Purchasing a home is not an easy task, and can make a lasting impact on your finances. Here are ten tips that can help you during the negotiation process:
- Submit comps and a letter with your offer. Ask your agent, if you are working with one, to help you collect some comparable sales in the area that justify your offer. You can also do this yourself using Zillow or a similar tool. Then submit that with your offer. This serves as an education to sellers who are over-pricing their homes, and will show that they are dealing with a serious and informed buyer. Some buyers even find it helpful to send a personal letter about how much they liked the property and how they intend to take care of it if they are lucky enough to buy it.
- If possible, don’t respond super quickly to counter-offers. In very hot markets you may not have the option to do this, but when you are given a counter offer from the seller, take a day or so to respond. If the seller sees you respond within hours to a counter, it shows them that you are a bit desperate to close the deal. Those who are not in a hurry are usually in a better position to negotiate.
- Have your financial ducks in a row. Make sure you are already pre-approved (not just pre-qualified) – this is where your lender will take a much closer look at your credit, income and financial situation and give you a stronger commitment to lend to you. The credibility of the offer will be much higher coming in with that pre-approval letter.
- Make sure the pre-approval letter does not state a higher amount than your offer. For example, if your offer is $350,000 but you are pre-approved up to $450,000, ask your mortgage professional who is issuing the letter to issue the letter for exactly $350,000. If you then need to increase your offer later, then ask for another letter with the new higher offer. Don’t show all your cards by giving a letter that states the maximum that you are approved for.
- Not so much a tip about negotiating, but more knowing when to bow out. When there are multiple bidders (5 or more), you will usually overpay. The seller at this point may ask for everyone’s best and final offer. If you are comfortable over-paying just a bit, go for it by submitting a slightly above market offer – but don’t get carried away and submit a really high offer in hopes of winning the house.
- Do not think in the back of your mind that you will get a good deal on a house by re-negotiating during the inspection process. You are likely to find some issues with the house during inspections, especially if you are purchasing an older property, but sellers typically do not like to concede at this point. Small concessions may be made, but many sellers would rather stop the deal and go with another buyer. Typically, the seller losses less by ending the deal at this point since the buyer is already in for those inspection fees. At this point, the buyer is generally at a disadvantage.
- Try not to let emotions take over. Purchasing a home can be an emotional event where excitement and trepidation can take over. Keep an even keel and do not fall in love with a house – there are always other houses out there. If you end up overpaying for your home, you may be paying that price in mortgage payments for decades to come.
- Have reasons ready to back up a lower offer. Have your agent explain the problems with the house that you noticed when touring the place when s/he submits your offer. Maybe older appliances and HVAC system or aging bathrooms that would require renovation. Anything that could justify a lower price for the home, and shows the seller that you paid attention and are highlighting the issues that concern you.
- Be in the know. Set alerts, check the home buying sites online, have your agent send you updates regularly. Sometime the first offer has an advantage. This does not always work, but sellers many times realize that the first offer is from the most serious of buyers who is carefully watching the market.
- Play houses against each other. If possible, have two houses lined up that you are interested in. When submitting an offer for one, consider putting a time limit on the offer, saying that there is another house you are interested in and that you need a quick response. This one is a little risky as putting this kind of putting pressure on the seller may not always work, especially in a hot market.
There you have it. Ten tips when negotiating on a home purchase – the key is go in prepared on your end and with information about comparable sales, educate the seller as to the reasoning behind your offer and don’t let emotions run the show.
