How To Negotiate A House Price: 7 Strategies For Buyers
When you're in the process of buying a home, you might get a little nervous thinking about how to negotiate house price with confidence. A few questions racing through your head might include: What is the exact protocol? How do you get started with negotiations?
Whether you’re a first-time home buyer or looking for your new or second home, these are great questions because negotiating a house price can involve some very specific tactics. We'll help you find out how to negotiate price successfully and how doing so can save you a lot of money.
7 Tips For Negotiating House Price As A Buyer
Learning how to negotiate house prices can seem impossible to outline because each home sale is different, but here are a few commonalities, tips and tricks to keep in mind.
1. Start With A Home Inspection
Home inspections help buyers understand what’s in good condition with the property and what needs updating or repair as soon as possible.
Home inspections aren't required but are highly recommended, particularly when you want to use an inspection as leverage for negotiations. You can use the inspection report to ask the seller to cover the cost of repairs or to take money off the asking price so you can pay for repairs, which puts less strain on your budget.
For example, if the home inspection reveals that the home needs a new roof, you can ask the seller to reduce the cost of the home to be in line with the cost of a new roof.
2. Work With A Real Estate Agent Or REALTOR®
It might be difficult to go through the home buying process without a real estate agent, and if you're seriously considering not working with a real estate agent, you might want to rethink your plan. Not working with a real estate agent or REALTOR® can put you at a higher risk of paying more for a property than you should.
Real estate agents can help you determine an appropriate initial offer, and they'll have a lot of inside knowledge based on the housing market where you live and the condition of the property. REALTORS® and other real estate professionals can also represent you when speaking with the seller or the seller’s agent, and they can advise you when a higher offer is necessary if you’re having to navigate a bidding war. Look for the following when you choose the right REALTOR® for you:
- Experience working with similar buyers
- Knowledge of the area, specific neighborhoods and real estate comps
- Friendly and outgoing personality
- Available to take the buyers on as clients
- Known ability to negotiate effectively with sellers, especially in a seller’s market
3. Get Sellers To Cover The Closing Costs
As a buyer, you shouldn’t just focus on finding ways to get sellers to commit to lowering their asking prices. You can also encourage sellers to cover at least part of your closing costs if you decide to purchase their home.
The average price of closing costs typically ranges from 2% – 6% of the loan amount. Closing costs include an origination fee – which is the cost of setting up the mortgage loan – and the cost of getting title insurance on the deed. You can ask the seller to pay for some or all of these costs when negotiating a home purchase.
A seller can’t pay more than the total amount of the actual closing costs. For example, let's say closing costs will be $3,000 – the seller can’t pay over that amount. Learn more through the Closing On Your Home guide.
4. Don’t Hesitate To Ask For Personal Property
As a buyer, you can negotiate for items in the home, not just discounts on the purchase price. For example, you may want to consider asking for the following items:
- Landscaping tools or equipment
- Decor (such as unique light fixtures or window treatments)
It's important to iron out what’s included in the purchase agreement and what's not so both buyer and seller understand the details. Items that belong in the home, such as a chandelier, can have an impact on the already-established style of the home.
Whatever the item is, you must clearly stipulate your request in your negotiation with the seller and communicate your wishes with your real estate agent.
5. Choose A Closing Date That Works For You
The seller often tries to set a closing date based on their needs, but as a buyer, you can and should negotiate the closing date to fit your preferred timeline. Sellers do have the option to rent the home from you if they’re not ready to move out at closing.
This is called a rent-back agreement, and it requires a carefully drawn-up agreement that both you and the seller sign. An attorney with expertise in real estate law can help both parties navigate potential issues during a rent-back period.
6. Don’t Give Up If The Seller Rejects Your Offer
Think of the negotiation process as a two-way conversation. Build it into your expectation that a seller may reject your initial offer. If you're sure you've found your dream home, you can make a better offer or counteroffer with other requests.
7. Know When To Walk Away
Negotiating takes time, but if you spend too much time trying to talk a seller into accepting your terms, it could backfire. You may want to consider walking away from the home in these instances:
- The seller isn’t interested in negotiating. If the seller refuses to negotiate for a lower price and the home price is still too steep for your needs, consider walking away.
- The inspection uncovers extensive repair problems. If the home has major issues – such as significant foundation damage or other structural concerns, plumbing or electrical complications, problems with the HVAC system, water damage or termites – you may just need to walk away. The home may cost you more money later down the road than you can afford to pay or want to pay.
- The home appraises for a lower value than the asking price. When the home appraises for a lower market value than the sale price, that means your lender will likely decrease the amount you can borrow. You'll either have to pay more out of pocket or get the seller to lower their asking price. If the seller won't budge, you may have to give up your chance at that particular home. But if you have an appraisal contingency, you can at least work without losing your earnest money.
- The title comes into question. When issues related to title arise, you may feel safer walking away, particularly if outstanding liens show that the original owner of the property still owes money on the home. For example, a construction worker might put a lien on the property because the original owner hasn't paid a renovation bill. Long-lost heirs might also show up out of left field, demanding their portion of the property. Those are good indications that it's smarter to look for a different home. You can't negotiate your way out of some types of paperwork snarls.
Walking away from a home you love can seem devastating. However, keep in mind that by walking away, you can make offers on other similar properties faster, which means you won’t have to risk losing out on a comparable home.
Why Negotiating House Price Is Important
Negotiating prices with sellers is the best option for home buyers because it can spare you stress over time. It can help you:
- Reduce the amount you borrow: Negotiating may lower the total amount you borrow, which reduces your monthly payment.
- Lower the amount you pay over your loan term: The less money you borrow, the less you pay in interest costs over the life of the loan, which saves you money over time.
- Save on repairs and updates: Negotiating may allow you to avoid having to make repairs or updates after you move in because you can ask the seller to make specific repairs ahead of time.
The Bottom Line: Negotiating House Prices Is Worth The Effort
As a buyer, negotiating gives you a great tool in your toolbox because it allows you to get the best price on a home. However, remember that this process can take time. The best way to save money on your home over the long term is to choose the right mortgage.
Negotiating can help you reduce the amount you borrow, lower the amount you pay over time, save you money on repairs and updates and help you save on closing costs.
Make sure you get a home inspection, work with a trusted real estate agent, ask sellers to cover the closing costs, ask for personal property and choose a closing date that works for you. Also, don't give up if the seller rejects your offer – you can try again. Finally, know when to walk away from the sale altogether, as painful as that might be.
Ready to buy a home? Start a mortgage application today to speak with a Home Loan Expert who can help guide you through the home buying process.