5 big considerations when negotiating a house price
Buying a house is all about mastering the art of give-and-take. Many buyers think that the purchase price is the main negotiation point, but in reality, that’s only one piece of the puzzle.
Learning what your major negotiation points are (and how to use them) will give you the advantage of being able to craft an offer that works in your favor AND appeals to the seller.
We’ve rounded up four solid negotiation points buyers can consider when writing an offer.
1. Offer price
Let’s get the most obvious factor out of the way. Most buyers know that the listing price for a home is a suggestion of what the seller is hoping to make on the sale of their home, and it’s often negotiable. Unfortunately, pricing is where many deals can fall apart.
Why? Well, it’s only natural for buyers to want to score a deal when buying a home. For the seller, the goal is the exact opposite. Many sellers need to make a certain profit on the sale of their home if it was financed and isn’t paid in full. Anything less than their balance means they’ll need to pay that difference out of pocket at the time they sell their home.
For buyers, an increase in the sales price can be distributed over the length of their mortgage greatly lowering the financial burden at the time of the sale. Given this, buyers may have more flexibility on price. however, should you choose to attempt a negotiation on price, it’s a good idea to have a strategy for doing so.
It’s a common thought that the fewer contingencies a buyer includes in an offer, the more appealing that offer will be to a seller. Why? Fewer contingencies means fewer chances for the deal to go south.
In order to successfully close a deal, each contingency outlined in the purchase contract must be satisfied in a way that’s agreed upon by both the buyer and the seller.
If an agreement can’t be reached, both parties have the option to dissolve the contract and walk away. As mentioned before, this is a concern for many sellers. For this reason, a buyers’ willingness to be flexible with their contingencies gives them significant negotiating power.
That said, contingencies exist for a reason, and one of those is to protect buyers. For example, waiving an appraisal contingency means the seller does not have to negotiate the sale price with a buyer if a home is appraised below the offer price. Given that appraisals are used by lenders to determine a buyer’s loan amount, this could leave the buyer on the hook for a larger down payment to offset the difference or force them to break the contract and forfeit their earnest money deposit.
It’s best to consult with your buying agent regarding which contingencies you can afford to remove to sweeten your offer.
When possible, try to find middle ground. For example, instead of waiving your inspection contingency altogether, you could offer to shorten the contingency period. Yes, this means you’ll need to complete these inspections in a smaller window, but you’ll still be covered should anything be amiss. A decrease in the contingency period also means a quicker close of escrow for sellers. It’s a true win-win.
3. Closing schedule
Typically, the closing date (or the ownership of a property changes hands) falls somewhere within a 30-90 day timeframe of the contract is signed and the parties enter escrow. Factors like a high number of contingencies to fulfill can lengthen the closing schedule while factors like a buyer making an all-cash purchase can shorten it.
The closing schedule becomes important if you’re looking to move within a specific timeframe. For example, you may have a definitive start date for a new job or you’re trying to sell your old home at the same time.
If a buyer doesn’t have any pressing time constraints around moving, it’s a good idea to make that known to the seller. Some sellers are looking for a longer closing period or a “rent back” if they’re buying and selling a home at the same time.
The ability to be flexible to the seller’s schedule could make the seller more open to accommodate your requests in other areas of the transaction.
4. Closing costs
Closing costs include any fees that are incurred during the transaction. These fees generally amount to between 1%-2% of the total sale price and are split between the buyer and the seller. The way that a buyer pays their half of these costs, however, can be another point of negotiation.
As part of the agreement, the buyer might request that the seller cover their half of the closing costs, or certain transfer taxes or fees, by subtracting that cost from the sales price (sometimes known seller concessions).
This has a two-fold effect for the buyer: it decreases the buyer’s immediate out of pocket costs as well as the long term financial burden as it would decrease the amount the buyer needs to finance, thus lowering their monthly payments.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.
May 2, 2019 — Written by Heidi Knight