You’ve found a house you love. It’s the perfect size, layout, condition and even has your must-haves. There's only one problem. The seller’s asking price is too high. It's time for the phase of home buying that most people dread and even fewer are skilled at: the art of negotiation.
Make no mistake, negotiation is part skill and part art form. An experienced buyer’s agent will know how to finesse the contract negotiations and save you a lot of hassle. Your gut might tell you that the asking price for the house is too much, but you'll have a better chance of getting a lower offer accepted if your agent can back it up with facts.
A few key elements:
Comparables and Statistics
The best way to determine the fair market value of a house is to measure its asking price against similar homes that have sold in the same area, providing a set of numbers known as comparables or comps. Your agent will handle this, providing data from the local multiple listing service, or MLS. This gives you a baseline starting point. Your agent will also consider other factors, including the original listing price of similar homes versus their selling price, as well as the number of days the house has been on the market. All of this information can help make a better factual case for making an offer lower than the asking price.
Following a Process
Your agent will prepare a written offer to submit to the seller or seller’s agent. Along with this written proposal, your agent can present facts such as the comps and other data to justify your offer. When the seller sees this in writing, you have a much stronger case. Also, writing a letter to the sellers about your situation and your feelings about their home can make a big impression.
One of the strongest negotiating factors is understanding the seller’s motivation. This may be hard to do on your own, but your agent may be able to help. If your agent learns, for example, that the sellers are moving and have closed on a house elsewhere, this tells you they're probably motivated to sell quickly. Knowledge is power – especially in negotiations.
Making Your Lower Offer Work for Them
Sometimes buyers can make their lower offers more palatable to sellers by offering concessions or compromises. Something as simple as being flexible on a closing date can be attractive. If, for instance, the sellers are facing a one-month gap between the sale of the current home and their purchase of the next, they might appreciate it if your offer included an extension of the closing date or an opportunity to lease their home back from you for a month. If you don't need assistance from the sellers to pay closing costs, they could see this as a big plus. Also, having a pre-approval letter from your mortgage lender is one of your best advantages. This tells sellers that your financing is secure and not likely to fall through. It can be a gamble for sellers to accept an offer from someone who hasn't yet secured financing.
Making the Asking Price Work for You
Depending on how far off the asking price is from your budget and your understanding of the home's value, you and your agent might consider agreeing to the full asking price but requesting additional concessions from the sellers. For instance, your agent could include in the offer a request for the sellers to pay your closing costs. Perhaps there are household items, such as the washer and dryer, you would be interested in keeping; these also can be written into an offer. A home warranty is another item sellers may agree to purchase for you. These types of seller concessions could offset the gap you and your agent see between asking price and the fair market price.
A Backup Plan
Not all negotiations result in an agreement. Sometimes the parties are too far apart in price, and there’s nothing to be done. In these cases, your agent can be ready with other properties that fit your needs. In any negotiation, you have more leverage if you're willing to walk away.
The End Game
Above all, remember that negotiating the price you're willing to pay for a house is just that – a negotiation. You're trying to reach an agreement that's acceptable to both you and the sellers. The object isn’t to beat the sellers or win the negotiation. The object is to purchase the house. Good agents know this – and will use their expertise to make it happen.
Find a local RE/MAX agent who can guide you through the negotiating process.