Negotiating the Purchase of a Home

The art of negotiating is just that! Only an artful negotiator can take two sides with opposing interests and bring them to consensus. No formula can be applied to the process; no scientific equation can bring it about. And the back-and-forth communication that is negotiating is a huge part of the home buying and selling process.

A favorable negotiation involves your buyer’s agent working with the listing agent to arrive at an agreement on not only price, but also terms and conditions, such as time of possession and will a Home Warranty be offered. As with any bargaining session, the discussion can get bogged down; but a professional knows how to avert problems. It’s about working through any potential sticking points to bring the talks to a mutually satisfying conclusion. This is where most deals fall apart, so it’s best not to tackle this oh-so-important business dealing without the help of a skillful negotiator.

While there is no surefire, guaranteed-to-work-every-time negotiation strategy there are certain proven, tested principles of negotiation. If you know these principles and effectively utilize them you will, more often than not, significantly improve the result than you otherwise would have obtained.

  1. Get PRE-APPROVED for your loan.

The single best step you can take to better your negotiating position is to get pre-approved for your loan. By giving the seller a lender’s pre-approval letter you demonstrate that you are a qualified to purchase their home, which will encourage the seller to take your offer seriously which in turn can make them more willing to negotiate.

  1. Determine what you want in advance.

It’s usually wise, before beginning any negotiations, to determine in advance roughly how high a price you would ultimately pay to secure a certain property. While this figure may change as we work through the negotiations it’s a good idea to consider this before submitting the initial offer.  It’s also important that you advise your agent of your position on the property and if it’s the home of your dreams and one you can’t live without, or if you won’t be entirely disappointed if it’s lost to another buyer (or your terms simply aren’t agreeable to the seller).

Based upon our thorough pre-offer research, you may sometimes determine that the home is appropriately priced and that you are willing to pay up to the full asking price. Alternatively you may determine that the highest amount you would pay is well below the asking price.

At either extreme, or anywhere in between the principle is the same… Buying a home can be an intense and stressful process. In the midst of negotiations it’s important that your agent be fully cognizant of (1) your goals and objectives, (2) what you’d like to pay for the home, (3) and finally how much you’re actually willing to spend. Knowing your goals and objectives will allow your agent to keep you focused on the larger picture during negotiations by reminding you that while you may currently be experiencing stress, you are ultimately getting closer to your goal!

  1. Determining an opening offer.

Our pre-offer research should help you determine a good opening offer on a property. Here are a couple of other guidelines…

First, try to negotiate on both price and seller cash contributions toward your closing costs – you’ll tend to net overall greater reductions that way. For example, say on a $350,000 home you wish to begin $20,000 off the asking price. You could negotiate just on price with a bid of, say, $330,000. Why not instead negotiate on both price and closing costs with a bid of, say, $330,000 plus $7,000 of seller-paid closing costs?

By raising both price and cash as issues to be negotiated upon you will often induce a counter offer from the seller on both items. This usually has the net effect of obtaining greater overall concessions than if you had negotiated on price alone.

Second, remember that sellers try to make their asking price appear lower by using lots of “nines” (e.g. $299,990 instead of $300,000). Use this psychological tactic in reverse and put “zeros” in your offer (e.g. offering $320,000, as opposed to $319,900) to make your offer appear larger. Sometimes you can use both of these principles together. For example, suppose the seller is asking $320,000. Don’t start bidding at $290,000. Instead, make your initial offer at $300,000 but also ask for $10,000 in seller-paid closing costs. You thereby cross the psychological threshold of $300,000 and yet still are making a lower net opening bid.

  1. Nickels, dimes and dollars.

Negotiation is a game of give-and-take. You must give something of value to get something back of equal or greater value. The trick is to concede on small items to get bigger concessions from the other side.

One trick is to make non-financial concessions in an effort to elicit financial concessions. For example, you may wish to close in 30 days and take possession within two days but the seller wants to stay for 10 days. If you can accommodate the seller’s need for a delayed possession (or a short term rent-back in the case of a longer delay) you have a better chance of convincing the seller to agree to lower his price than another home buyer who won’t accommodate their timing.

Also, when the seller wants to take a dining room chandelier, keep a few appliances (e.g. refrigerator), etc. it usually isn’t aren’t worth arguing over. Quite often the total value for these used appliances is quite low compared to the negotiating goodwill you’d sacrifice by arguing over them. Learn to trade the “little” things for bigger concessions from the other side.

  1. Sweet speech.

In the Bible Solomon had a proverb that said: “Sweetness of speech increases persuasiveness.” You will go a lot farther in getting the other side to agree with you when you act in an agreeable manner. You would be amazed how often this seemingly “obvious” principle is forgotten in the heat of negotiations.

  1. Blame a third party.

This is classic negotiating. Whenever you hear someone say: “I can’t agree to pay more until I check with my wife (or husband) first,” or “My lawyer told me not to make any changes to this contract,” et cetera, you are watching someone blame a third party.

The great thing about blaming a third party is that they are not in the room with you at the time that you are negotiating. You let the seller make all the concessions they want, and you politely agree to communicate their concessions to the missing third party, but you can’t make any concessions without the third party’s review and approval. It allows you, in a sense, to conduct one-way negotiations and often encourages the other party to accept your terms in an effort to avoid risking the sale due to the third parties rejection of the sellers proposed terms. But this tactic must be used sparingly to work effectively.

  1. Do NOT point out property flaws… Yet!

Many home buyers believe that, to negotiate a lower price it is a good idea to point out to the seller things that are flawed about his property. (Many agents believe this too, even though they ought to know better!)

This strategy will usually blow up in your face. Most home owners look at their home as an extension of themselves, and an insult to the home is an insult to the seller and rarely helps you lower the price. In addition attempting to support your offer to far in advance and before the seller has responded suggests you feel the need to justify your offer.

Instead, negotiate the best price you can despite any apparent flaws. Then, bring in professional home inspectors (and NOT your Dad)! When the inspectors points out flaws that’s OK. They are deemed to be “neutral” as a professional. Besides, when you rely on the inspector’s criticism of the property (negotiating for repairs or more price reductions) you will be “blaming” a third party! If the seller stands firm at a price that is not acceptable to you and negotiations stall, you can attempt to help the seller understand the logic behind your offer and the costs associated with remedying these specific property issues which are likely to be concerns for other would be buyers.

  1. Win your way through questions, not bold assertions of fact.

Many people try to negotiate by argument and prove the seller wrong. “Look here, Mr. Seller, your home is overpriced by $20,000 and these comparable sales figures on other homes prove it.” This confrontational approach usually provokes the seller to defend their price, not reduce it.

A far more persuasive and effective tactic is to ask the seller discrete questions that lead them to lower the price while thinking it was their idea, not ours. We may ask: “Have you had many other offers? If not, why do you think that is?” Or, “What do you think is the main reason your home hasn’t sold yet?” Or, “My Buyer-Clients are aware that other comparable homes in the area have sold for less. What reason can you suggest for them to pay more than what these other homes have sold for?

We don’t try to prove the seller wrong. Instead we reverse the tables on them and ask them to prove otherwise. If they really can’t, they’ll see it more quickly when you allow them to see it for themselves rather than trying to shove it down their throat.

Soft, polite questions may not win an argument, but often they will quietly persuade your opponent to your way of thinking (sometimes without their realizing it).

  1. Always be willing to walk away

This is a critically important technique and strength of successful negotiation. When emotions take over, rational thought can go out the window. If you negotiate from a place of cool and composed strategic thought then you are in a far stronger position. Just be sure you are willing to risk losing the property when employing this technique, especially when contemplating doing so in an active seller’s market (a market in which buyer demand is high, and inventory levels are low).

  1. Finally, get the best negotiator on your side that you can find.

Having an expert negotiator manage the sale of your home is just one more reason to work with an experienced real estate professional. Make sure your listing agent offers; capable representation, objective counsel and caring guidance for this process.

When you work with one of our agents, you have a guide who will understand your concerns, expectations and needs not only in negotiation, but throughout the entire home buying process. S/he will be able to negotiate on your behalf; after all, at stake is your best interest and your peace of mind in knowing you got the best deal possible on your new home.

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