Ten Tips When Negotiating a Home Purchase

Ten Tips When Negotiating a Home Purchase

Purchasing a home is a big deal for most and not an easy task. That one purchase contract can leave a lasting impact on your finances for years. Here are ten tips that can help you during the negotiation process to make sure you get the best price for your new home:

1.     Submit comps with your offer. Ask your agent, if you are working with one, to help you collect some comparable sales in the area that justify your offer. You can also do this yourself using Zillow or a similar tool. Then submit those comps with your offer. This serves as an education to sellers who are over-pricing their homes, and will show that they are dealing with a serious and informed buyer. Some buyers may also attach a personal letter; we would recommend to keep it brief and to the point as to not show the seller that you are too emotionally invested.

 2.     If possible, do not respond immediately to counter-offers. In very hot markets you may not have the option to do this, but when you are given a counter offer from the seller, take a day or so to respond. If the seller sees you respond within hours to a counter, it shows them that you are a bit desperate to close the deal. Those who are not in a hurry are usually in a better position to negotiate.

 3.     Have your financial ducks in a row. Make sure your lender has pre-approved (not just pre-qualified) you – this is where your lender will take a much closer look at your credit, income and financial situation and provide a stronger commitment to lend to you. The credibility of the offer will be much higher coming in with that pre-approval letter.

 4.     Make sure the pre-approval letter does not state a higher amount than your offer. For example, if your offer is $450,000 but you are pre-approved up to $600,000, ask your mortgage professional who is issuing the letter to issue the letter for exactly $450,000. If you then need to increase your offer later, then ask for another letter with the new higher pre-approved amount. You do not want to show all your cards by giving a letter that states the maximum that you are approved for.

 5.     Not so much a tip about negotiating, but more knowing when to bow out. When there are multiple bidders (5 or more), you will almost certainly overpay. The seller at this point may ask for everyone’s best and final offer. If you are comfortable over-paying just a bit, go for it by submitting a slightly above market offer – but do not get carried away and submit a high offer in hopes of winning the house.

 6.     Do not think in the back of your mind that you will get the price lowered by re-negotiating during the inspection process. You are likely to find some issues with the house during inspections, especially if you are purchasing an older property, but sellers typically do not like to concede at this point. Small concessions may be made at this point, but many sellers would rather stop the deal and go with another buyer then offer large reductions at this point. Typically, the seller losses less by ending the deal at this stage since the buyer is already out the inspection fees. A good faith offer should be made initially and not one that comes with intentions to lower the price later.

 7.     Try not to let emotions take over. Purchasing a home can be an emotional event where excitement and trepidation can take over. Keep an even keel and do not fall in love with a house – there are always other houses out there. If you end up overpaying for your home, you may be paying that price in mortgage payments for decades to come.

 8.     Have reasons ready to back up a lower offer. Have your agent explain the problems with the house that you noticed when touring the place when s/he submits your offer. Maybe older appliances and HVAC system or aging bathrooms that would require renovation. Anything that could justify a lower price for the home, and shows the seller that you paid attention and are highlighting the issues that concern you and likely other buyers.

9.     Be in the know. Set alerts, check the home buying sites online, have your agent send you updates regularly. Sometime the first offer has an advantage over later offers as sellers many times appreciate that the first offer is coming from the most serious of buyers who is carefully watching the market.

10.  Play houses against each other. If possible, have two houses lined up that you are interested in. When submitting an offer for one, consider putting a time limit on the offer, saying that there is another house you are interested in and that you need a quick response. This one is a little risky as putting this kind of putting pressure on the seller may not always work, especially in a hot market.

There you have it. Ten tips when negotiating on a home purchase – the key is go in prepared on your end and with information about comparable sales, educate the seller as to the reasoning behind your offer and don’t let emotions run the show.