Negotiation is a subtle art in real estate. But if you’ve hired a skilled negotiator, and let them guide you in this, at times complex and stressful process, you can rest assured that your financial interests are in good hands.
On the other hand, inept negotiation tactics can sink a deal pretty quickly.
So, in this blog, I’d like to share 5 negotiation tactics home buyers (and their agents) should avoid:
As a homebuyer, you should always make below-list-price offers. Almost always. In rare cases, when a house is
- "perfect" for you (both hedonically and financially); and it is
- likely to get strong offers from other interested buyers (e.g. a rare listing in a popular community or in a super-seller's market); and it is
it makes perfect sense to make a strong offer, possibly well above the list price. But normally, you should make an offer below the seller's desired amount. That's the whole point of negotiatiing! However, going far below market value when you make an offer isn’t likely to be a good strategy serving in your best interest. Notice that I said ‘market value’ rather than ‘list price,’ which can be set unreasonably high (in which case your offer is not a lowball).
An offer that's well below the market price may damage your credibility and become a drag on further negotiations.
It also matters who is selling (their personality and their agent’s personality), why they are selling, and how long the house has been on the market. This is when having a good realtor in your corner is really important.
If the house just came to the market, and you’re lowballing, the owner will likely pass because they’re going to want to give their house a chance to be seen by others to get better offers.
If the house has been sitting on the market for a while, you should find out if the price was set higher initially and then dropped, and how many times and by how much. Try to find out as much as you can about the seller’s situation. Again, your realtor would be invaluable here. Remember – knowledge is power.
Contingencies can let you, the buyer, walk away from the deal without any penalty (so you can get your earnest money deposit back) even after the contract is signed.
Common contingencies include inspection, appraisal, and loan approval. A bit less common but still widely used are home sale contingency, which stipulates that the buyer will go through with the purchase only if they sell their own home, and title contingency, which stipulates that there are no clouds on the title.
There are a number of much less common contingencies, such as
- a job promotion contingency, which may stipulate that the buyer will close on the house only if they get the promotion;
- early occupancy or early buyer possession contingency, which would allow the buyer to rent the property from the seller before closing takes place;
- inclusion contingencies; that's when the buyer likes a furnishing or artwork in the seller’s house and requests to include it in the sale;
- a pet approval contingency, which may be added if the HOA has a strict pet policy.
If your offer is burdened with such uncommon contingencies, you are likely to run into significant objections from the seller, especially in a seller’s market or if your area is awash with cash buyers.
Don’t continue to go back to the seller with small increases in your offer. It can grow tiresome, and it’s usually counterproductive. The seller may shut you out and go on to consider other options.
Instead, have a good strategy in place. And by ‘good strategy,’ I mean gather as much intel as possible, such as the comps, how the house compares to similar properties (for example, it may have an outdated kitchen or may be closer to the highway), overall condition of the house, seller motivations, availability of competing offers and so on. Use such information to your advantage and shoot for getting your offer accepted, rather than trying the ‘let’s see what happens’ tactic again.
“Take It or Leave It”
Any market, housing included, has two sides: buyers and sellers. Their goals are often diametrically opposite each other: a gain for the buyer usually comes out of a loss for the seller, and vice versa. It’s not always zero sum but interests usually don’t coincide.
So it’s absolutely normal and expected that the two sides negotiate to gain advantage for themselves.
Therefore, try not to draw a line in the sand with your initial offer, leaving no room for negotiations. It’s a non-starter that may antagonize the seller. They may think you are too stiff to hold reasonable negotiations in order to arrive at a mutually agreeable price.
Nitpicking after Inspection
Obviously, if inspection reveals a major issue, you should have it factored into the final sale price or re-negotiate the contract.
But insisting on a lower price for every minor repair can put negotiations in a stalemate.
So ask yourself: “Is this door knob or a missing light fixture really worth the risk of a scrapped deal?”
Just to give you a bit of a perspective, a $100 repair in a $600K townhouse is 0.000167 of the overall value. If there are several minor repairs that add up to a significant amount, you could ask for a credit or request getting them fixed. Just do it all at once, instead of constantly going back with small requests. However, sometimes many small issues may indicate poor overall maintenance signaling possible bigger issues later on. So keep an eye on that.