Buying a Home Negotiation Strategies

Negotiation strategy is different from negotiation style. From pit bull to diplomat, each of us has a personal style. But the strategy for negotiating the purchase of a home is based on facts: the real estate market at the moment and what we know about the seller’s needs and the property.

Market knowledge courses through the veins of experienced real estate agents, which is one good reason to use one. Another is that agents are experienced negotiators who speak the same lingo. That means your agent probably will find out more about the seller’s situation than you will working on your own. And for those of us who start sweating at the very thought of confronting a seller and the seller’s agent face-to-face, why not pay a commission to someone who will relieve us of the task?

Can you negotiate without an agent? Absolutely. Many buyers do. It means:

• Doing intensive research about the market, the property you want to buy, and the seller’s situation
• Figuring out an appropriate negotiating strategy and style based on that information

Tips for Staying Sane With or Without an Agent

1. Do your homework.
2. Ask questions constantly.
3. Share the details of your budget, emotions, and mental state only with your advocates (this does not always include your agent).
4. Find an agent with whom you feel comfortable from the start - this will save you headaches later in the process.

Setting Strategy

Market conditions are the single most important factor in negotiation strategy. And just like the weather, the landscape is a crazy quilt of micro-climates. Markets vary nationwide from place to place and neighborhood to neighborhood. The first thing you need to know is whether you’re in a buyer’s, seller’s, balanced, or red-hot, bidding war market.

Negotiating in a Buyer’s Market

You have more leverage in a buyer’s market than any other type because there are more homes for sale than buyers to make offers. For sellers, especially those who have to move for whatever reason, this is the most nerve-wracking market. Property takes longer to sell. They can’t let potential buyers slip their grasp.  They may hate your demands, but they have to wrangle and they almost always have to sell for less than the asking price.

Buyer’s Market Strategy: Ask for the Moon

1. Make an offer at least 10 percent under the price you want to end up paying.
2. Ask for seller-financed closing costs and a closing time convenient for you.
3. You want all the appliances and the entertainment center? Ask for them.
4. You’d really like the gas grill and flower pots on the deck? Go for it.

Buyer's Tip: You’re most likely to win concessions and personal property in a buyer’s market.

Negotiating in a Seller’s Market

Pit bulls beware. In a seller’s market, buyers don’t have much clout, and style matters. If the seller has a desirable home and doesn’t like your offer, he won’t invest time in negotiating with you. In a seller’s market, a good strategy is to make a straightforward, “clean” offer.

Buyers cannot procrastinate once they’ve found a home they want. Any agent worth her commission will urge you to make a quick decision, perhaps drawing up an offer the same day you tour the property. Yes, she’ll earn her money putting in fewer hours on your behalf than in a slower market, but don’t get paranoid and feel ripped off. This is how she makes her living. She wants you to get this home and knows it will sell quickly.

Seller's Market Strategy: Keep It Simple

1. Getting pre-approved for a loan is an essential first step in any market.
2. Offer the asking price or close to it.
3. Ask only for the standard contingencies — financing, appraisal, inspection — to protect yourself.
4. Expect the seller to set the closing date to his advantage.
5. Don’t expect to receive the personal property you want. (But if the seller is planning a garage sale, you may be able to work a deal ahead of time.)

Buyer's Tip: Forget the wrangling and go for the house. You’ll feel lucky to get it. 

Real Life Example

The market: A seller's market
Who: Hannah, a first-time homebuyer who had been going to open houses for months.
The house: One day she drove down a side street and spotted a for sale sign on a house that wasn’t advertised in that Sunday’s paper. She knew the instant she walked in the door that she wanted the house.
The agent: Hannah was not working with an agent. She sat down with the seller’s agent and drew up a full price offer with standard contingencies.
The outcome: Could she have paid less? Maybe. Did she feel burned? No. Her homework told her this was an unusually good property priced to sell.

Negotiating in a Balanced Market

A balanced market feels less like a pressure cooker because there is a more equal supply of homes and buyers. Since neither side is feeling market urgency, personal priorities reign. Expect the back-and-forth counteroffer phase to take longer than it does in either a buyer’s or seller’s market. After several rounds of paperwork, buyer and seller might agree to do a 50-50 split of their differences on price, terms, and personal property. 

Balanced Market Strategy: Split Your Differences

1. Offer less than the asking price.
2. Include the standard financing and inspection contingencies.
3. Offer terms beneficial to you.
4. Ask for whatever personal property you want.

Buyer's Tip: Both buyer and seller are likely to feel good about the transaction. They will each gain and give up something in the spirit of compromise during the negotiation.  

Real Life Example

The market: A balanced market
Who : Sarah had been looking for a house for some time when she spotted a FSBO in a desirable neighborhood and knocked on the door.
The house: The home belonged to an elderly woman who was selling it with the help of her sons.
The situation: The homeowner fixed a pot of tea and the two women sat down for a friendly conversation. Two hours later, they had a verbal agreement, which was written up and led to a sale that left both of them pleased.
The outcome: A year later, the same neighborhood was in a tumultuous bidding war market. If the elderly woman had waited and worked with an agent, she would have gotten thousands of dollars more for her home. But this sale was more about getting a fair price for a sacred space and selling it to someone who would appreciate it.

Buyer's Tip: Buying and selling a home is not always about money.

Next article: Making Counteroffers to the Seller

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Related Links

• Making Counteroffers to the Seller
• How to Back Down After Signing
• Handling a Bidding War as a Buyer