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If you’ve been looking around for the perfect house, you may feel anxious about how to buy the one you’ve set your heart on at a price that won’t bust your budget.
We know negotiating a home price may seem intimidating, but knowing the right moves to make ahead of time can relieve a lot of that stress.
If you want to secure the home of your dreams, you need to be confident and have a game plan. This means knowing the right strategies. We’re here to share all the information and knowledge you need to increase your chances of winning the negotiation and saving money in the transaction.
Why You Should Negotiate a House Price
There are many advantages to negotiating the sale price of a home. In particular, negotiation lets you:
- Show you’re serious: Making a reasonable offer shows the seller that you’re not wasting their time and you want the house.
- Know if the seller is serious: Just as the offer shows how serious you are as a buyer, it also lets you know how serious the seller is based on their response.
- Make improvements: Most new homeowners want to perform repairs or make improvements to their homes after moving in, and a reduced sale price helps offset these costs.
- Set contingencies: It allows you to set contingencies, which are conditions that must be met before you accept the terms of the sale.
- Control the timeline: Making an offer gives you more control over the timeline of the deal, such as the closing date.
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Save money: Negotiating the price helps you remain within your budget by reducing your monthly mortgage payment and closing costs. Most closing costs are based on the sale price of the home, which means a reduced price can save you significantly on closing.
Before You Negotiate
It’s easy to think that simply making an offer results in an acceptance or rejection and that the sale can be completed right away if the buyer accepts. But in fact, you’ll need to take a few more steps before you complete the closing on a home.
Understand the buying process
First, after you make your initial offer, the seller’s real estate agent will respond to your agent and let them know whether the offer was accepted, if there’s a counteroffer or if the seller simply wasn’t feeling it.
If the seller is willing to accept your offer or negotiate terms, the process continues. The most likely response is a counteroffer, which shows that the seller will work with you but still wants to get more from the deal. Neither party is obligated to complete the sale until all the terms are agreed to and a contract is written and signed.
Do your homework
Whenever you’re looking for a deal on a pricey item, you look at several different brands and weigh all your options, right? Research is your bestie because it shows that you know what you’re doing and that you’re setting reasonable expectations.
Here are some of the ways that you can get all of the facts before making your offer:
- Get preapproved: Try to get preapproved for a loan before making offers. This step can set your budget and determine whether you need a larger down payment to make an attractive offer. The last thing you want is to waste a seller’s time with an offer beyond what a lender will give you.
- Talk to your agent: Work with your real estate agent closely and lean on their expertise. They’re able to answer many of your questions and give you valuable recommendations.
- Learn your market: Do some market research to learn what similar homes in the area are selling for. If your offer is way off the mark compared to other homes in the neighborhood, it could be rejected or the counteroffer will be too far from your initial offer. Or, you could end up overpaying if the seller has priced the home above market norms.
- Understand the seller’s motivations: Learn why the seller wants to sell. Is the seller looking to move out because of a job relocation or desire to upgrade into a better home? Or are they trying to flip houses for the greatest possible profit? Knowing your seller’s motivation can influence your negotiation strategy and clue you into how easy they will be to negotiate with.
- Don’t negotiate too low: Sellers don’t like low-ball offers and you run the risk of insulting the seller when you bid too low. You can look for other negotiating points if there are important issues to resolve.
Understand what’s negotiable when home buying
Just about anything you can think of may be negotiable in a home sale. You want to make the most reasonable offer you can and avoid demanding the furniture and garden gnomes as part of the sale. Details you may want to negotiate in addition to the sale price are:
- Closing costs: Closing costs can be between 4% – 6% of your loan’s value. In some cases, you may be able to request that the seller cover some of your costs.
- Closing date: If you’re on a tight schedule to move into your new home, you may be able to negotiate a closing date that will let you move in sooner.
- Repairs: Depending on the home inspection report, you may be able to negotiate that the seller makes specific repairs to the home before closing, or negotiate a lower price so you can make the repairs when you become the homeowner.
Making Your Offer
Now that you’ve done your homework, it’s time to make an offer. A well-crafted offer can lay the groundwork for effective negotiation, so consider these tactics when you’re making your offer. Of course, every situation is different, so consult with your real estate agent before you make your offer.
Put your offer in writing
If you communicate solely through your real estate agents, you’re going to seem cold and emotionless. Making an offer in writing with a personal note can show you’re serious and willing to iron out a sale. Put an expiration date on your offer so you increase your odds of a speedy reply.
Agree to a larger down payment
Your down payment is your way of saying that you’re not wasting anyone’s time. It indicates that you definitely want the home. A wise seller knows that a larger down payment translates into more financial resources and greater odds of completing the sale.
Don’t ask the seller for too many contingencies
Contingencies are conditions you include in your offer. Essentially they set conditions for the sale based on things like the outcome of the home inspection and whether or not you’re able to get approved for a loan or sell your home before closing.
It’s okay to make some requests, but don’t take it too far. If you expect the seller to fix every minor problem with the house, they may not be willing to meet your demands. Focus on the big-ticket items at the top of your priority list.
Negotiating Counter Offers
If you receive a counteroffer, it’s a sign that the seller is willing to continue the negotiations, so prepare in advance for this possibility. We’ve listed some of the counters you’re likely to see.
Higher sales price
If the seller counters with the original asking price, take it as a sign the seller won’t budge on the price at all. Most of the time, you’ll receive a counteroffer somewhere between what you offered and the initial asking price. Since it’s up to you to accept the new price, try to meet in the middle or say “no deal.”
The seller won’t negotiate on closing costs
You can try negotiating by asking the seller to pay a larger portion of the closing costs. But if the seller refuses the portion you offered, you can come back with a different amount and see if the seller budges. Otherwise, you need to accept the closing costs or walk from the deal.
A different closing date
Your seller could want to complete the sale on a different date. They may be trying to time the sale with closing on their own new home or with when they need to relocate. Knowing the seller’s motivations for the sale can help you make an offer with a closing date that suits you both.
Arguments over contingencies
The seller might be unable or unwilling to meet some of your contingencies. The best strategy is to decide before you make an offer whether you’re willing to accept the sale without them or revise your offer with fewer requirements.
The seller wants a higher earnest money deposit
Earnest money deposits are payments that you can use to hold the home while you complete your loan approval. You may be expected to pay a percentage of the sale price (usually between 1% – 3%) as a deposit, but you get this money back when the sale is closed.
If the seller wants a higher deposit, consider whether you can afford their demand to reserve the home. If not, you can counter with a deposit that’s between your initial offer and the seller’s counter.
Negotiating Home Prices Without a Real Estate Agent
You can enter into negotiations without a real estate agent, but that means you’re going it alone. Here are some of the tasks you’d need to do that an agent would normally handle.
More extensive market research
You would need to do a lot more of the legwork when it comes to learning what type of market you’re in, how much similar homes sell for and the history of the home you’re looking at. Expect to spend more time researching if you want to negotiate effectively on your own.
Familiarity with paperwork
There’s a mountain of paperwork you need to handle when completing a home sale, and a real estate agent handles the preparation of your offer and closing paperwork for you. If you want to make an offer on your own and successfully negotiate it, learn how to fill out all the required forms so that you don’t jeopardize the sale because of an error.
Communication with the seller’s agent
If the seller has an agent of their own, you’ll probably communicate more frequently with the agent than the seller. This could put you at a disadvantage because real estate agents are negotiation experts. You will be a relative newbie attempting to do a business process they’ve done for years.
You will need access to your own lawyers, lenders and inspectors
Real estate agents have active relationships with the secondary professionals that are involved in a home sale. This includes home inspectors, photographers, home appraisers and lawyers. Without an agent, you need to vet and hire these professionals while you complete your sale.
Negotiating a counteroffer when buying a house is more difficult
Without an agent, there’s more legwork to do and more questions to answer to determine whether a counteroffer is fair. For example: Is the seller considering more offers? Would a seller consider your offer a low-ball offer that would turn your seller’s attention to another potential home buyer? A savvy real estate agent will know how to craft the best offer and guide you through the process of negotiating and closing a deal.
You’ve Got This
The best way to ensure a smooth home sale process is to do your research and know the market, understand the seller’s intentions and know what tools to use to your advantage. Working with an agent works to your advantage, especially if you’re new to home buying.
Trying to buy a home without an agent is like trying to put together an Ikea bookshelf without the instructions. It’s not impossible, but it’s a lot more time-consuming and difficult. Learn more about what a real estate agent can do for you and why you should consider hiring one.
Home is worth it.
The mortgage process can be exciting, and we’ll be with you all the way. Take the first step to owning a home. You’ll be glad you did.