Buying a home is a costly endeavor and it's most likely the most expensive purchase you'll ever make. We all know how much saving a dollar means. It makes sense we all want to negotiate the best deal for ourselves, but how do we actually do that?
It’s important to save a few bucks here, and get a few things thrown in there, right? I hear ya— I feel you! In order to do that, you have to know how to go about making a smart offer. You know, the one that literally doesn't leave you house-poor, the one that leaves you feeling thrilled with excitement. I’m going to tell you some of my secrets and not-so-secret secrets!
The art of negotiation is knowledge, when you negotiate, you are using knowledge of the other person's desires to ultimately get what you want. You know they want the deal to happen but in order to do that, there will be some compromises. Compromises don't always have to be a bad thing, in fact, when it comes time to negotiate, compromises are a good thing. There are a few strategies you may want to avoid because negotiations are about making a win-win. In order to win there is no offending, and while the rule of "it's just business" can apply, usually it does not.
People do get offended, putting the best foot forward with a strong preference for what you want is the best option. Certain things need to be delivered a certain way, otherwise, the risk is offending the seller and losing your shot at your dream home. This is especially true in a red-hot seller's market, where the seller might have a number of tempting offers and is looking for anything that breaks the tie. You know, like the one we are in now!!
When you step to any table to negotiate anything, the biggest factor is having the right person to advocate for you without alienating the other party. Someone who has the skill and knowledge of what both people want and need. Someone who understands the process, and someone who will not blow your chances. Some advocates have a loud abrasive firm voice and while you may think that is what you want…. Sellers (and their agents) might be reluctant to work a deal with you if you or your agent is perceived as being difficult or—worse—shady. If a seller is dealing with multiple offers, it could be enough to get you sent to the bottom of the pile or out of the running. It is important to use an agent who knows how to negotiate tactfully, yet be a strong persuasive presence, an agent who is your advocate and can read people, an agent who knows the bottom line for both parties, and one who can walk the line without trying to pull off one of these misguided maneuvers.
- An extreme lowball offer is risky and dangerous
- If you nickel and dime, people think you are wasting their time.
- Inspection misdirection, unless something is critical wrong don’t be dramatic.
- Write a clean offer; too many counter offers can end it all (Experience counts).
- Be flexible; don’t make a hard line (negotiations are give and take).
1.) HOW LOW CAN YOU GO? How low can you go? That seems to be the only play in some buyers playbook. Assuming that if they start really low, they’ll end up getting the house for a steal. Certainly one of the bigger problems with starting too far below the market value is your credibility, and the seller either thinks you don’t know the market or you are looking to take advantage of someone, and either way, they may pass on the opportunity to deal with you. The bottom line: The seller has a number in mind and a worst-case scenario number in mind. So whether you start at $32 or $322,000 what really matters is if you can hit the seller’s lowest target selling price without being the lowest offer on the table. When you negotiate, again you are meeting in the middle or thereabout.
2.) NICKEL AND DIME! You’ve found a place that's within your budget and you have fallen in love. If you love everything about it, copy cat it. Buyers often think it’s a good idea to ask for furniture or appliances to be thrown in for free, or expect that the sellers will just leave their patio furniture because you don’t get what you don’t ask for. Keep in mind some Sellers can get offended when you keep asking for more and more. They start feeling like you are greedy and taking advantage of them.
3.) INSPECTION MISDIRECTION - So, your offer was accepted, but then you start to get cold feet and you subconsciously (or consciously!) start searching for flaws that you could use as leverage to lower the price. Most inspectors are going to find something to recommend—such as adding gutters, improving the drainage, or upgrading all the smoke detectors—but those aren’t repairs that the seller is responsible for actually doing. If the inspection turns up something major (like a cracked foundation), by all means, discuss it. But you shouldn’t demand that the sellers fix every minor thing or lower their price.
You can’t expect a perfect house unless you are buying brand new. Keep in mind if you’re constantly nickel-and-diming the seller, they might decide you’re not someone they want to do business with. Mind you, the sellers generally can't just back out because they're unhappy, but if both parties are unable to come to an agreement regarding repairs, they can both decide to abandon the deal.
4.) PIECE MAIL - Nobody wants to pay more than they have to for a home—why offer $350,000 when you could have it for $325,000? The risk is if you engage in too much back-and-forth, frustration arises. When buyers insist on making incremental counteroffers by $500 or $1000 or restating the same demands they're adding frustration to the process, because the seller does not feel heard or accommodated. Often to the point where the sellers give up and move on to another buyer willing to compromise a little.
5.) ONE-WAY STREETS - Many times Buyers want to come in clear, firm and strong. However, sometimes it goes off track…. I call this the "one-way offer," where buyers dig in their heels and state right off the bat, “this is our first and final offer, you have X amount of time to respond (typically not even 24 hours), and if you don't take it, we're moving on”. This just puts the seller on the defense and usually is a path to a dead-end offer, unless it's a beat up torn down dilapidated home that not even investors are hot to trot for.
It seems like an obvious no-no, right? Well, even in this red-hot seller's market, buyers push for this tactic. Especially if the buyer is offering all cash, or if the property has been on the market for a while. In today's market many of the buyers are cash buyers, so you are competing against other cash buyers, so creativity is needed.
So now we know what not to do, but what do we actually do?
- USE A QUALIFIED REALTOR who knows the market trends, do you want someone who knows what was going on six months ago? or what’s happening today? The answer is both! You want someone who can see the market shifts and knows where the market was six months ago, a year ago, and today!
- WORK WITH THE MARKET AND BID ACCORDINGLY. In a soft market where other buyers aren’t crowding you, be aggressive. Start with an initial bid that is 8-10% below what you’re actually willing to pay. This way you anchor the negotiations around your initial bid, not the asking price, leaving you room to haggle comfortably. In a more competitive market, like today established buyers still have an advantage vs. struggling younger bidders. . Make sure sellers are aware of your financial wherewithal. Offer more than 20% down and get lender pre-approval, which can help smooth the closing.
- DON’T FOCUS ON SALES PRICE ALONE. The price isn’t your only competing point. You could negotiate for closing costs or certain appliances, or things not included like a spa or other. You can ask the seller to pay more costs for escrow and title.
- DO YOUR HOMEWORK!!! Research the property, research the area, and know what’s happening. You never know what you’ll find with a quick google search.