7 Price Negotiating Strategies for Homebuyers
You and your real estate agent may have the best homebuying negotiating style outside of the United Nations, but it may not be enough to snag the house you want in a seller's market.
In a housing market where inventory is low and demand and prices are high, it's still possible to get a fair price as a buyer if you have the right negotiating tactics.
Having a good real estate agent is an important start, though buyers can certainly help. After talking with several real estate experts and homebuyers, here are some of the best price negotiating strategies for buyers in any type of market, though they may be most needed in a seller's market where demand is high and supply is low.
1 - Pre-approval letter
A pre-approval letter is an obvious first step to show how much you're approved for with a loan, but it should include the exact amount you're offering for the house, says Michelle Stansbury, a Realtor at The Kentucky Life in Lexington, Ky. The point isn't to overplay your hand by showing you're approved to borrow more than you're willing to pay for the house.
"You would be surprised how many agents will help their buyers make an offer on one of my listings at say, $250,000, but their lender says they are approved for $300,000," Stansbury says.
2 - Seller's motivation
After checking comparable properties to know what the property is worth, this is a basic question that can help buyers. Bruce Ailion, a real estate agent at RE/MAX Town and Country in Atlanta, says he tries to find answers to the following questions: How soon do they need to move? Where are they going and what will they do if it doesn't sell? Are there family circumstance changes such as marriage, divorce, childbirth, graduation, illness, relocation?
Ailion says he checks the mortgage balance, how long they've lived in the home, permits for any improvements, tax assessments, and court records to see if there is any activity in family law, criminal law or business litigation. He also does a Google search of the seller, checks their LinkedIn profile for employment, and checks if their employer's status is changing, along with checking any other social media accounts they have.
He also talks to neighbors to try to find out why their neighbor is selling, and he also asks the listing agent, who isn't obligated to tell him. "You'd be surprised how many inadvertently spill the beans and violate their fiduciary duty of confidence," Ailion says.
"Know the value, then know the seller's reason to sell and level of motivation and count on a discount," he says. "It may seem that I am taking advantage of someone who is down, but they are not my client. I have no duty to them. My duty is to get the best possible price and terms for the client I represent."
3 - Point out drawbacks
If a house has flaws that go beyond the cosmetic and will cost a fair amount of money to repair, then it can be worthwhile to ask for a lower price so you can afford to make the fixes. Jason Fisher, owner of BestLifeRates.org, says his lower asking price was accepted after he had a third-party home inspection completed and detailed costs to fix every problem listed. Fisher also added a few cosmetic changes he wanted done.
"The reason we did this was to bring to light all the flaws in the house with a large glaring cost to fix them right next to it so the previous owners couldn't deny it was price above what it should be," Fisher says. "We took into account time and hassle to have it fixed, as well as closing costs."
4 - Lender follow-up with listing agent
If your lender is willing, have them call up the listing agent to talk you up as a buyer, recommends Travis Saling, a home loan specialist at Team Home Loans in San Diego.
"If there are two exact offers and one has an attentive loan officer that calls to review the file with the listing agent, that is going to stand out," Saling says. "It is very likely the agent will share that information with the seller and hopefully help get that offer accepted."
5 - Offer 12 percent below asking
This may not work in a seller's market where buyers are trying to outbid each other, but if it's a buyer's market, offering at least 12 percent below asking price may get their attention. Everyone offers 5 to 10 percent below, and that's expected, says Sandip Singh, co-founder of estate agent comparison website Trusted Agents.
"However, with a figure like 12 percent it'll give the impression that the bid has been more carefully thought out as opposed to simply subtracting 10 percent," Singh says.
6 - Don't be a "problem buyer"
People like to sell their homes to people they like, says Martin Hess, sales director at Flushing Homes Corp., a mortgage website.
"In many cases, selling a home is not always about grabbing the bidder with the highest bid," Hess says. "Sellers quite often want to pass off their homes to people they like because what they are selling was once their home."
But your best face forward to show that the sellers won't have any hassles if your bid is accepted, he says. "Sellers want a pleasant experience from the execution of the sales contract to the closing itself," Hess says. "Communicating you are not a 'problem buyer' can go a long way in a negotiation process."
7 - Don't be counteroffer crazy
If you want to look like a savvy negotiator, an abundance of counteroffers ins't going to win you points, says Kelly Hager of Kelly Hager Real Estate Services in Chesterfield, MO. The further apart you are in price, the more counteroffers you'll have to endure before acceptance, Hager says.
"During this time, another buyer could submit an offer on the house of your dreams," she says. "You should be paranoid about this and always assume that offer will blow yours out of the water. The seller could cut off negotiations and choose to work the other offer instead."
Don't waste time by countering a lot, and start with your best offer. When you do counter, consider same-day deadlines instead of 24 hour deadlines, Hager recommends.
Of course, the best negotiating process is the simplest, though it isn't much of a negotiating tactic: Make a high offer that you can afford. If you have enough money, all of these tips can be tossed.