Have you found the home you want to buy? If so, you may be ready to bid full asking price or even more to ensure you beat out any potential buying competitors out there. This is where emotions can sometimes outweigh logic, so before you jump in with an offer waaay above asking price, it’s good to take a moment to consider if the house is also a wise investment.
Here are some things to consider plus some price negotiation strategies that can help ensure you’re getting a great home for the right price.
Why Is Home Price Negotiation So Important?
Even in today’s hot real estate market (in most parts of the country) it’s not often that a seller isn’t willing to negotiate — if not on the price, then on other matters such as the closing date, or including certain items like the barbecue grill, the washer and dryer, etc.
On the off chance that you’re in a market that isn’t boiling right now, you could end up being the only buyer making an offer. If that’s your case, there’s a good chance you could end up buying lower than the listing price. Your Realtor should understand your market well enough to help guide your initial offer, but here are some things you’ll want to consider…
How Motivated Is Your Seller?
It’s not often that a seller puts his or her house on the market just to see what kind of offers come in, though it does happen. In large part, sellers want to sell. But some sellers are more under the gun — they’ve already made an offer on another home, they’re moving for a job, or their personal situation has changed. That’s why it’s a good idea to ask their agent why they’re selling. You may not get a direct answer, especially if their agent has urged them not to divulge this information, but it doesn’t hurt to ask.
Be Realistic With Your Offer
Nothing is accomplished by going in with a low-ball offer (except sometimes, in the cases of foreclosures or when a home is significantly overpriced and has been on the market a long time). If you go in too low, you’re going to insult the seller. If your research shows that the property is fairly priced, or your trusted agent is telling you it is, make an offer you feel comfortable with and that your agent believes is reasonable.
If your offer does not elicit a meaningful counter-offer from the seller, you know you went in too low. So, try again. Once the seller believes you’re capable of arriving at a price that is agreeable to them, they’ll be willing to negotiate.
Be Ready to Move On
If you can’t put together a deal on the first property you like, don’t worry. There will be many more homes for sale. It is VERY common to lose out to another buyer in today’s market. But it’s just as common to end up finding a home a week or even a month later that you like even more than the first. Not getting that first home might be a blessing in disguise.
Show Some Enthusiasm
Today’s real estate market is really moving in a lot of areas, so the days of being coy about whether you like the house or not are over for now. In fact, in some markets, sellers are looking for offer letters along with your bid. They want to know your personal story to help them decide between multiple offers.
This is your chance to sell yourself and convince the seller that you will be brokenhearted if you don’t get this, your dream home. Have a baby on the way? Talk about how you can see your baby taking their first steps in this hallway. Newly married? Describe how it will be starting your life together here. Have family nearby? Make a point of describing joyous family gatherings in their beautiful backyard.
Still, Don’t Get Carried Away
Yes, you want the buyer to know how much you love their home, but you don’t want to be overcome by emotions. You’ve done your homework. You know what the home values are in the area you’re searching, and you know how much home you can afford, so don’t allow yourself to get boxed into a price that is above your comfort zone. If you have chosen your agent well, this won’t happen. Nevertheless, bad agents have been known to urge clients to accept counter-offers simply so they can stop working on the negotiation. Be firm.
Set Your Expiration Date
When you make your offer, there will be a space for putting a time limit on how long it’s valid. Make this a very short period, for example, 24 hours. Having a longer period just invites competing offers, which is exactly what you do not want.
Get Creative
If the seller seems emotionally tied to a certain price on his or her home, instead of asking the seller to lower their asking price, ask for certain concessions, such as repairs, that the owner contribute to the closing costs, or that they leave the washer and dryer, the riding lawn mower, etc.
Negotiate After Inspection
While it’s not uncommon for prospective buyers to believe the deal is sealed at the offer signing, in many cases the negotiations begin afterward. If you’ve conducted a home inspection, you can ask the sellers for a cash-back credit at the close of escrow, which can help you complete the project yourself. You can also ask the seller for a credit to fix certain issues in the interest of offsetting closing costs.
About That Purchase Offer
If you’re a first-time homebuyer, here’s a little primer on all that paperwork that goes into making an offer. Your purchase offer is a written contract that you sign and submit to the seller. It is accompanied by a certain amount of “earnest money” (a small good faith deposit to show you are serious about buying the home). The written purchase offer indicates the amount you are willing to give the seller for his or her property. If you are working with an experienced real estate agent, he or she will typically provide a standard purchase offer form which you can complete, sign and then hand over to the seller to sign. If you are not working with a realtor, be sure you are aware of state laws regarding the information the offer should include.
Since your written offer forms the basis of a legal contract with the seller, be thorough. There are some important details you should be sure to talk through with your agent and make sure are accurately included on your purchase offer, such as:
The amount you are offering for the home and how you will pay the seller (cash, check, etc.)
Contingencies to protect you if your financing falls through, or if the inspection unearths major problems with the home (inspection happens after you make an offer)
Conveyances, such as whether the home will come furnished or unfurnished
An expiration date, by which the seller must respond before your offer expires
Concessions, such as any closing costs or other costs which you would like the seller to pay
The amount of earnest money you are offering
The size of your down payment
The “earnest money” deposit can range from about $500 to 5% of the value of the home, depending on where you are interested in buying, and the state of the market. Your earnest money is typically put towards your closing costs; however, if you enter into a contract with the seller and then breach that contract, you could stand to lose this money.
Once you make a purchase offer, sign it and submit it to the seller along with your earnest money (usually done through your agent). The seller has the right to either sign your offer as is, make a counteroffer or reject your offer outright.
If the seller accepts your purchase offer, the offer becomes a contract, and you are on your way to owning the home. If the seller counters your offer, you may choose to reject his or her offer or walk away. Note: If, for some reason, you forget to specify contingencies in your offer, there are sometimes legal steps you can take to back out of the deal. Asking your agent what recourse you have can also help.