Negotiating with Sellers
Last updated 25th Nov 2022
You've finally found a dream home in your price range, and it's time to make an offer to buy the home. Your about to start one of the most tension-filled parts of the entire process: negotiating with sellers!
Negotiating is ImportantWhy is there so much anxiety over the purchase price of a home? Because there is a lot of money at stake, perhaps tens of thousands of dollars (or more); every dollar that comes from your pocket goes right into the pocket of the person selling the home.
The seller knows this too, and they're looking to get the highest possible price. What is the ultimate goal in these negotiations? Everyone is happy; both buyer and seller, because the home sold at its true market value. So how do you get there?
Informed Bids Take ResearchThe first thing to do before starting the negotiating process is some research. That means understanding the community, and the selling price of comparable homes. This way it's possible to make fair comparisons to homes that have sold recently in the neighborhood.
Why is the Home for Sale?Buyers should also consider "mitigating" factors. These are the reasons to increase or decrease a bid for a home. Some of the questions to think about include:
- Why is the homeowner selling in the first place? How motivated are they? Is there a problem in the neighborhood, or did someone get a new job and need to relocate?
- Does the seller have an inflexible timeframe for selling the home? Does the family need to get out by a certain date because they are moving into a new home? Do they need to move before September so their kids can be settled into their new school?
- How long has the home been on the market? If it has been on the market for a long time, it's important to figure out why. Is the market that slow, or does the house have a serious problem?
- What are the true defects of the home? Is a neighbor's home in bad shape? Is the roof in need of repairs? What is the traffic like on the street? Is the neighborhood safe?
Buyers and Sellers MarketsOne of the more important factors to figure out is if the home is located in a buyer's or a seller's market. This dynamic follows the rule of supply and demand. The following lists of attributes can help distinguish between a buyer's and a seller's real estate market. The following characteristics are normally associated with a buyer's market:
- There are lots of homes for sale in the township
- Homes are slow to sell. It takes weeks or months to sell a home, not days
- Sellers might be offering incentives to buyers
- Homes are selling quickly. They might even be selling before the home is hitting the real estate multiple listings
- There are an unusually high number of "for sale by owner" homes
- Few incentives, if any, are offered to buyers
Negotiating in Each Market TypeIn a buyer's market, sellers may need to offer their homes for sale at "bargain" prices. Generally, buyers will have the upper hand during negotiations because they have choices. In other words, it is much easier to walk away from the deal and find another home. In a seller's market, buyers have to move quickly because homes are selling before they even get a chance to look at them. In this type of market, the buyer needs to be prepared to demonstrate they are a serious by making sure they are pre-qualified for a mortgage. Buyers might also need to give in to more of the seller's demands.
Getting a Good DealRegardless of the market, everyone still wants to strike a fair deal. Buyers should be willing to pay exactly what the real estate market expects, and not a dollar more. The following tips can help level the playing field during negotiations.
Falling in Love with a HomeOf course everyone should fall in love with a home they're thinking about buying; but never let the homeowner or real estate agent know you're in love with a home. That means keeping your emotions in-check when touring the house. If you're interested in a home, then there is no reason to hide those feelings. In fact, it never hurts to flatter a seller by remarking how nicely the home is decorated or the color combinations they've used on the walls work well together.
Buyer and Seller AgentsA real estate agent might seem like a new best friend, but unless they are a buyer's agent, they have a responsibility to the homeowner to extract the highest price possible for the home. Most agents are seller's agents, and that means they are paid by the seller. Their professional "loyalty" is with the seller, not the buyer. Agents also make money from sales commissions, so they are only paid when they sell homes. Make sure they are doing all they can do to help find suitable homes and earn their commissions. Never tell an agent that you love a home, this gives you a better chance of getting the best deal.
Common Seller TacticsDuring negotiations, sellers are going to try to convince you the asking price is fair, and they may even try to demonstrate why this is true. The following list contains some of the common tactics that sellers employ; buyers need to separate fact from fiction.
- Appraisals: while an appraiser can have all the credentials in the world, they don't value a home the same way a buyer does. They might love pink walls, but you're going to have them repainted. An appraisal is a good starting point, but that's where its value ends.
- Real Estate Agent Estimate: we've talked about this before; real estate agents cannot be objective when it comes to evaluating a home's price. They have too much financial incentive to push the price up.
- Comparable Home Printout: while this is a good source of information, printouts of comparable homes can suffer from bias too. They're most likely hand-picked by the agent and work in the seller's favor.
- Home Improvement Receipts: while it's nice to know the previous homeowner spent some money fixing up the home, it's irrelevant to the price paid. After all, the home might have needed a lot of work when the prior owner purchased it.
Dealing with HomeownersIf you happen to talk to the homeowners, and real estate agents don't really like it when a buyer talks directly with the owner, turn on the charm if at all possible. The trick here is to get them comfortable enough that they start to talk about some of the problems with the home. Nearly all owners have some kind of emotional attachment to their homes. Even if they are moving on, they want to feel good about the people buying it. Think of it this way: people will sell a home to a person they trust for less money than someone they don't trust.
Negotiating PriceWe're going to finish up with the single most important aspect of the home buying process: How to negotiate the price of a home. Again, the following tips really depend on the activity of the market. Balance the following tactics with the environment. For example, in a buyer's market, it might be possible to get away with more demands than in a seller's market.
- The number one rule is to be tactful and respectful of others. You might not like the purple walls, but expressing this view will likely insult someone. You're trying to negotiate, don't alienate the homeowner.
- Make sure that everyone knows other homes are being considered too. The seller needs to believe there is competition.
- Politely point out the flaws in the home. Especially repairs that are going to cost money to fix later on.
- Bid lower than what you're really willing to pay for the home. If there is a second round of bidding, then you'll likely have to raise the offer.
- Ask the owner to throw in incentives. This might include home furnishings, paying for certain repairs, or even some of the closing costs. The worst thing they can say is "no." If you never ask, you'll never know what they might be willing to give up.
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