How to Negotiate a House Price in 2020
When you make an offer on a home, it’s important that you learn how to negotiate a house price to get the best deal possible. Knowing effective negotiation strategies can help you save thousands off the price of a home and ask for more favorable terms, in general.
- How to negotiate a house price
- What’s the importance of negotiating a house price?
- Other items to negotiate with a home seller
- When should you walk away from an offer?
How to negotiate a house price
It’s an exciting endeavor to buy a home, but you have to remain level-headed when negotiating a house price. Keep these tips in mind to negotiate like a pro:
- Set your budget upfront. Many sellers list their homes at a higher price to make room for negotiation, said Mindy Jensen, a real estate agent based in Colorado. Still, you need to know the maximum amount you’re willing to offer on a home ahead of time. Work with your real estate agent to figure out the right price, based on the trends in your local housing market. It’s critical you also know what monthly mortgage payment you can afford, so you avoid looking at homes that are outside of your budget.
- Ask your agent for detailed market information. Request a competitive market analysis from your real estate agent, said Jay Rinehart, owner and broker at Rinehart Realty in Rock Hill, S.C. The report should include information about nearby homes that have recently sold and are similar to the one you’re interested in. Your agent can also give you information about the homes that were once listed but didn’t sell.
- Determine your offer strategy. Consider the terms you plan to include when making an offer on a house. How much is your down payment? What are your deal breakers? Will you have an escalation clause? The latter allows you to increase your offer price by a set amount, in case of a bidding war with another buyer.
- Make a strong offer. Get a mortgage preapproval so you’re clear on how much a lender is willing to provide you for a home purchase. This can help the seller take your offer more seriously. Include a buyer letter to better connect with the seller. Think of ways to make life a bit easier for the seller, such as having a flexible closing date.
- Keep your emotions at bay. Try your best to remain neutral about the transaction, even when you’re absolutely in love with the house, Jensen said. “You want the seller to feel like you might walk away and (they) may be more willing to meet you closer to your side (of the negotiation),” she said.
What’s the importance of negotiating a house price?
So, why should you even bother negotiating a home price as a buyer? Simply put, because you can get a better deal if you do, Jensen said.
“Just because somebody is asking for, let’s say, $500,000 for a house, doesn’t mean that it’s worth $500,000, or that that’s the lowest price that they’ll take,” Jensen explained.
Once you’ve agreed to a price, it goes into the purchase contract and triggers other events in the homebuying process, such as the mortgage application, down payment and loan amount, Rinehart said.
Negotiating and settling on a price also gets the ball rolling for a home appraisal, which can make or break a home sale. The appraisal is done by a professional appraiser who gives an unbiased opinion of the home’s value.
“If it’s below (the negotiated price), then now the price in the contract is now either subject to being renegotiated or the transaction falls apart,” said Rinehart, who is also a regional vice president for the National Association of Realtors.
Other items to negotiate with a home seller
The price isn’t the only thing worth scrutinizing when you buy a home. Try negotiating some or all of the following items when making an offer on a house.
It might be worth asking the seller to cover some or all of your closing costs. This could work if they’re highly motivated to sell, which may be the case for a home that’s been on the market for more than 80 days, said Susan Ifill, executive vice president and chief operating officer at NeighborWorks America, an affordable housing and community development nonprofit.
“That means people are starting now to get desperate,” she said. “They either have already found a (new) home or (are moving) or they’re getting squeezed.”
If you’re facing a lot of buyer competition and homes don’t stay on the market long, you could offer to pay the seller’s closing costs to make your bid more attractive, Jensen added.
Being flexible about your closing date and when you plan to move in can also work in your favor. Having the seller choose the closing date or allowing them to temporarily rent back the home after closing are successful negotiating tactics in Jensen’s local market. This has worked in instances when the buyer wasn’t in a rush to move. Selling your house might be easy, but finding your next home can be harder in a seller’s market, she said.
Be sure you include the contingencies that matter to you and give you an “out” to move on to another home if those terms aren’t met. For example, if the appraisal comes in too low or a home inspection reveals major structural issues, a home contingency lets you back out of the deal without penalty.
Repairs and/or upgrades
If the home needs repairs, such as new carpet or a kitchen remodel, try asking the seller for a home price reduction or a closing cost credit to compensate you for repair expenses. This way, you can hire your own professional to take care of the job rather than waiting on the seller to do it.
Appliances and furniture
If you want to keep some of the appliances and perhaps a few pieces of furniture you saw when touring the house, include that language in your contract, too.
“Just because there’s a refrigerator in the house doesn’t mean it stays with the house, unless you negotiate that in (the contract),” Rinehart said.
Keep in mind that negotiating these additional terms may be harder to do in a competitive seller’s market. Your real estate agent can help you devise strategies for negotiating contract terms with the seller.
When should you walk away from an offer?
Not all negotiations go as planned, so when does it make sense to walk away after you’ve tried negotiating a house price and other terms? One scenario might be when the seller refuses to compromise at all.
“Some sellers just don’t want to budge on anything,” Jensen said. “They feel that their house is worth X, and they are not going to move an inch no matter what.”
Of course, if you have an appraisal, inspection or another contingency, you probably shouldn’t move forward if any of those conditions aren’t met. Other reasons to walk away are title search disputes or legal issues. Ifill shared an anecdote about her daughter who had her heart set on a specific condo unit but had to let it go.
“When the lawyer did the background search on the property, it came back that that particular unit … was in an FBI drug raid eight months before,” Ifill said.
And if you have to walk away, try to find a silver lining in the experience.
“As difficult as it is, believe me, there are other homes that will fit your bill,” Ifill added.