Negotiating with Sellers of Homes

You've finally found a dream home in your price range and you'd like to make an offer to buy the home.  Your about to start one of the most tension-filled parts of the entire home buying process - negotiating with sellers!

Negotiating is Important

Why is there so much anxiety over the purchase price of a home?  Because we are talking about big time money here, perhaps tens of thousands of dollars (or more).  And 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 maximize the selling 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 Negotiations - Doing Your Homework

The first thing you need before you negotiate is your homework.  That means you need to understand the community in which the home is selling and what comparable homes are selling for.  You then need to figure out how the home you're thinking about buying compares to the homes that have sold recently in the neighborhood.

Why is the Home for Sale?

You also need to consider some "mitigating" factors.  By this we are talking about reasons you might want to increase or decrease your bid for a home. The questions you might want to ask yourself include:

• Why is the homeowner selling the home in the first place?  How motivated is the seller?  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 of the home by a certain date because they are moving into a new home?  Do they need to move before September so there kids can get settled into their new school?
• How long has the homeowner been trying to sell the home?  If the home has been on the market for a long time, you need to try and 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's the traffic like on the street?

Finding the answers to these questions will help you negotiate in a more objective and effective manner with the seller.  It's always better to negotiate with facts on your side.

Negotiating in a Buyers or Sellers Market

One of the more important things you need to figure out is if you're in a buyer's or seller's market.  This type of market dynamic really is all about the rule of supply and demand - even with homes.  The following factors can help you figure out the difference between a buyer's and seller's real estate market:

Buyer's 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 - weeks or months, not days
• Sellers might be offering incentives to buyers

Seller's Market

The following characteristics are normally associated with a seller's market:

• Homes are selling quickly - perhaps even before they are hitting the multiple listings
• You find a relatively high number of "for sale by owner" homes
• Few incentives, if any, are offered to buyers

Negotiating in Each Market Type

In 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've got a lot of choices.  In other words, it is much easier for a buyer to walk away from the deal and buy another home.

In a seller's market you're going to have to move quicker because homes are selling before you 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 buyer by making sure they are pre-qualified for a mortgage and give in to more of the demands of sellers.

Getting a Good Deal on a Home

Regardless of the market, you still want to strike a fair deal.  You want to pay exactly what the real estate market expects - not a dollar more.  The following tips can help level the playing field during negotiations.

Falling in Love with a Home

Of course you want to fall in love with a home that you're thinking about buying, but you never want the homeowner or real estate agent know you're in love with a home.  That means you need to keep your emotions in-check when touring a home.

If you're interested in a home, there is no reason to hide your interest.  In fact, it never hurts to flatter a seller by remarking how you like the way the home is decorated or the paint combinations they've used.  If you fall in love with a home, you should only tell a trusted partner - and that does not include your real estate agent.

Buyers and Seller Agents

Your real estate agent might seem like your new best friend, but unless they are a buyer's agent, they've got a responsibility to the homeowner to extract the highest price possible for their home.  Most agents are seller's agents and that means they are paid by the seller when the home is sold - so their professional "loyalty" is with the seller, not the buyer.

Agents also make money from sales commissions, so they only get paid if they can sell homes.  Make sure they are doing all they can do to help you find a suitable home and earn their commissions.  But never tell an agent that you love a home, this gives you a better chance of getting the best deal.

Common Seller Tactics

During negotiations with a home's seller, they are going to try and convince you that the asking price is fair and demonstrate to you why the price is fair.  There are some pretty common tactics that sellers employ and you need to separate fact from fiction.

• Appraisals - An appraiser can have all the credentials in the world, but they don't value a home the way you do.  They might love those pink walls, but you know you're going to have them repainted.  It's 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've got too much financial incentive to push the price up.
• Comparable Home Printout - While it is a good source of information, print outs of comparable homes can suffer the same bias as a real estate estimate.  They're most likely hand-picked to work in the seller's favor.
• Home Improvement Receipts - While it's nice to know the previous homeowner spend some money fixing up the home, it's irrelevant to the price paid for the home.  After all, the home might have needed a lot of work when the prior owner bought it.

Dealing with Homeowners

If you happen to talk to the homeowners - and real estate agents don't always want you to talk directly with the owner - you really want to turn on the charm if you can pull it off.  The trick here is to get them comfortable enough that they start to tell you some of the problems with the home.

Nearly all homeowners have some kind of emotional attachment to their homes.  Even if they are moving on, they want to feel good about the people buying their home. 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 the Price of a Home

We're going to finish up with the single most important aspect of negotiating with sellers - How to negotiate down the price of a home you'd like to buy.  Again, a lot of the following negotiating tips really depend on how hot the real estate market is where you're thinking about buying.  So you need to balance the following tactics with the environment.  For example, in a buyer's market, you might be able to get away with more demands than in a seller's market.

1. The number one rule is to be tactful and respectful of others.  You might not like the purple walls, but you might be insulting someone by making bold statements.  You're trying to negotiate, not make an enemy.  If you're serious about buying a home you don't want to alienate the homeowner.
2. Make sure that everyone knows that you've got other homes you are considering and that they're not the only game in town - even if they are right now.
3. Politely point out the flaws in the home.  Repairs that are going to cost you money to fix later on.
4. Bid lower than what you're really willing to pay for the home.  If you get into a second round of bidding, you'll likely have to raise your offer.
5. Ask the owner to throw in incentives.  This might include home furnishings, certain repairs or even some of the closing costs.  The worst thing they can say is "no" and if you never ask, you won't know what they are willing to give up.

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