes, but you don’t want to make one when spending hundreds of thousands of dollars, amiright?!)
In this guide, we’ll take a look into the negotiation process.
Let’s start with these four important principles of negotiation:
- Aim for a win-win situation.
All homebuyers want the best deal for themselves. But when negotiating with sellers, keep your eyes on the prize (i.e., your “perfect” home). When you’ve finally found the one, you want to negotiate a win-win situation for both parties.
Let’s say that the property you’re interested in is listed for $700,000, but the comparative market analysis (CMA) data provided by your realtor suggests the real market value is $600,000. In this case, the seller may not be looking at comps or the state of the local housing market.
Your chances of getting the house at (or near) $600,000 are quite low if you don’t come up with a win-win situation.
In this example suggested by Chris Lim, President, Head of Brand Growth, @Properties, we explore one option for creating a scenario where both parties are happy.
Since sellers can’t legally sell the property once they enter a contract with you, suggest a counter-offer that allows them to keep the house listed for another 60 days. If they don’t find a better offer in that time the deal is yours! If they do, you can walk away with a “breakup fee” agreed by both negotiating groups (typically $25,000 or less). (That’s a pretty pricey break-up if you ask us, but no one did, so there ya go.)
- Don’t settle for less.
In an effort to make a deal, don’t settle for an unfair bargain if the seller won’t budge. If you’e unsure of your decision, ask your agent. (Otherwise, why are you paying them?) Knowing when to pivot (“Pivot! PIVOT!” …Friends fans will get the reference) and when to walk away is one of the most crucial negotiation basics.
Yes, we know: you may feel like giving in. You’ve worked hard with this seller, but if you are the only one who’s trying to find common ground, it may be better to end it and look elsewhere. .
- Set up a firm possession date.
Seller negotiation isn’t solely about the price. If you feel that the deal is going in your favor, you want to push for a firm date of possession (i.e., the date you plan to move in) while still demonstrating patience. (It’s similar to dealing with teenagers. Tread carefully.)
Being too aggressive could irk the seller. Still, it’s only fair to have a clear idea of when you’re going to move in. If they absolutely won’t commit, they might be bluffing and have no intention to close. In that case, it’s time for you to move on.
Some sellers may want to stay in the house for a certain period of time after you’ve closed the deal. In that scenario, it’s important to forge a rent-back agreement.
A rent-back agreement typically involves:
- the rent to be paid by the seller (including the refundable deposit)
- the duration they will stay after closing
Even though you have a trusted buyer’s agent by your side, they might be focused on closing the deal, rather than getting you the best deal. (If you find that’s the case, it’s time to get a new agent.) Even if they are creatively and proactively negotiating, it never hurts to know some negotiating strategies yourself. Let’s take a look.
- Gauge the urgency of sale.
Obtaining a pre-approval letter from your lender is the first step. It’ll help you negotiate the exact amount you’re approved to borrow. Yet, there are certain negotiation strategies that could open the possibilities for a discount. One of them is gauging the urgency of the sale.
You need to find out:
- Where and how soon the seller is moving?
- Are they relocating for a new job?
- What would their approach be if the property doesn’t sell?
These questions will help you determine how motivated they are to sell. If the seller isn’t engaged in a bidding war or is lacking other offers, they’re more likely to accept a lower price rather than delay moving out.
- Negotiate the inclusions.
Unless stated specifically in the Purchase and Sale Agreement, don’t assume inclusions are part of the sale. Common inclusions are HVAC equipment, lighting fixtures, bathroom fixtures, dishwasher, window screens, window treatments, garage door openers, carpeting, and more.
If they aren’t added to the agreement as mentioned, the seller is free to pack those. If you don’t want to move into the home without those “to-die-for” window treatments, be absolutely sure to specify what should remain..
- Maintain friendly body language.
People are pretty adept at recognizing non-verbal cues of communication, such as posture, gestures, facial expressions, and tone of voice.
Crossed arms, for example, usually convey a defensive position. Pacing, on the other hand, is indicative of either nervousness or intimidation. These “negative” gestures may elicit a defensive attitude in the seller’s (or their agent’s) mind.
Keep your power during seller negotiations by:
- Hiding any signs of nervousness, such as touching your face or tapping your feet
- Practicing your poker face, supporting your offer with data, not intimidation
- Holding eye contact to exhibit confidence
- Smiling more often to lighten the atmosphere (Nerves turning your smile into a grimace? Just retain a neutral expression.)
- Ask the seller to cover closing costs.
Many first-time homebuyers are caught off guard by closing costs, which generally represent 2-5% of the purchase price. Negotiating closing costs is one of the most important real estate strategies for buyers.
You can ask the seller to cover the closing costs, such as record filing, insurance, taxes, commissions, and underwriting. In a buyer’s market (or if the seller is in a hurry), the selling party will pick up some, if not all, of the property’s closing costs.
If negotiating is unfamiliar terrain for you, it’s possible you’ll make some mistakes. However, with a purchase as big as buying a house, negotiation missteps can be costly. (Really costly.)
For many homebuyers, a new home is going to be a rare purchase (unless you’re a real estate investor), so you need to get it right the first time. Work with an experienced realtor who can help you avoid these common negotiation mistakes.
- Don’t focus only on the price.
One of the most critical negotiation mistakes homebuyers make is not budging on the price. Depending on market temperature, neighborhood features, property condition, and personal situation, the seller may or may not consider a lower price.
If you’re intent on closing the deal, focus on negotiating a package instead. Besides price, other key aspects are often open for negotiation, such as closing costs, contingencies, and the deposit.
Michael Walker, residential sales manager at R New York, says, “A sponsor’s financing conditions give them less latitude to lower prices, so most deals involve negotiation around transfer taxes and carrying costs. When you focus exclusively on price, you’re more likely missing out.”
- Don’t expect a counteroffer on a new listing.
Sellers will not always counteroffer. If their home is newly- listed, it will probably sell at list price (or even higher) within the first week. That said, the longer the property sits on the market, the better the chances of a counteroffer.
Regardless of days on the market, in 2019, buyers typically closed deals at 98% of the list price. Especially in a seller’s market, haggling over the home price isn’t advised by most experts. Instead, circle back to the preceding strategy and negotiate a package.
- Don’t divulge too much information.
The seller doesn’t need to know everything about your house hunt. Even if their house is your ideal new home, keep researching other properties until you forge a contract.
Keeping your options open is important for two reasons:
- It lets you move on to other properties if the deal isn’t finalized.
- It lets the seller know you’re serious about the purchase but not desperate.
It’s time to make an offer!
Now that you’re equipped with negotiation basics and know how to avoid critical negotiation mistakes, it’s time to present your offer to the seller.
May the best deal win!