5 tips on how to negotiate a house price
You’ve reached the house-hunting phase and found “the one,” but you aren’t crazy about the price tag. The good news: You might be able to change it.
When you make an offer on a home, learning how to negotiate a house price is an important step in helping you get the best deal possible.
Buying a home is an exciting endeavor, but it’s necessary to keep a level head when negotiating a house price. Keep these five tips in mind to negotiate like a pro:
1. Establish you house budget
Many sellers list their homes at a higher price to make room for negotiation. Still, you need to know the maximum amount you’re willing to offer on a home upfront. Work with your real estate agent to figure out the right price, based on the trends in your local housing market. Nail down the monthly mortgage payment amount you can afford, so you avoid looking at homes outside of your budget.
2. 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 homes that were once listed, but didn’t sell. The analysis should include homes that are similar in age, size and features, so you’re comparing apples to apples.
3. Determine your offer strategy
Consider the terms you plan to include when making your offer. How much is your down payment? What are your deal breakers? Will you have an escalation clause in your purchase contract? The latter allows you to increase your offer price by a set amount up to a maximum limit, in case of a bidding war with other buyers.
4. Make a strong offer
Get a mortgage preapproval so you’re clear on the mortgage amount a lender may be 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, and offer a flexible closing date (if you can) to appeal to the seller. If you’re in a competitive housing market, try to limit the contingencies in your offer (conditions that must be met before you can close).
5. Keep your emotions at bay
Try your best to remain neutral about the transaction, even when you’re absolutely in love with a house, said Mindy Jensen, a Colorado-based real estate agent. “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.
Why you should consider negotiating a house price
So, why should you even bother negotiating a home price as a buyer? The short answer: Because you might get a better deal if you do — but you won’t know unless you ask.
“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 said.
Once you’ve settled on a price, that information is included in your purchase contract and triggers other steps, such as the full loan approval process, along with establishing down payment and loan amount expectations, Rinehart said.
Negotiating and settling on a price also gets the ball rolling for a home appraisal, an unbiased opinion of the home’s value conducted by a licensed appraiser. The appraisal can make or break a home sale.
“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.
When shouldn’t you negotiate?
It may not make sense to negotiate a house price in cases when the seller refuses to compromise at all. Perhaps they’re not willing to be flexible because the local housing market is highly competitive and they need to walk away with a certain dollar amount. Or maybe they’re too emotionally attached to their home.
“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.”
You may also skip the price negotiation if there’s room to bargain on other terms of the deal (more on this below).
Other tips for negotiating a house purchase
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 [sellers] are starting now to get desperate,” she said. Sellers in this situation may have already found their new home or are in the process of 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 mortgage closing and move-in dates can also work in your favor. Letting 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, she said. These olive branches can work in instances when you’re not 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.
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 home appraisal comes in too low or a home inspection reveals major structural issues, a contingency lets you back out of the deal without penalty. However, they must be put into writing in your offer letter and agreed upon with the seller.
Repairs and 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 a professional whom you trust 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/or 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?
If you have an appraisal, inspection or another contingency, you probably shouldn’t move forward with the home purchase unless those conditions are met.
Let’s say the inspection reveals a mold infestation or foundational damage, but the seller refuses to address those issues before the closing date. A home inspection contingency allows you to back out of the deal and continue your house hunt.
Other reasons to walk away are title search disputes or legal problems. Ultimately, 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 said.