How to Negotiate the Price on a Home
Prior to placing an offer on a home, your real estate agent will likely have an in-depth discussion with you pertaining to a negotiation strategy that's appropriate for the current real estate market environment so you'll be able to acquire a new home at the best possible price. When bidding for a home, do you start low, knowing the seller will probably counter higher? Do you ask for extras such as additional appliances, lawn equipment, shed, generator, etc.? Do you hold your ground or bend to some extent regarding what you'll accept? Is there a way to maximize your chances of having your offer accepted? An experienced and knowledgeable agent who knows the state of the current market is so important to be at your side supporting and guiding you through, what can be a rather stressful process.
The Basics of Negotiation
Bear in mind, when negotiating, there are no guarantees your offer will ultimately be accepted. The best advice is to expect the unexpected. Every seller has different priorities and their own unique temperament. Even agents who are excellent negotiators can be outmaneuvered or surprised by a particular outcome.
You may feel you and your agent were able to negotiate a really good price on a home, however in most cases your purchase price likely falls within the typical property value range for the area. In other words, there are very few, what would be perceived as really good deals, in today's real estate market. If you decide to pursue a foreclosed home there may be a chance a below market offer could be accepted, however bank-owned properties are rarely what one would consider a bargain since banks generally establish a listing price based upon a market value determined by an appraiser.
However, there are a number of ways to improve your chances of achieving a successful offer.
First Offers Do Make a Difference
Even if you feel you're making a reasonable offer that one would assume will be accepted, the seller could be seriously thinking about who you are and what you have in mind for the property since there might be an emotional attachment involved. In other words, the seller cares about who is going to be living in their house after the sale. In this case, the seller's decision may be based on emotion as well as price.
Some tips to make a good first impression:
- Make a connection with the seller if possible. Even though your real estate agent will likely do all or most of the communicating with the seller's agent, there's a chance a short, sincere letter to the seller, introducing yourself, and explaining how much you love their home can sometimes make a difference in the negotiation process.
- A pre-approval is generally a necessity when submitting an offer for a home you are pursuing and ultimately hope to purchase. Any delays in providing the pre-approval during the offer process could very well result in a lost opportunity. Today's sellers, for the most part, don't take an offer seriously unless it is accompanied by a loan pre-approval.
- Include the earnest money check with your offer and make certain you have the funds available, so the check will clear without a problem.
- Try to be flexible with certain details such as the closing date and time. If the seller prefers a quick close or would like some flexibility regarding a moveout date, make an effort to accommodate their needs as much as possible. This may create a feeling of good will between you and the seller, therefore possibly improving your chances of negotiations ending in your favor.
Should you lowball?
A lowball offer, by definition, is one that is dramatically less than the seller's asking price. Some sellers would consider anything 10 percent below the list price, "lowballing".
Your real estate agent can usually provide you with general information about the property, but be aware that a low offer may rub the seller the wrong way and in some cases be considered offensive. A lowball offer may be an option to try, but keep in mind, it could very well end up the worst case scenario, resulting in the seller's total rejection without a counter.
Potential Reasons for Rejection:
- Keep in mind, even though a seller is moving, there may be a strong emotional attachment to the home, therefore the seller may be quite insulted by a lowball offer.
- It could be perceived by the seller that you are lowballing because you can't afford the house. In other words, the seller may feel you're offering well below the asking price because you don't qualify for a loan amount needed to purchase the home.
- In most cases a seller's agent will likely advise against getting involved with a lowballer since for one reason or another they don't want to pay the expected price or simply can't afford to do so. Remember, the listing agent's job is to help their client get the highest price possible within a reasonable timeframe. Obviously, it's also in the listing agent's best interest to get their seller the highest price since the commission is generally calculated based upon a set percentage of the sales price. A lowball offer is not beneficial to either the listing agent nor the seller.
- Some sellers may have a substantial mortgage to pay off and can't even consider a lowball offer. For example; if a seller still has a $350,000 mortgage balance outstanding and your offer is $300,000, it's rather obvious your offer is going nowhere.
Negotiating after the home inspection
In some cases, any unknown or undisclosed issues discovered as a result of your home inspection may provide you with an opportunity to renegotiate the sales contract to some extent. The inspector's report identifies whether or not any repairs, system additions and/or any system replacements are needed in the home. You and your real estate agent will then discuss if you should ask the seller to remedy the issues of concern, try to negotiate a lower price or simply ask for a credit in lieu of such remedies. It most cases a price reduction or credit is advisable since you'll be able to directly oversee the work yourself to insure it's done according to your standards of quality. However, even though you may ask for remedies regarding your list of issues in one form or another, doesn't mean the seller will agree to some or all of your inspection concerns. If you and the seller can't come to an agreement regarding a remedy for the inspection issues, you have two choices: proceed with the purchase as previously agreed upon prior to the inspection, or walk away from the deal on the grounds that you and the seller couldn't agree on a mutual solution to your list of issues that were identified in the inspection report.
Assuming you chose to work with a real estate agent, the actual back and forth negotiations would be handled on your behalf. Furthermore, if you selected a knowledgeable agent with years of experience and good business sense, you can feel confident that you have a capable professional working to secure you the best possible outcome.