When you buy a home, the seller you’re buying from will probably expect you to negotiate the asking price. In fact, most sellers price their home a bit higher than market value to compensate for negotiations. Negotiating can be intimidating, but knowing what to expect can make the process a little less scary.
Before Negotiating A House Price
Negotiating a home price requires a lot of patience and organization, and sometimes compromise.
Consider getting the following things in order before sitting down to negotiate.
Work With An Agent Or REALTOR®
Many home buyers believe that they no longer need an agent because real estate listing sites are available at the click of a button. However, an agent doesn’t just show you homes. Your agent is also a crucial asset when it comes to negotiating your home’s price and helping you decide how much to offer.
Real estate agents are experts in your local housing market. They know how interest rates change, which properties are set to grow in value and what you can expect to pay in property taxes. Real estate professionals can also separate their emotions from the home buying process.
For example, they can advocate for you because they’re removed from the fear of losing the home. Furthermore, your real estate professional can help you draft the strongest offer letter possible, complete with all the contingencies you need to protect yourself.
Contact a local real estate agent before you start shopping for homes.
Get Your Finances In Order
You need to be able to prove to a seller that you can get a mortgage. What will happen if you make an offer on a home without proof of funding? You’re much more likely to get passed over for the next buyer.
Make sure you can get pre-approved for a mortgage loan before you submit an offer letter. A pre-approval letter is a notice from a mortgage lender that confirms the mortgage amount you qualify for and lets sellers know that you’ll be approved for the home.
Keep in mind that a pre-approval and pre-qualification letter aren’t the same thing. Your lender takes a look at your income, assets and credit before they issue your letter. This allows your lender to give you the most accurate estimate possible. When you’re prequalified, the lender usually doesn’t verify the information you provide. This means that your pre-qualification number holds less weight than your approval. Remember to always include a pre-approval to submit the strongest offer possible.
Know Your Market
The amount of room you have to negotiate is inversely proportional to the amount of interest in the home, and whether we’re in a buyer’s market or a seller’s market. If many buyers have expressed interest in the home and there are more offers, you’ll have less room to negotiate. If your local real estate market is cold, you have more room to ask for concessions, a lower price and repairs.
This is another area where your real estate agent will be an invaluable asset. Your agent can assess the local market and talk to the seller or the seller’s agent. This allows you to get a more intimate look at how willing the seller is to negotiate. You might be able to get a bargain if the home has been on the market for a long time and the seller wants out. However, if the seller has had multiple offers on the home, you’ll need to submit a higher offer right off the bat.
Tips For Negotiating A House Purchase
When you feel you have everything in order and are ready to start talking about prices, consider some of the following tips you can use at the negotiation table.
Be Sure To Get An Inspection
Inspection results can be the key to negotiating a home’s final selling price. An inspector will take a walk through the home and evaluate the home for any issues like foundation cracks, problems with the heating, ventilation and air-conditioning (HVAC) system and more. The inspector will then give you a copy of the report. You can ask the seller for concessions if the home inspection reveals any problems that are deal breakers for you. You may want to ask the seller to fix a problem, give you a credit for closing costs or lower the price. You can even use the inspection results to cancel the sale if your offer includes an inspection contingency, or if the inspection reveals a major home issue.
Keep in mind that an inspection isn’t the same thing as an appraisal. Your appraiser will only give you a rough estimate of what the home is worth. Your appraiser won’t let you know that your roof has a few shingles missing or that the upstairs closet has broken lights. An inspector gives you a much closer look at the home and the problems you’ll have to deal with if you buy it.
Be sure to get both an appraisal and an inspection before you commit to a home purchase.
Always Communicate Through Your Agent
You might already know that there’s a lot of real estate jargon to master. Remember that many of these terms have legally sensitive definitions and are often conflated with one another. For example, many buyers don’t fully understand the difference between an appraisal and an inspection. You may not get the answer you need in time if you contact a seller asking about appraisal results when you really intended to reference inspection results.
Ask your agent to handle any conversation between yourself and the seller. Your real estate agent knows how to phrase questions and requests in a way that doesn’t put your interests in jeopardy. Never contact a seller directly.
Ask For Closing Costs
Your down payment isn’t the only cost you need to pay at closing. You must also cover closing costs. Closing costs are expenses that go to your lender in exchange for servicing your loan. Some of the most common closing costs include appraisal fees, inspection costs and credit check fees. Closing costs on a home purchase are usually between 3% – 6% of your total loan value. For example, closing on a $150,000 loan means you can expect to pay between $4,500 – $9,000 in closing costs. This means that these fees can potentially present a significant barrier between you and your home purchase.
You may not realize that you can ask for seller concessions beyond the price of the home. For example, you can ask the seller to chip in if you want to buy a home but you’re having trouble covering closing costs. The seller may agree in order to close the sale faster. However, if there’s a lot of competition for your home, you may want to hold off on asking for closing costs. Ask your lender if you have the option to roll your closing costs into your loan.
Find Out Why The Seller Is Moving
The more you know about a seller, the more effectively you can negotiate. For example, if your seller is moving because they’ve bought a new home, you might be able to get a better offer by asking for a discount. You probably won’t be able to get repairs or renovations before closing, as the seller likely wants to get out of the home as soon as possible.
Ask your real estate agent to do a little digging on your seller. Find out if the seller prefers a shorter or longer closing process. If your seller is getting a divorce or wants to move to an area with a better school district, they’ll probably be more eager to sell. This gives you more room to negotiate, especially if the property has been on the market for a while.
Have you been shopping for a home for a long time? If so, you know that finding the perfect property can be emotionally draining. What you might not have considered is that selling your home is also an emotional process. Every seller has memories of their home, and they want to see their home go to people who will take good care of it.
You may want to include a personal letter with your offer because of this emotional attachment. Include details about why you like the seller’s property, some of your favorite features and how you plan to use the home. For example, if a seller knows that you want to restore a historic property or use your prospective home to start a family, they may be more willing to help you out. Even if you aren’t able to offer more money, the personal touch of a well-crafted letter makes your offer stand out.
Don’t Be Afraid To Walk Away
In some situations, you’ll encounter a seller who doesn’t want to budge on the home’s price. They may have a number of offers or be very attached to the home. In these circumstances, it can be tempting to throw your budget to the wind and offer more than you can afford to win the bidding war. This will force you to take on a higher loan, and you may even need to buy private mortgage insurance (PMI) before you close if your down payment is too low.
Go into the home buying process assuming that you’ll need to walk away from every home you see. Attend multiple showings, ask your real estate agent to set up a variety of viewings for you and try not to get too attached to a particular home. This can help you negotiate more effectively and stay within your budget.
How Much Can You Really Negotiate On A House?
How much you offer beneath a seller’s asking price can depend entirely on the condition of the house and comparable sales. In a buyer’s market, it can be reasonable to offer as much as 20% under the asking price if the home requires extensive repairs, such as replacing the roof or if there are foundation issues. Offers of 5% – 19% under price are also acceptable depending on the need for remodeling or upgraded appliances.
Your greatest asset here will be comparable homes in the area sold for a similar price, and how their conditions and features compare to the home in question. Comps alone can sometimes encourage a seller to reconsider their original asking price.
The Bottom Line
Negotiating a home purchase price can be intimidating, especially for first-time buyers. Make sure you get a pre-approval before you start shopping for a home. You should also choose an agent before you start to compare properties. Always ask your agent to communicate with sellers and submit offers.
Be sure to order an inspection once you find a home you like. You can ask your seller to give you a discount, make repairs on the property before the sale or help you with closing costs. Don’t be afraid to walk away and keep shopping if you can’t reach an agreement with a seller.
Originally published by Rocket Mortgage