Negotiations in Real Estate (Buyer)

In any real estate negotiation, buyers ask and sellers push back - - because if you're the buyer and you don't ask, you don't get.  While sellers want the highest price and buyers want the best deal, the two have to meet somewhere in the middle for the deal to close.

Real estate transactions involve negotiation between the seller and buyer, typically surrounding the offer, or proposed contract notating price and various contingencies.  Learn the elements of offers, counteroffers, delivery, earnest money, and contingencies.

The Offer

The Real estate sales are one of the more intimidating transactions for buyers and sellers because of the negotiating process.  Fortunately, real estate agents can help make this process less intimidating by acting as an intermediary in the deal.  In plain English, the agents communicate with each other based on what they are told to do by the buyer or seller.  Let's look at the back and forth between John the buyer and Dave the Seller.

John is ready to buy Dave's house. His offered sales price is $215,000, which is $15,000 below Dave's asking price. The offer is a proposed contract given to the seller. John fills out a contract with his agent to be delivered to Dave's agent. The contract states the offered price, along with standard contingencies, such as a home inspection, home sale, and finance contingency.

Counteroffer

Dave is excited to have received an offer, but isn't so happy about the low sale price. He wants to sell the house, but he would prefer to get closer to his original asking price. Dave has his agent prepare a counteroffer. Counteroffers typically approve of many of the items proposed in the initial offer, but are subject to additional considerations or demand certain changes in the original contract. Making a counteroffer cancels John's original offer. Dave's counteroffer keeps the original contingencies but instead proposes a sale price of $226,000.

The negotiation process can continue with counteroffer after counteroffer until John and Dave reach an agreed upon deal or quit. Let's say, in this case, John agrees with Dave's counteroffer. John would then sign the contract to show agreement with the terms. His agent would then deliver it to Dave through Dave's agent.

Delivery

Delivery is an important concept in finalizing negotiations. The signed contract isn't legally binding until it is delivered. That is to say the other party must actually receive the document. Until that point, the contract can be taken back. This concept is less of an issue as more negotiation and contract paperwork is done online rather than personal or mail delivery. John and Dave don't have a binding deal until Dave takes delivery of the ratified contract.

Earnest Money

Earnest money is a major factor in real estate negotiation. Buyers offer a sum of money as a sign of good faith in their intent to complete the purchase. The money goes into an escrow account until closing or the cancellation of the contract. If John were to arbitrarily back out of the deal or find some other excuse to cancel the deal, Dave would get to keep the earnest money. Contingencies not only give the buyer an opportunity to cancel the deal in certain problem situations but also get their earnest money back in those events. 

What Should You Do Before Negotiating A House Price?

Negotiating a home price requires a lot of patience, organization and sometimes compromise.  Consider getting the following things in order before sitting down to negotiate.

Work With An Agent Or REALTOR®

Many home buyers believe that they no longer need an agent because real estate listing sites are available at the click of a button.  However, an agent doesn't just show you homes; they are also a crucial asset when negotiating the best price and helping you decide how much to offer Real estate agents are experts in your local housing market.  They know how interest rates change, which properties are set to grow in value and what you can expect to pay in property taxes.  Real estate professionals can also separate their emotions from the home buying process.  For example, they can advocate for you because they're removed from the fear of losing the home.  Furthermore, your real estate professional can help you draft the strongest offer possible, complete with all the contingencies you need to protect yourself.  Contact your local real estate agent RE/MAX Sisters, Rita or Virginia before you start shopping for homes.

Get Your Finances In Order

You need to be able to prove to a seller that you can get a mortgage.  When you make an offer on a home without proof of funding, you're more likely to get passed over for the next buyer.  Make sure you can get preapproved for a mortgage lender that confirms the mortgage amount you qualify for and lets sellers know that you'll be approved for the home.  Keep in mind that a preapproval and prequalification letter aren't the same things.  Your lender takes a look at your income, assets and credit before issuing your preapproval letter.  This allows your lender to give you the most accurate estimate possible.  When you're prequalified, the lender usually doesn't verify your information, which means that your prequalification number holds less weight than your preapproval.  Remember to always include a preapproval to submit the strongest offer possible. 

Know Your Market

The amount of room you have to negotiate is inversely proportional to the amount of interest in the home and whether we're in a buyer's market or a seller's market.  When many buyers have expressed interest in the home and there are more offers, you'll have less room to negotiate.  In contrast, if your local real estate market is cold, you have more room to ask for concessions, lower prices, and repairs.  This is another area where your real estate agent will be an invaluable asset.  Your agent can assess the local market and talk to the seller or the seller's agent, allowing you to get a more intimate look at how willing the seller is to negotiate the sales price.  You might be able to bargain if the home has been on the market for a long time and the seller wants out.  However, if the seller has had multiple offers on the home, it's  good idea to submit a higher offer right off the bat.

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