6 Best Tips to Negotiate a Home Purchase
Buying a home has always been the biggest and most consequential financial move that most people make in their lives, but the 2016 environment can make it especially challenging, leaving little margin for error. The biggest mistake prospective homebuyers can make is to embark on a pursuit of their dream home without having a well-conceived plan in place in order to obtain the best possible terms. Negotiating a home purchase is often like a chess match, in that it requires a clear view of the playing board as you plan your next several moves in advance.
Understanding the Market
Negotiating a home purchase must start with the understanding that sellers want the highest price and buyers want the best possible deal, with the final outcome falling somewhere in between. However, at any given time, one party is going to have the upper hand in the negotiation, depending on the market conditions. In a buyer’s market, when there is greater supply than demand, the buyer can negotiate from a position of strength, while in a seller’s market, where there is less supply than demand, the seller has the upper hand. Having a clear understanding of the local market conditions is vital going into a negotiation.
1. Get Pre-Approved
When you get pre-approved for a loan, you receive a letter from your lender that indicates to sellers that you are ready to buy a home up to a certain amount. A pre-approval letter gives you nearly as much purchasing power as walking in with cash. With a letter in hand, you are ready to begin your home search in earnest.
2. Do Your Research
With real estate websites such as Zillow.com, Redfin.com and Realtor.com, it is very easy to gather all of the data that you need in order to begin formulating your negotiation strategy. Data such as neighborhood comparables, time on the market and price trends can be critical in determining how to approach negotiations, and how much to offer for a home.
3. Get the Right Realtor for the Market
Realtors who are not familiar with the market that you are looking in may be hesitant to negotiate too aggressively for fear of losing their commission. However, realtors who really know the market understand the boundaries for price offers, and also know which properties are more overlooked, which may be more appropriate for a low-ball offer.
4. Offer Low in a Buyer’s Market
In a true buyer’s market you could offer 5 to 10% under the price that you expect to pay for the house. If the seller is asking for $370,000 and you want to pay $350,000, then offer $320,000 and let the negotiations begin. If the seller comes up higher than you want, you could ask to have certain appliances and other personal property included in the purchase price. You are more likely to win concessions in a buyer’s market. It may help to justify your offer with recent sales data for the neighborhood.
5. Make a Straightforward Offer in a Seller’s Market
In a true seller’s market, sellers do not waste a lot of time on a low-ball offer because they know that a better offer is coming. Under these conditions, it is best to make a clean offer. You can ask for standard contingencies, such as appraisal and inspections, but do not expect to win any major concessions. In a competitive market, make your first offer your best offer, and then be prepared to move on to another house.
6. Negotiate Terms Instead of Price
In a competing bid situation, you could offer the seller some concessions on terms. For example, you could remove inspection contingencies or offer to move the closing date to benefit the seller. Conversely, in a buyer’s market, if the seller will not budge any further on the price, you could ask for concessions such as seller-financed closing costs.