So you’ve finally found your dream home, and you’re ready to make an offer. What now? For first-time home buyers, negotiation is a seriously misunderstood practice. Plus, in today’s home buying market, the competition is fierce. If you’re worried about navigating the negotiation process when buying a home, don’t be. We’ve got some great tips for first-time homebuyers that will help you tackle it like a seasoned pro. Read on for all the details.
Know Your Facts
While some see it as an art and others as a science, negotiation really is just two parties discussing the facts of the situation to find a solution that benefits both.
Negotiating is not about what you think you know. It is a discussion of facts. Therefore, you need to know enough about the real estate market to argue your point. Do some research on sites like Zillow or Realtor.com before blindly venturing into the homebuying process. That way, you can negotiate based on knowledge and not emotion. You’ll want to study up on things like comparables and the principles of assessing value.
Say, for instance, the seller’s asking price for a three-bedroom home is $200,000, which is $50,000 more than what other homes on the block are worth. You can point out that you found similar properties in the same neighborhood with the same defects for $50,000 less and wait for the response.
Know Your Seller
In addition to knowing your facts, you should also find out (if possible) why the owner is selling the home. For example, you might find that the house is a short sale disguised as a regular sale. If this is the case, it means the seller is motivated.
Motivated sellers are easier to maneuver. Present your letter showing that you have been pre-approved for financing. This lets the seller know you will not waste their time, and they can get the cash they desperately need faster.
You should also find out how long the home has been on the market. The longer a property has been on the market, the more willing sellers are to get rid of it. Ask your agent if they can do a bit of digging before the negotiations begin.
Develop a Dual Perspective
As a buyer, the asking price will always be too much. Nobody likes parting with money. However, you should also realize that any offer below the asking price is always too little for the seller. If you negotiate with both perspectives in mind, it will be easier to come to a mutually beneficial solution.
Change Your Attitude
It is normal to feel a little frustrated when a deal is not going your way. Sellers can be difficult because they want to get the maximum amount for their homes. Try your best to remain logical instead of emotional. If you can’t, it is better to let your agent take over the negotiations.
Make Time Your Ally
Time is a powerful component in a negotiation. If you are in a hurry, you might be tempted to accept terms you disagree with. But, on the other hand, if you are too slow, competing buyers will snatch the deal right out of your hands.
How do you use time to your advantage? First, don’t be desperate, and do not assume the seller is desperate either. If sellers get a whiff of desperation from you, they might become resistant on purpose. Conversely, if you believe a seller is desperate when they are not, you might lose a perfectly good home to someone else.
Sweeten the Deal
There is nothing wrong with giving a seller an incentive or two. If you can increase your offer but remain under the asking price, do it if it means beating the competition. Another sweetener can be allowing the seller to stay in the home for a couple of months until they sort out their new living arrangements. Being generous won’t hurt, but don’t overdo it.
What Not To Do When Negotiating With a Seller
When you have the wrong idea of what negotiating entails, it is easy to make mistakes. If you keep losing good deals and don’t know why, you might be doing the following:
A combative attitude is not a good way to start negotiations. You will either create a never-ending war that will waste everyone’s time or offend the seller and lose the home to another buyer. The best attitude to have is one of cooperation, honesty, and fairness because it benefits all parties.
2. Making It Personal
Emotion can turn an otherwise smooth transaction into a rocky one very quickly. For example, sellers often get offended when buyers make low offers, and buyers get mad when sellers keep turning down their offers.
Buying a home is a business transaction, and you should treat it like one. Even if a seller passes a disparaging remark, do not take it personally. Owners are more attached to their homes than they realize. Some even want to sell for a higher price to compensate for the emotional impact of letting go.
3. Guessing and Predicting
Good negotiators do not base their arguments on guesswork, wishful thinking, or ideals. They focus on facts. If you have to use the word “probably” when stating your case, it is not a fact. Facts are statistics, calculations, and research findings, not opinions, gut feelings, or unfounded predictions.
One of the quickest ways to lose a good deal is to lowball. Lowballing is a strategy that some real estate investors have used in the past to pick up property for thousands of dollars under market value. It’s a practice that used to be common in buyer’s markets. For example, an investor would offer $100,000 for a property worth $200,000. Why would anyone do that? Because in certain economic times, it worked.
However, in today’s housing market, lowballing is generally not recommended. We are dealing with a seller’s market now and will be for the foreseeable future. Sellers will find lowballing offensive and dismiss your offer immediately. Indeed, it sometimes worked in the past, but it’s highly unlikely to work in today’s real estate climate.
5. Getting Too Attached
A common mistake that first-time buyers make is thinking they will never find a home better than the one they chose. As a result, they get hung up when they should be letting go. If a seller refuses to reduce the price and it’s just not in your budget, find another home. There are too many excellent properties out there to waste your time on one you can’t afford.
A Word About Canceling Your Offer
Suppose you manage to negotiate the price down, and the seller happily accepts your offer. Then one day, while browsing the web, you come across a home better than the one you promised to buy. Can you cancel your offer?
Yes, you can cancel your offer, but it will not be that easy. A sales agreement is legally binding. To cancel, you will first have to put your withdrawal in writing. It is also advisable to hire a lawyer.
If you are lucky, the seller will receive your withdrawal peacefully. However, you may be liable for paying all the costs of the process thus far. If the seller is not the peaceful kind, they may take you to court and obtain a judgment that forces you to continue with the sale.
If both your signatures are on the sales contract, a seller has a right to make you buy the home, willingly or unwillingly. You might have to cover their legal costs too. However, if the offer is not yet signed, it is unnecessary to cancel because it is not yet in effect.
Another way that purchase agreements are canceled is by failing to meet conditions. For example, the contract has no effect if you agree to buy the property only after you have secured financing and you do not receive the loan.
However, it could be a problem if you receive the mortgage loan and cancel it just to get out of the contract. Because there are a lot of grey areas in this matter, you would do well to get yourself a good attorney. If most of your money is going towards loans, you should consider taking surveys for cash to have extra money for other necessities.
Negotiating the purchase of a home can be easy if you maintain an objective, fair attitude in your interaction with sellers. Collect necessary data regarding the transaction, negotiate using facts and not opinion, and get pre-approved for financing to secure your dream home.