Negotiate Like a Pro

You’ve found your dream home and are ready to make an offer. Awesome! Now it’s time to seriously play ball.

Offer writing and negotiation are the crux of real estate. This is where your realtor earns his or her commission. It’s where the boys are separated from the men. Where the true artists stand apart from the mere dilettantes. Ok, you get the idea.

Before you even get started thinking about an offer, make sure you’ve crossed the following off your to-do list:

• You should be pre-approved for your loan, so the seller knows you’re not going to fall out of escrow because of financing problems (you should have already done this before you seriously started looking at homes)
• Research the market to the point that you are totally comfortable with the area and you know this house is the best one for you. We suggest also searching public records and notices
• Ensure you’ve got a firm grasp on your personal finances so you know exactly what you can afford up front and in monthly costs

When you sit down to write your offer with your realtor, here are the topics that should be at the forefront of your mind and your discussion:

• How well has the seller priced the home? Your realtor should prepare a list of “comps” (comparable homes) that are either on the market or (preferably) that have sold recently. From this list you’ll get a sense of what a realistic price is.
• How long has the home been on the market? If a house has been sitting around for ages, that is a hint that the price may be too high. You may be able to get a lower price…or maybe the seller is really stubborn. Your realtor will have an idea of how long it typically takes to sell this type of house in the current market. They’ll have statistics like months of inventory (how many months it’d take to sell all the houses currently on the market) for your area.
• Have there been any price reductions? Look to see if the seller has tried adjusting the price to be more competitive. A price reduction could mean the seller is very motivated, or that they are unwilling to negotiate further. Your realtor will need to get the scoop.
• What can your realtor find out about the seller’s circumstances? Is the house being sold because the seller lost his job? Is the seller desperate to close the deal and move? Or does the seller have plenty of time to hold out for a high price?
• What are the local customs? Customs are often correlated to market conditions, but it helps to know the psychology of the seller and seller’s realtor. Do people usually offer the asking price? Lower? Higher? You don’t want to something totally off the wall and end up getting stonewalled by the seller. Listen to your realtor and your gut.

Here are some of the variables that you’ll discuss with your relator:

• Purchase price – the overall price paid to the seller
• Earnest money (“good faith” money) – this is basically a deposit that you put into your escrow account; it’ll later get applied against your closing costs. The idea is to put skin (or rather green) in the game to show the seller that you’re a serious buyer.
• Closing costs – all the costs associated with the transaction. The buyer usually pays most of these costs, but buyers can absolutely request that sellers pay some or all of the costs.
• Closing date – when can you reasonably anticipate to close? Factors include repairs and your specific loan package. If the seller doesn’t live in the house and is eager to sell, a closer closing date is desirable. If they need to pack and plan a move, they may appreciate a slightly later closing date.
• HOA dues and other fees – a seller might offer to pre-pay HOA dues, taxes, or even interest, on your behalf. This is one way sellers can give concessions without lowering the asking price (which may be difficult for legal or political reasons in the case of a condo building, for example).
• Repairs – if repairs are necessary, a bargaining chip can be responsibility for the various repairs
• Furniture/appliances – sometimes sellers will sweeten the deal by offering to leave behind their washer and dryer or other “extras”. Buyers can also request that sellers leave behind these extras. Stuff like asking the seller to leave their pool cover if the house has a pool makes sense. Don’t go crazy and request that they leave all their furniture just because you like their style, though. That can unnecessarily complicate the negotiation.

Once you work out your offer, your realtor will send it to the seller’s realtor. Then the anxious waiting begins. Sellers usually have 24 hours to respond, so luckily you won’t wait for long. The seller can do one of four things: accept your offer, counter your offer, reject your offer, or simply not respond.

You really don’t want a rejection or no response–you’ll have little recourse in those cases. If they counter, your realtor will review the counter offer with you and recommend a course of action. You can counter their counter, accept their counter, or reject/drop out of negotiations. Usually all the interactions go through the buyer’s and seller’s realtors, but if you want to be closer to the action, tell your realtor and they can get you more closely involved in the negotiation.

Once you and the seller have arrived at a mutually accepted offer, you are officially in contract, and the escrow begins. Don’t freak out quite yet–in most cases, agreeing on an offer and entering escrow does not mean you’re completely obligated. Most offers are written with contingencies for passing the home inspection, financing coming through, or on mortgage rates. So as a buyer, you’ve still got an out if you need it.

Final words of advice: Be sure to discuss every aspect of your offer and the process in detail with your realtor–each market is different, so don’t rely on Internet advice, and don’t be shy about asking questions. It is crucial that you know exactly what you’re paying, and what your commitment is. Ultimately, negotiating is one of the most exhilarating times in the real estate process, so enjoy it. I know you’ll kick butt!