Savvy home buyers crunch the numbers and know exactly how much money they can offer on their dream house. But what do you do if the asking price comes in slightly over budget, by about $25,000 more, for instance, than what you can realistically afford?
This dilemma comes up often during a house hunt, but the right agent will help you negotiate a price that’s fits your budget. With the right team and a few intelligent strategies, that slightly out-of-reach property could be yours. Curbed spoke with buyers agents and an instructor with the Real Estate Negotiation Institute on the art of negotiation.
Find the right broker
With the proliferation of online marketplaces, it’s no longer the broker’s primary role to find your property. Instead, a broker’s job is to work with you to come up with the “strongest possible offer for your home,” as Triplemint broker Greg Vladi puts it. “Your agent should serve as your negotiation advisor.” It’s crucial, then, to interview agents about their experience in negotiating asking prices before you move ahead with your broker search. “You’ll want to ask any agent about their process, their approach, their tactics, if there’s a methodology to how they’re negotiating,” says Mike Walker, of the Real Estate Negotiation Institute. “If there’s no method, it doesn’t necessarily mean they’re a bad agent, but their negotiation skills aren’t as honed as other’s would be.”
Know the market
How much room you have to negotiate depends heavily on the market you’re shopping in. “The biggest challenge is that a broker doesn’t always educate a buyer about the area they are buying into,” says Ban Leow, an agent with Halstead. He points out that in competitive markets, sales prices vary significantly block by block, depending on the quality of the housing stock and proximity to amenities or public transit. There are also larger factors to consider, from inventory levels to interest rates. Your broker should be adept at understanding both the big picture and micro details that contribute to housing demand. If demand is high in a particular neighborhood, negotiating with the seller won’t be as effective. But a good broker will help you read the market. You might see 40 people at an open house, Leow says, but the broker should know the market climate and be able to read whether the prospective buyers are gearing up for a bidding war or looking with less urgency.
Understand your opposition
“In negotiation environments, studies show that the most successful parties have the most information about their opponents, as opposed to walking into something completely blind,” says Walker. It’s not war, but you want your broker to figure out the appetite for any given property, as well as existing offers on the table. “The buyer’s broker should always be peppering the seller’s broker with questions, asking if they have any other offers” says Vladi. “I never submit an offer without calling the [seller’s] agent to see if I can get any information to help us.” If there are no other offers on the table, negotiations can go farther.
In competitive markets, get creative
If demand is high in your market and you’re competing with multiple offers, consider negotiating beyond the asking price. “When you walk into a sale, you’re automatically focused on price,” says Walker. “But a lot of people don’t understand how many options of value can be exchanged between each party.” You may not offer the highest bid, for example, but maybe you can offer a high deposit of “earnest money,” which is made to a seller showing your good faith in the transaction. If a seller is looking to quickly offload the property, perhaps you can guarantee a 30-day closing and use it to your advantage. “Considerations in the micro-terms of the contract become very important when offering the highest price is not an option to the buyer,” Walker says.
Add a personal touch
Buying a home is an emotional process, so don’t be afraid to add a personal note to the seller about why this is your dream house. It’ll make your offer stand out, even if it’s not the highest one. “Express to them why you love this house,” Leow says. “It does help.” A promise to restore a historic property, for example, or your dreams of raising a family there are often more meaningful to sellers than an anonymous offer that’s slightly higher.
Leverage the house inspection
The value of a house inspection depends on how much demand surrounds the property. With many offers on the table, you won’t have as much room to negotiate off results of the inspection. But if the house isn’t flying into contract, prepare to go through the inspection closely. Inspectors will climb onto the roof, check out the foundation, and crawl into the attic looking for water condensation or penetration. In a hurricane zone, they’ll make sure the house to built to code and examine walls for leakage or mold. If the inspection comes back without issue, there’s nothing to negotiate. But if the house has problems, it gives you an upper hand to renegotiate the price or ask the seller to perform repairs before the sale.
Prepare for the appraisal
Once you’re finally under contract for your house, the appraisal will be one of the first steps in the closing process. Unlike the home inspector, who assesses the condition of the home, an appraiser is sent by your lender to determine the property’s value. The bank won't lend prospective buyers more than what it deems the home is worth. So if the appraisal comes in at or above the contract price, the sale goes through as planned. But if the appraisal is below the contract price, it can delay or even derail the transaction. With a low appraisal, you may be able to negotiate the sale price. Your broker can try to convince the seller to lower the price to make the purchase go through, rather than start the process all over with a new buyer.
Don’t be afraid to make a low offer
Walker recommends that buyers look at the process as a learning experience, with the knowledge that some negotiations fall through. “If the home is in the realm of your price point, don’t be scared to throw out [lower] offers,” he says. In places like New York, offers are non-binding. And even a low offer could serve to “ground the seller,” as Vladi puts it, and push down the asking price.