How To Negotiate A House Price As A Buyer
Sidney Richardson6-MINUTE READ
May 27, 2021
Negotiating the asking price is pretty standard when buying a house, but it can still be confusing and intimidating, especially for first-time home buyers. When is the right time to negotiate, what should you leverage and how can you make sure the terms meet your budget?
Here’s what you need to know about negotiating so you can get the best possible deal on the home of your dreams.
When Is The Right Time To Negotiate?
So, when is the right time to negotiate on your dream home – and should you be willing to do everything it takes if it comes down to a bidding war (when numerous buyers are making multiple offers on a seller's property)? There’s a lot to think about during this process, and before you commit any money, you should keep a few things in mind.
Is the property you have your heart set on worth negotiating for? Consider any flaws that the home might have that could impact what you’ll pay for it. It’s important to consider your budget as well. It can be tempting to exceed your means to make a compelling offer, but you don’t want to stretch too far beyond your means.
When considering how much you’re willing to offer, think about contingencies, too. Making a contingent offer means the seller can accept your offer, but the final sale is dependent on conditions that you, the buyer, set yourself. With home inspection and appraisal contingencies, you can protect yourself from an unfair deal by giving yourself the power to back out of the purchase if the home you’re interested in appraises under a certain value or has a lot of hidden problems.
Once you feel comfortable with your position, budget and the state of the property, it’s time to negotiate.
Work With Your Real Estate Agent To Create A Strategy
While negotiating a home’s selling price by yourself is an option, if you want the best possible deal, it’s wise to work with a real estate agent or REALTOR®. Real estate agents have valuable experience with the home buying process and can fight to get you the best deal possible. Since they aren’t personally attached to the transaction in the way you are as the buyer, they’re in a better position to negotiate on your behalf and are less likely to make unneeded concessions.
A real estate agent or REALTOR® will know how to help you come up with the strongest offer possible and can use their knowledge of the real estate in the area to help you set a reasonable budget. They’ll even talk to the seller or the seller’s agent. If you’d like to work with a real estate agent but aren’t sure where to start, Rocket Homes℠ can help connect you with an agent today.
Negotiating In A Buyer’s Market
A buyer’s market refers to a state of the market where there are more houses available than home buyers – basically, supply exceeds demand. This results in lower asking prices and tends to give the buyer more power when negotiating an offer on a home. If you’re looking to buy a home during a buyer’s market, know that you have the upper hand and can likely get sellers to agree to deals that might usually be unfavorable.
As a buyer in a buyer’s market, you have the power to negotiate on almost every aspect of closing, including closing costs, asking price, home warranty, repairs (if problems are discovered during home inspection), the closing date and more.
Negotiating In A Seller’s Market
In a seller’s market, on the other hand, there are more home buyers than homes available, making buying a home extremely competitive. Usually, home prices are higher during a seller’s market and the home seller has more power in negotiations than buyers do, since they have the upper hand.
As a buyer in a seller’s market, you won’t be able to negotiate much. To get a home in this environment, you’ll want to work with a real estate agent to make offers quickly and reasonably – and you may want to consider an escalation clause in the event that a slightly better offer is made after yours. Negotiations are not impossible, but will be more difficult for you to bend to your will during a seller’s market.
Negotiation Strategies To Use As A Buyer
Whether you’re working with a buyer’s market or a seller’s market, there are always some tools at your disposal as a home buyer during negotiations. To get the best price on your dream home, you have to be prepared and informed about what you can potentially use to your advantage.
1. Find Comparable Sales Data
Finding comparable properties to the home you’re looking at, or “comps” as they’re sometimes referred to, can be extremely beneficial to you as a buyer. By examining the purchase prices of similar homes in the area of a property you want, you can assure you’re not paying more than you should be and use that information to negotiate with sellers.
Finding comps by yourself can be a bit challenging, so it’s recommended that you work with a real estate agent to do this, as they have knowledge of the area you’re looking at and access to a multiple listing service, or MLS, where they can quickly find relevant comparable home data and local trends to use to your advantage.
2. Understand The Seller’s Motivations
When negotiating with a seller, it can sometimes be beneficial to understand where they’re coming from. They’re human, too, which means there’s likely a reason they’re selling their home – and they probably have specific needs that must be met by this transaction as well.
While you shouldn’t reach out to a seller directly to ask about their situation and selling goals, your agent can on your behalf. For example, if a seller is moving and selling their home at the same time, they likely won’t be willing to make repairs for you, which is good to know when negotiating from your end.
3. Use The Appraisal To Your Advantage
An appraisal will give you a rough estimate of what a property you’re interested in is actually worth. If a home appraises lower than the price the seller would like for it, this can sometimes work to your advantage. When the seller wants to get rid of the property quickly, they may be willing to meet you halfway and decrease their asking price for you to close the deal. If they refuse to back down on their price, you should utilize your appraisal contingency and walk away from the deal rather than pay more than the home is currently worth.
4. Leverage The Home Inspection Findings
A home inspection goes more in-depth than a simple appraisal. Home inspections seek to find any problems or flaws on the property that might concern the buyer. If there are any major issues, these can be useful things to bring up in negotiations if you still intend to buy the home. Depending on the problem, the seller may be willing to pay for repairs as part of the closing negotiations.
5. Ask The Seller To Cover The Closing Costs
It’s not uncommon to ask your seller to pay for closing costs, making it a good and fairly easy thing to ask for during your price negotiations. While closing costs don’t amount to much compared to a potential down payment, seeing if the seller will cover this for you is a great way to reduce extra costs. In some cases, your mortgage lender may be willing to pay for your closing costs as well, though this varies.
6. Know When To Walk Away
Sometimes, negotiations won’t go well, especially if you’re a buyer working with a seller’s market. Always keep your budget in mind and try not to make any concessions beyond what you agreed you were willing to do beforehand. Your real estate agent can likely advise you when it’s no longer worth it to pursue a property where the seller demands more than you can offer. If you made a contingent offer, it’s often best to just walk away from the deal when things start looking sour.
Can You Negotiate The House Price After An Offer Is Accepted?
When an offer is accepted, the buyer can still negotiate the terms of the house price. If you want to back out or negotiate the home price, here are a couple of options you have:
- Give the seller an upfront deposit at closing to walk away from the deal and get your money back.
- Renegotiate the price with the seller, but understand that others may give a higher offer, causing you to lose the deal.
The Bottom Line: Negotiating A Fair House Price
When buying a home, it can be stressful trying to figure out if you’re really getting the best deal. To make sure you’re buying your dream home at a fair price, we always advise you to work with a real estate agent or REALTOR® that can help negotiate on your behalf and inform you of potential problems.
If you’re looking for a real estate agent you can trust to work with, visit Rocket Homes to be paired with an agent today.
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