The $10,000 Conversation - 8 tips for Negotiating a Home Purchase

Think you're serious about saving money? Well, all the coupon-collecting and online price comparisons you do pale in comparison with the money you could save when buying a home. Handled right, your negotiation over a house could easily save you $10,000 - or perhaps a lot more.

Think Big!

After all, this is probably the biggest purchase you will ever make, so it also represents one of the biggest money-saving opportunities of your life. If you can knock five percent off the price of a $200,000 property, that's $10,000 right there. Higher-priced properties and special circumstances might yield even bigger savings. Here are 8 tips for getting the most out of this negotiation.

1. Know the market.
Start by remembering that real estate conditions are highly localized. Make a study of the specific neighborhoods you are considering. What have other houses sold (not listed) for recently? Are there other houses currently for sale on the street? You might even take a look back at prices six to twelve months ago, to see if prices are rising, falling, or holding steady. This information will let you know whether the neighborhood is a hot market with lots of competition for houses, or a cooler one where buyers like you have multiple options.

2. Know the property.
Once you have a sense of the market in the neighborhood, you can put the property you are considering into context. How does it compare with comparably priced properties? Besides looking at quantifiable factors such as square footage and acreage, take a first-hand look to make a judgment about things like curb appeal and overall condition. Also, consider special features, both good and bad. Some things that sellers consider a plus, like a swimming pool, are actually considered negatives by many agents, because not every buyer wants to put up with the cost and maintenance of having one. Using this property-specific information, you can adjust the average sale price of similar properties up or down accordingly.

3. Know the circumstances.
Know how long the property has been on the market, and why the owner is selling. Obviously, you have more leverage if the owner has had a hard time finding a buyer. Also, if the sale is under some time pressure because of an impending foreclosure or job relocation, you should have more leverage in negotiations.

4. Know your limitations.
Use a mortgage calculator to give yourself a clear picture of what you can afford. Having a firm price ceiling makes it easy to be a tough negotiator. Make sure you keep your price ceiling up-to-date by factoring in the latest mortgage rates, as rising rates may further limit your price flexibility.

5. Forget the asking price.
Given all of the above, set your own price for what you think the property is worth. This is where psychology comes in. Let's say your best judgment is that the property is worth $250,000, and the seller is asking $300,000. If you didn't know that asking price, you'd offer $250,000 - or perhaps even less. However, knowing the asking price, people are inclined to meet in the middle, and offer $275,000. This then becomes the starting point for negotiations, rather than $250,000. Make no mistake about it - you may end up meeting in the middle, but don't let the starting point for the negotiation be based on the seller's price.

6. Establish credibility.
If you are a well-qualified buyer, make sure this is known. Specify what kind of down payment you have saved, what your credit rating is, and whether or not you have a mortgage pre-approval. Sellers - and especially their real estate agents - will give a lot more weight to an offer from a well-qualified buyer than to one from a person who might not be able to complete the purchase. Try an old investor trick and attach a check for the earnest money to your offer.

7. Set a time frame.
Never leave an offer open-ended - otherwise, it simply becomes leverage the seller can use to increase bids from other potential buyers. Give the seller a reasonable time to make a decision (one to three days), after which the offer is off the table.

8. Negotiate more than price.
Sale price is only part of the negotiation. There are fees associated with the closing process which are often split between buyer and seller, but if you feel you have better leverage than the seller, you can try negotiating for the seller to pay them. The same goes for repairs. The seller should be on the hook for items needed to pass an inspection anyway, but there may be discretionary items, like appliance updates or re-carpeting, that you can ask to have made a condition of the sale.

Fear Not!

The main thing is, don't be afraid of this process. It doesn't have to be adversarial - in fact, it should be as impersonal and business-like as possible. You aren't the bad guy - make it clear you want to get the deal done, but there are just a few things that are necessary in order for that to happen. The savings from a successful negotiation are well worth the time and effort you'll put into it.

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