It's hard enough finding an affordable home today only to lose it in the negotiation. The number of homes on the market is at a historic low according to Black Knight's Collateral Analytics and other studies.
The lack of supply is not entirely due to the coronavirus. Back in December 2019, Forbes predicted a dearth of available housing for 2020. But Covid-19 has exacerbated the matter by making people reluctant to relocate and home-repair supplies harder to find.
Now more than ever, when you find the perfect home you don't want to see it slip away. Here are expert negotiating tactics for sealing the deal.
6 Tips for Negotiating to Buy Your Next Home
Ideally, you find a nice home, make an offer, and are accepted—no negotiation necessary. Sellers today are probably fielding multiple offers, however. They might answer your offer with a counteroffer. This is all part of the negotiation.
1. Don't wait.
The supply of homes is severely low, and demand is very high thanks to low mortgage rates. It's a housing perfect storm, with buyers all over the country in competition for the same few affordable houses.
Early in your home search, get preapproved for a mortgage. A lender's preapproval letter is generally good for 90 days. Armed with this letter, you can act fast when you find a place to buy.
Sellers are raising prices almost everywhere, so if you find a good home, don't wait to make an offer. According to recent data from Realtor.com, the median home price at the end of July shot up 9.1% compared to the end of July one year before. July's average home price was an all-time high of $349,000. Since your loan is already preapproved, you can act fast when you find a desirable home.
If you receive a counteroffer, respond within 24 hours, advises the National Association of Realtors. "The longer you wait, the more space you leave for another buyer to swoop in and nab the property. Also? If a seller senses hesitation, they may decide to withdraw their counteroffer before you even have a chance to respond."
Consider writing a personal letter with your offer. This advice comes from agent Jordan Clarke of San Diego. "It's not just another offer the sellers are looking at. It's a person. It's a family."
2. Know your final offer
With today's stiff competition for homes you might fear that a bidding war is inevitable, but they are less common than many people suppose. Agents usually advise sellers that sparking a bidding war can backfire, causing buyers to walk away in frustration.
What's likely to happen when a seller is fielding multiple offers is that the seller will ask all prospective buyers to come back with their final offer. Know your ceiling beforehand so you can respond right away.
Keep in mind that you can't exceed the limit of the preapproved mortgage offer you got from a lender. Also, don't turn a supposed dream home into a nightmare by offering a price that would break your budget and pile stress on your life. Your final offer has to be what you'd be comfortable paying for that home.
3. Make a simple, clean offer.
In a sellers market like today, where the seller has the advantage, you want to make a straightforward offer without too many contingencies tacked on. Stick to the basic contingencies: inspection, appraisal, and financing.
- Inspection. This contingency gives you the right to have the home professionally inspected for disrepair, neglect, and the like. You and the seller can then negotiate any necessary repairs, and if you aren't satisfied, you can walk.
- Appraisal. The lender will want to hire an independent appraiser to assess the home. Lenders want to make sure the sale price is in line with the value and the market.
- Financing. Assuming the appraisal is satisfactory, the lender will next want to make sure there are no liens on the title. If there are, your financing won't go through and you can back out of the deal. You can also include job loss or other financial downturns in this contingency.
4. Rely on a real estate agent.
Best reasons for hiring an agent: They're experienced and they're free. You are still in the driver seat, but when it comes to the actual negotiation, rely on your agent. He or she does this all the time.
"The best agents have tremendous expertise when it comes to market value in the areas where they work," says the online real estate hub Zillow. "In addition to their own expertise, they know and work with other agents and speak the same language. They have the knowledge and experience to help guide you through the process. They know how to negotiate a home price. And they don’t cost you anything. In almost every case, the seller pays the real estate commission for both sides of the deal."
“Expect to compromise. No matter your price range, you won’t find a perfect house. You’re likely to have to compromise on features and probably even on the big three: price, size, or location. Enter your negotiations prepared to compromise, and you’ll be a step ahead.”
5. Be flexible about the possession date.
One way to butter up a seller is to show flexibility about the date you would take possession of the house. If the seller wants to stay in the home a few days after closing, your cooperation could raise you above competing buyers.
6. Know when to walk.
If you reach a point when your best and final offer still won't make the seller budge, it's totally OK to walk away. There's a better home out there for you.
Negotiation is hard work; it's draining. Buyers can think walking away means that all the hours and energy they have invested in the negotiation are wasted. Psychologists call this the Sunk-Cost Fallacy, when we keep pursuing a poor alternative merely because we have already spent resources on it.
Remember, a much bigger waste of your time would be taking a bad deal. Listen to your agent. If he or she says the deal isn't right for you, walk away. What you learned from this negotiation you can use in the next one.