Negotiating the Home Price – Practical Tips

Buyers have two primary opportunities to negotiate the purchase price for their new home. The first is at the onset in between making the initial offer until settling on the price under contract. The second price negotiating opportunity is during the due diligence period when buyer’s have access to the home to perform inspections.

Determining the Initial Offer Price

A buyer’s real estate agent can provide valuable information and insight for determining the initial offer price to submit to the seller. The agent can pull recently sold properties and properties currently for sell that are comparable (comps) to the one you intend to buy. From there the agent can use their knowledge and experience to give a price range of what the property will likely sell for. You may hear this process referred to as a comparable market analysis or CMA.

Asks your real estate agent to run a comparable market analysis (CMA) and help determine a price range for your target property.

Other factors should influence what price you offer. A “hot” real estate market, where inventory is limited, favors sellers and gives buyers less leverage in negotiating the price. The characteristics and location of the property can also be used as points in negotiation. A house that has not been well maintained and needs significant updates, can be negotiated based on the costs required to fix these issues.

Negotiation in Due Diligence

Due diligence is the time (usually 2-4 weeks) where the buyer can gain access to the property to perform inspections, appraisals, and surveys. Buyers are always advised to start with a general home inspection and mortgage companies typically require an appraisal and survey.

Inspectors are paid to find problems with every home – it’s what they do. From there final report, you are looking for items that would require a significant amount of money to correct. You should ignore cosmetic items like paint that will not give any leverage negotiating. Instead, focus on the big-ticket items like the roof, hot water heater, HVAC, electrical system, plumbing, flooring (if most or all needs to be replaced), any damaged areas. With list in hand, start getting prices from improvement stores and quotes from professionals on the cost to repair, if possible, or replace.

The seller can stand firm in their price even when presented with the inspection results. However, in my experience most sellers are willing to lower the price if presented with items and professional quotes where any other buyers are likely to also ask for price reductions. You and the seller can also negotiate that they make the repairs prior to closing instead of asking for a price reduction but do you really want the seller making repairs or should you be the one calling the shots?

The Bottom Line

Negotiations are not winner-takes-all events. It is better to learn the seller’s motivations and then use those trigger points when an impasse or stalemate occurs. Look for creative ideas that offer win-win opportunities for both sides. Just know that your ultimate negotiation power is to walk away from a deal that doesn’t work for you.

 

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