How to Negotiate the Deal: Understanding the Negotiation Process
Home buying involves finding the right home and then negotiating a price that is acceptable to both the buyer and seller. The best negotiators work to ensure that both parties feel they are getting a good deal. There are a few things that can be done, as a buyer, to ensure you get the best price for the home you have fallen in love with.
- Prepare before you look for a home. As a rule, offers with the fewest contingencies are considered the strongest. Seller’s want to accept an offer they have confidence will close. One of the most common contingencies is financing and also one of the most common reasons a home does not close. Getting a preapproval from a lender re-assures the seller that the loan will close. Having an underwriting team review the file, will make the offer even stronger.
Lastly, when you find a home and want to present an offer, run the final numbers with your lender. Often in the home search, the price of homes you view rises. Make sure you will be approved for the payment that will result from the offer price. Also review down payment requirements and other requirements of the loan to ensure the closing goes smoothly.
- Leave your emotions at the door. Negotiations will be more successful if you are able and willing to walk away. If you see this as a business transaction and an investment, you will have the advantage. Pride of winning and getting lost in the small details can ruin a great deal. It really doesn’t matter if they leave the fridge or want to take a particular light fixture. That $5,000 you have heartburn over is only around $20 a month extra in payments.
Once you find the perfect home, find another alterative home that is “almost” as good. This will give you options and as a result, strength in the negotiations. If you are willing to walk away you have more power because you won’t come across as anxious or desperate.
- Know your market. The term information is power is very true when it comes to real estate and negotiations. The price of the home should be based on facts not emotions. The market value not the list price. Understanding what homes are selling for in the neighborhood and in the area will allow you to make a solid offer based on the market value. A well prepared comparative market analysis (completed by your agent) will give you solid information to back up the offer you are presenting.
- It’s not all about price. We often think the negotiations are solely about what the seller is asking for the home. Negotiations can also involve closing costs, buying down points, having repairs made, or other concessions from the seller.
Considerations should be made to meet the seller’s needs. If your agent can learn about the seller and why they are selling you can prepare an offer that addresses that. If they have been transferred out of town, then a faster closing is worth more than the price (See item number 1. If you have financing arranged you can often offer a faster close.) Knowing the seller’s motivations are will help you present an offer they are most likely to accept.
- Hire a great buyer’s agent. The seller generally pays the commission for both the seller and buyer agents. You are paying for it, you might as well hire an agent you trust and then let them work for you. Agents have the ability to help gather information and present the offer in a way the seller is most likely to accept.
Presenting a strategic offer that considers the above factors will give you the best chance of holding the winning bid. It will also help to create a win-win for both the buyer and seller.