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How to Negotiate the Best Price When Buying a Home

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Negotiate Best Price When Buying a Home

Have you found the home you want to buy? The next step is to write an offer. Use the following negotiation techniques to reach an agreement with the seller.

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What Does a Purchase Offer Consist Of?

A purchase offer is a written contract which you sign and submit to the seller; it is accompanied by a certain amount of “earnest money” (a small good faith deposit to show you are serious about buying the home). The written purchase offer indicates the amount you are willing to give the seller for his or her property. If you are working with an experienced real estate agent, he or she will typically provide a standard purchase offer form which you can complete, sign, and then hand over to the seller to sign. If you are not working with a realtor, be sure you are aware of state laws regarding the information the offer should include. Because your written offer forms the basis of a legal contract with the seller, be thorough. There are some important details you should be sure to talk through with your agent, and to make sure are accurately included on your purchase offer, such as:

  • the amount you are offering for the home, and how you will pay the seller (cash, check, etc.)
  • contingencies to protect you if your financing falls through, or if the inspection unearths major problems with the home (because inspection happens after you make an offer)
  • conveyances, such as whether the home comes furnished or unfurnished
  • an expiration date, by which the seller must respond or your offer expires
  • concessions, such as any closing costs or other costs you would like the seller to pay for
  • the amount of earnest money you are offering
  • the size of your down payment

The “earnest money” deposit can range from about $500 to 5% of the value of the home, depending on where you are interested in buying, and the state of the market. Your earnest money is typically put towards your closing costs; however, if you enter into a contract with the seller and then breach that contract, you could stand to lose this money.

Once you make a purchase offer, sign it and submit it to the seller along with your earnest money (this is usually done through your agent), the seller has the right to either sign your offer as is, make a counter offer, or reject your offer outright.

If the seller accepts your purchase offer, the offer becomes a contract, and you are on your way to owning the home. If the seller counters your offer, you may choose to counter his or her offer, or walk away. Note: If, for some reason, you forget to specify contingencies in your offer, there are sometimes legal steps you can take to back out of the deal. Ask your agent what recourse you have.

Why is Negotiation so Important When Making an Offer on a Home?

It’s not often a seller isn’t willing to negotiate. Barring any competing offers, which are unlikely in today’s market, this means you’re going to buy lower than the listing price. The average discount varies by market, but it’s often about 5% below the listing price. These days, it may be even more. How do you get there? Negotiation.

How Should I Negotiate My Way Into an Offer?

Once you’ve found a home you’re interested in, use the following negotiation techniques to reach an agreement with the seller:

Treat your initial offer as an opportunity to gather information about the seller’s motivation for selling.

Are the sellers retiring, and would like to downsize? Does the seller need to make a quick move due to a sudden job change? You may not get direct answers to your questions about the seller’s motivation for moving, especially if their agent has urged them not to divulge this information, but you might be able to get insight into the seller’s willingness to negotiate by making an offer and seeing what the seller comes back to you with. If the seller refuses to come down off of his or her listing price, this may indicate that he or she isn’t in any hurry to move. On the other hand, if he or she responds immediately with a counter offer that is higher than what you offered but lower than the listing price, they may be in a bigger hurry to sell.

Be realistic with your offer; don’t lowball. This shows the seller you are serious.

Nothing is accomplished by going in with a low-ball offer (except sometimes, in the cases of foreclosures or when a home is significantly overpriced and has been on the market a long time). If you go in too low, you’re going to insult the seller. Sellers love their homes and offering a lot less than what a property is worth won’t win you any points. If your research shows that the property is fairly priced, offer just slightly less than the listing price. If your offer does not elicit a meaningful counteroffer from the seller, your offer failed. How do you negotiate with someone who won’t respond? You can’t. You have to get them to believe that you are a serious buyer who will actually complete the transaction. To do this, you have to first get them to believe that you’re capable of arriving at a price that is agreeable to them. That starts the negotiation process.

Be ready to walk away.

If you can’t put together a deal on the first property you like, don’t worry. There will be a lot more homes for sale, especially in this kind of market. It is VERY common that you’ll end up finding a home a week later that you like even more than the first. Not taking that first home might end up being a blessing in disguise.

Don’t show enthusiasm.

There is a time for trying to convince the seller that you will be broken-hearted if you don’t get his or her property—when there are multiple competing offers for a home. In today’s market, however, you won’t have as many competitive buyers. You should be dispassionate about potential homes and, more importantly, appear to be that way. Fact-driven, highly qualified and ready to walk away at anytime—this should be the attitude you display (even when you don’t feel that way) during the home buying process.

Stick to your guns.

By the time you’re ready to make an offer, you should have done your homework. You know what homes in your area are worth. And you also know how much home you can afford. Be serious about defending these figures. It is easy to get carried away by emotion and allow the seller to box you into a price that is above what you’ve decided. If you have chosen your agent well, this won’t happen. Nevertheless, bad agents have been known to urge clients to accept counter-offers simply so they can stop working on the negotiation. Be firm.

Set tight deadlines for the expiration of your offer.

You and your agent need to make sellers BELIEVE that if they want to sell their home to you, they’re the ones who need to get with the program. You can tell them other homes are on your list, ones you are just as happy with, in fact, and that you’ll gladly make an offer on if the sellers don’t make a deal with you first. When you make your offer, there will be a space for putting a time limit on it. Make this a very short period, for example, within 24 hours. If you are making an offer in the evening, make the expiration early the next afternoon. Why? Having a longer period just invites a competing offer, exactly what you do not want. Don’t give the seller’s agent a chance to round up someone else.

Be creative with your offer if the owner is stuck on price.

If the seller seems emotionally tied to a certain price on his or her home, instead of asking the seller to lower their asking price, ask for certain concessions, such as repairs, or that the owner contribute to the closing costs.

To learn more about buying a home and how the financing process works, read more from our experts by visiting our Mortgage Learning Center.

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  • WF

    NEVER disclose what you are “really” willing to pay to the real estate agent. He/she actually works for the seller most of the time and will disclose that to the seller putting you at a BIG BIG disadvantage. Keep that information to yourself all the time is the best way to handle that issue. Always remember that the real estate agent is NOT your friend – it’s all about business and how to close the deal. Treat them as a business relationship and you will be better off in the long run. I realize that there are buyer’s agents, but do you really want to risk thousands on that concept? Better not to. Treat it as business and you’ll never go wrong. NEVER be anxious, it will cost you in the long run. Patience and you win.

  • Sunny

    What does a 1 year home warranty usually cover?

    • Credit Experts

      You would have to read the warranty. Different levels of protection are available, and it would depend on which one you have.

  • Credit Experts

    That really depends on whether the home is priced reasonably or overpriced, and the local real estate market. A lowball offer is one that is so low the seller is insulted and doesn’t counteroffer . . . so it is subjective.

    • saberron

      >> “depends on whether the home is priced reasonably or overpriced”<<
      In todays market they're all overpriced thanks to flipping. One buyer flips to the next to the next etc raising prices far beyond worth. Does anyone really believe these quarter of a million dollar homes and half a million dollar home are any where near worth their price? Let them sit till the prices come down to their TRUE value, even if it means forcing the flippers to accept their loss.

      • jesskazen

        Lots of houses are overvalued but the flippers do a lot of rehab to homes, sometimes complete renovations with structural fixes and it’s cheaper to put that cost into a loan for most people than to buy a house and fix it up themselves.

      • janon

        Good luck with that. If the house sells it wasnt overvalued regardless of your personal belief.

        Agents generally wont let a seller be insanely over the local comps. It wastes their time.

        Youre the kind of “buyer” the article is warning against it seems. Not really serious about buying anything, just making a political statement with an “offer” and raging against the machine.

        I bet when you sell you’re non negotiable though.

  • jason

    I say that every offer is different. A home is priced based on perception, so evaluating what you offered is also based on perception. For example, if they listed their home for 300k knowing that they would probably only get 265, then 255 is not bad. But if you were to just show those numbers, yes…I would say it’s a low ball, unless the situation calls for such (IE: all cash offer, no contingencies etc etc). Again, based on perception. Hope this helps,

  • Karin

    What about negotiating a price on a new build?

    • Gerri Detweiler

      Similar principles apply.

  • Karin

    How would you go about negotiating on the price of a new constuction?

  • Eva Philly

    Can anyone answer this question please? I have the same issue with the house I like.

    • Gerri Detweiler

      Is this a for sale by owner situation? Normally the real estate professionals would be involved, but if they aren’t you can feel free to explain your offer. Whether or not they will take it depends on how eager they are to sell!

  • xeriscapelady

    On an offer you have to just walk away if you don;t get your price. Like the article says there are more out there. Don’t be like my idiot sister who let the realtor know she was desperate for a home in No. Carolina after being screwed here in Florida by selling too fast by a rip off realtor. She bought the first house she was shown and now they regret it big time. They also went to the same name brand as they thought they got a high price by all the emotional hype these crooks are taught to do. They sold their Florida home at least $ 20,000 to low. Then paid not much less for a home that was 400 sq. ft. smaller and everything has to be redone when their Florida home was just done over with top of the line within 2 yrs. She could have sold the home by themselves and come out thousands ahead.
    And when they went to No. Car. did the same thing. They were renting an apt they had 3 months left on but she got itchy. Now it will take thousands more to make the home they was sucked in emotionally with azaleas to be decent and with a small home she is in a cheaper neighborhood which she thought would be better only because of an HOA. NO…

    And their daughter, who she was chasing down because of a baby they just had; did NOT use the rip off realtor but found the home themselves and it is over 2400 sq ft larger and much newer and in excellent move in condition for $50,000 more. They did well, even got way more than they need, but they can sell for a killing if they want./ It was an empty house and the people were desperate. They could see everything unlike my sister that so much was hidden and even an inspector missed plenty. My nieces’ home appraises by the county for $40,000 more than they paid which is always lower than value. And to top it off , her husbands parents gave them $100,000 between the divorced parents, and my sister and brother in law gave them $25,000, so they are really sitting pretty with no income worries with 2 jobs.

    My sisters husband is miserable in No. Car and wants to come back to Florida and it has not been 8 months yet. if they come back they will be able to buy a shake now in comparison to what they sold which is now $40,000 less than they should have.

  • kj

    I have a similiar situation and i noticed the house has been in the market for over a yr. So you have a good question. Wondering how this worked out for you.

  • jesskazen

    depending on the age you may have to put A LOT of work into the home. I would remind the seller of that. Seems like people think their houses are worth their weight in gold when the furnace is about to go and the roof needs to be redone.

  • Newlywed

    My husband & I are interested in a home that is 89,900 but the other homes in the area are only going for 70k – 80k. Put an offer down and they didnt accept cause they believe they can get that price for the home. It has been on the market only 2 months. We are doing the Va Loan. Also we have waited a few weeks and my husband wants to offer again but we want to be able to get a far price. Any advice?

    • Gerri Detweiler

      The best you can do is make an offer you feel is reasonable and hope they will decide to sell. If your offer does get accepted at a price substantially higher than other comparable homes, the appraisal could kill the loan. It’s possible they are holding out hope for a cash offer. Not sure what else to suggest!

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