Simple rules for negotiation when buying a house
You found your dream home and are ready to put in an offer – congratulations! Unfortunately, this signifies that the “fun” part of the home buying process is over and that it is time for the nitty-gritty of negotiations to begin.
Settling on a fair price when putting in an offer, as well as negotiations with the seller, can be difficult for even seasoned homebuyers. This is especially true in competitive real estate markets where a listing may receive multiple offers within the first few days – if not hours. Following these three simple rules, however, can help make the negotiation process easier whether you’re preparing to buy your first home or your fifth.
Find out how motivated the seller is
People do not put their homes on the market just to see what kind of offers they get; if a house is listed, the current owners want to sell. Despite this, different sellers have different motivations and timelines; this can affect how willing they are to accept an offer or how receptive they will be to changes to the contract during negotiations. A seller who is moving out of state within the month for a new job, for example, may be highly motivated to sell and willing to make more concessions to the buyer. Likewise, a family with less pressure to move may hold out for a better offer.
Keep an eye on your budget
If the sellers send back a counter offer with a much higher price tag or multiple offers are placed on a house, it can be tempting to do whatever it takes to get your dream home. However, it is important to keep an eye on the budget during all stages of negotiation. Remember that:
- You cannot exceed the amount your lender has pre-approved you for
- You cannot overextend your own budget or cash reserves
For example, your lender pre-approved you for a $180,000 loan and you have $20,000 saved in cash for a down payment. You offered $175,000 for the home, but the sellers have countered with $185,000. Accepting this counter offer would reduce the amount you have for a down payment, pushing you below the 20% threshold at which PMI is required.
Likewise, keep in mind that there will be other cash expenses during escrow and closing. This can include homeowners insurance, title costs, agents fees, and paying for inspections. Make sure you have enough cash saved to cover these expenses at closing.
Be willing to walk away
You paid the earnest money. The sellers accepted your initial offer. But now you are stuck squabbling over the details. Examples of problems that can stall negotiations include the sellers wanting the buyers to cover closing costs, the buyers wanting the sellers to pay for new flooring, or unexpected damage being discovered during the home inspection.
No matter the reason, don’t be afraid to walk away from a contract. While a tough decision, it is an important one to make. If the sellers won’t budge, your agent warns you against parts of the deal, or something simply doesn’t feel right, trust your gut. It can be disappointing to lose out of a home, particularly after a difficult home search, but feel confident knowing that there are more homes out there – including the right one for you and your family.
by Author, January. 30, 2020