When you buy a home, the seller will likely expect you to negotiate the asking price. In fact, most sellers price their homes a little above market value to compensate for the negotiations. Negotiation can be daunting, but knowing what to expect can make the process less daunting.
before negotiating the price of the house
Negotiating a home price requires a lot of patience, organization, and sometimes compromises.
Consider arranging the following things before you sit down to negotiate.
Work with a lawyer or real estate agent
Many homebuyers believe they no longer need an agent because real estate listing sites are just a click away. However, the agent doesn’t just show you homes. Your agent is also a major asset when it comes to negotiating the price of your home and helping you determine your bid amount.
Real estate agents are experts in the local real estate market. They know how interest rates move, what properties will appreciate, 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 defend your interests because you don’t have to worry about losing the house. Also, a real estate professional can help you craft the strongest offer letter possible, including all the terms you need to protect yourself.
Contact a local real estate agent before you start looking for homes.
Organize your finances
You must be able to prove to the seller that you can get a mortgage. What happens if I bid to buy a home without proof of financing? You will have a much better chance of not keeping the next buyer.
Make sure you are pre-approved for a mortgage before submitting your offer letter. A pre-approval letter is a notice from a mortgage lender confirming the mortgage amount you qualify for and telling the sellers that you will be approved for the home.
Remember that a pre-approval letter and a pre-qualification letter are not the same thing. The lender reviews your income, assets, and credit before issuing your letter. This allows your lender to give you the most accurate estimate possible. When you are pre-qualified, the lender generally does not verify the information you provide. This means that your pre-qualification number carries less weight than your endorsement. Remember to always include pre-approval to submit the strongest offer possible.
Know your market
The leeway you have to negotiate is inversely proportional to the interest in the house, and whether we are in a buyer’s or seller’s market. If many buyers show interest in the home and there are more offers, you will have less room to negotiate. If the local real estate market is calm, you have more opportunities to ask for concessions, a lower price, and repairs.
This is another area where your realtor will be an invaluable asset. Your agent can assess the local market and speak with the seller or seller’s agent. This allows you to get a clearer picture of the seller’s willingness to negotiate. You may be able to get a good deal if the house has been on the market for a long time and the seller wants to get rid of it. However, if the seller receives multiple offers for the home, you will need to place a higher bid up front.
Tips for negotiating a home purchase
When you think all is well and you’re ready to start talking about prices, consider some of the following tips that you can use at the negotiating table.
Make sure to get checked out
The results of the inspection can be key in negotiating the final sale price of a home. The inspector walks around the home and evaluates issues such as foundation cracks, HVAC, and more. The inspector will then give you a copy of his report.
You can ask the seller to make concessions if the home inspection reveals problems that are obstacles to the sale. You can ask the seller to fix a problem, give you a credit for closing costs, or lower the price. You can even use the results of the inspection to cancel the sale if your offer includes an inspection clause or if the inspection reveals a major problem with the home.
Remember that an examination is not the same as an evaluation. Your appraiser will only give you a rough estimate of your home’s value. He won’t tell you your ceiling is missing some shingles or your upstairs closet lights are broken. The inspector will give you a much clearer picture of the house and the problems you will face if you buy it.
Make sure you get an appraisal and inspection before you commit to buying a home.
Always communicate through it
You may already know that there are a lot of real estate jargon to master. Remember that many of these terms have legally difficult definitions and are often confused with one another. For example, many buyers do not fully understand the difference between an evaluation and an examination.
You may not get the response you need in a timely manner if you contact a vendor asking for the results of an evaluation when you really meant to refer to the results of the examination.
Ask your agent to handle any conversations between you and the seller. Your real estate agent knows how to phrase questions and requests in a way that does not jeopardize your interests. Do not contact the seller directly
Ask for closing costs
The down payment isn’t the only cost you’ll have to make at closing. You must also cover closing costs. Closing costs are the expenses that your lender charges for servicing your loan. Some of the most common closing costs include appraisal fees, inspection fees, and credit check fees.
Closing costs for a home purchase are usually between 3 and 6% of the total value of your loan. For example, for a $150,000 loan, you can expect to pay between $4,500 and $9,000 in closing costs. This means that these fees can be a huge hurdle between you and your home purchase.
You may not know that you can ask the seller for concessions other than the price of the house. For example, you can ask the seller to participate if you want to buy a home but are struggling to cover closing costs. The seller may agree in order to close the sale more quickly. However, if there is a lot of competition for your home, you may want to wait before claiming closing costs. Ask the lender if you can incorporate closing costs into your loan.
Find out why the seller is moving
The more you know about the seller, the more effective the negotiation will be. For example, if your seller is moving because he bought a new home, you may be able to get a better deal by asking for a discount. You probably won’t be able to make any repairs or upgrades before the deal closes, because the seller probably wants to vacate the house as soon as possible.
Ask your real estate agent to do some research on your seller. Determine if the seller prefers a shorter or longer closing process. If the seller is in the process of getting divorced or wants to move to an area with a better school district, they will likely be more motivated to sell. This gives you more room for negotiation, especially if the property has been on the market for a while.
Obtain personal information
How long have you been looking for a house? If so, you know that finding the perfect property can be emotionally stressful. What you may not have thought of is that selling your home is also an emotional process. Every seller has memories of his home, and he wants it to go to the people who will take care of it.
Because of this emotional connection, you may want to include a personal letter with your offer. Explain why you like the seller’s property, what your favorite features are, and how you plan to use the home. For example, if the seller knows you want to restore a historic property or use your future home to raise a family, they may be more willing to help.
Even if you are not in a position to offer more money, the personal touch of a well-written letter makes your offer stand out.
Don’t be afraid to walk away
In some cases, you will come across a seller who is unwilling to budge on the home price. He may have several offers or be very attached to the house. Under these circumstances, it can be tempting to throw your budget out the window and bid more than you can handle to win the bidding war. This will require you to take out a larger loan, and you may even need to purchase Private Mortgage Insurance (PMI) before closing the deal if your down payment is too low.
Start the home buying process with the assumption that you will have to turn down every home you see. Attend several viewings, have your real estate agent arrange several viewings for you, and try not to get too attached to any house. This can help you negotiate more effectively and stick to your budget.
How much can you really negotiate for a house?
How much you bid less than the seller’s asking price may depend entirely on the condition of the home and comparable sales. In a buyer’s market, it may be reasonable to offer up to 20% less than the asking price if the home needs major repairs, such as a roof replacement, or if there are problems with the foundation. Offers of 5-19% off the price are also acceptable, depending on the need to refurbish or upgrade hardware.
Your biggest asset here will be comparable homes in the area that sell for a similar price, and how their conditions and features compare to the home in question. Comparisons alone can sometimes encourage a seller to reconsider their original price.
Negotiating the home purchase price can be daunting, especially for first-time buyers. Make sure to obtain pre-approval before beginning your home search. You should also choose an agent before you start comparing properties. Always ask your agent to contact vendors and make offers.
Don’t forget to ask for an inspection when you find a home you like. You can ask the seller to give you a discount, make repairs to the property before the sale, or help with closing costs. Don’t be afraid to walk away and keep looking if you can’t come to an agreement with the seller.