How To Negotiate a Home Purchase
It’s no secret that the 2022 housing market is shaping up to be just as crazy as last year. With multiple-offer situations continuing to be the norm, I’m sharing some negotiation items that buyers can use to help win in current circumstances.
Negotiating Price
First off, remember that market conditions will dictate whether or not you can negotiate on the price. Seeing that 2022 is another steaming seller’s market, hiring a neighborhood expert that can educate you on items such as average days on market and the average sale-to-sold price is essential. Knowing what sellers’ expectations and price points are will help you decide where to come in on your offer price. You should also have proof of funds ready or be fully underwritten by a local lender so you can negotiate using those items as well.
Offers and counteroffers can be done in writing or verbally, although often it feels more official to send it over in writing rather than doing it verbally. It can take just a few hours or up to a few days, depending on the number of offers, accessibility of both parties, and demand on the property. But typically it can be hashed out in a few hours.
Besides the price of the home, other terms that can be negotiated are closing date and possession date. For example, many sellers want a delayed possession so they have time to search for a home, so a long close date or rent-back agreement might be enticing. For a vacant listing, the reverse is true: they might favor a short 10-15 day closing since they are already moved out, in which case a fully underwritten or cash offer would have the advantage.
Closing costs are negotiable too, especially if a home has been on the market for a long time. So far in 2022 we have seen most buyers cover just their own closing costs; in very aggressive markets, though, some buyers are paying the seller’s closing costs as well.
An earnest money deposit can also be converted to a non-refundable deposit immediately to show the seller that the buyer is serious about purchasing the home.
Contingencies
Although not recommended, it is possible to waive contingencies like the home inspection. I would strongly suggest at least having a pre-inspection before you make your offer so that you know what you are purchasing; then if you are satisfied you can waive a full inspection, or you can request repairs when you submit your offer. This way there are no surprises about what you are buying and you can negotiate from the beginning.
There are some smaller items to consider like HOA contingencies that can be researched in advance, waiving an appraisal, or in the event of a low appraisal, the seller can negotiate an increased down payment. This is a very good strategy for buyers to strengthen their offer, and is especially important when an offer price has escalated well beyond the list price and there are no comps to support it for a financed buyer.
Closing Thoughts
As a buyer it is imperative that your agent understand the motivations of the seller and whether there is anything important to the seller that can help strengthen your offer. Knowledge is power, so have your agent call the listing agent to get you this inside information.
If you know a home has been on the market for 20 days and the average days on market is 5, you can negotiate price and terms since the market is showing that the home is overpriced.
When should you stop negotiating? When you stop feeling good about purchasing the property. The 2022 market will be hard on buyers, but you shouldn't keep negotiating until you are no longer excited to purchase the property.
So keep these things in mind and you should be all set to conquer the market out there. It’s a wild one, but if you’re working with a knowledgeable local agent you’ll be well on your way to buying a home that you love.