Negotiating A Real Estate Deal: For First-Timers

How good are your negotiation skills? In a real estate setting, these imperative skills really get put to the test. Buyers put out an asking price and sellers will push back - the back and forth tug-of-war is all part of the art of skilled negotiation. In any negotiation setting, every party wants the best deal for themselves, but in order for the deal to close, there has to be some sort of compromise. The opposing parties involved have to meet somewhere and there’s potentially a whole lot of cash at stake. 

In a real estate negotiation, there are typically two agents who represent the parties of buyers and sellers. It’s the most basic form of transaction. The seller’s goal is to sell, and the buyers is to buy - but a lot of the time it gets a bit murky in-between. There’s often a great deal of pushback with neither party wanting to settle. 

The real estate dance unfolds the same type all across the board: The seller puts up a property for sale and viewings are scheduled for interested buyers. There will be a good and expected ratio between window shoppers and serious buyers, but this is all a part of the real estate game. If there’s serious interest from a buyer, the negotiations will begin once the seller receives a written offer from the buyer’s representation, the agent. Negotiations are usually handled and executed by the agents for the buyer and seller as they go back and forth in counter-offers. The counter-offers may be communicated via email, signed documents, and sometimes even through mobile and texting (as we have seen in hugely popular television shows like Million Dollar Listing).

The objective is simple on paper. There must be full agreement from both parties on the deal’s terms, inclusive of the property price, timelines, contingencies, and any additional items and policies that correlate with the property’s transference of owners. People think that negotiation only happens once or twice, but in reality, there is a constant flow of negotiation until you actually put pen to paper, sign on the dotted line and (thankfully!) close the deal. Buying a home is not so simple as making an initial offer and immediately paying that offer out. How much simpler life would be if that were the case though? Sometimes these negotiations and counter-offers can go back and forth for weeks to months before the seller and buyer are both happy and satisfied.  

Here are things that you will have to keep in mind during the negotiation process:

Price

What is the magic number? The whole negotiation basically comes down to the price. Buyers and selling agents want to negotiate the best deal, the best price possible for them and this can mean polar opposite things for the two parties. Of course, the seller wants to get the highest price paid to them for the property and the buyer wants to pay the least amount possible to own the property. It’s like a balance scale that consists of a pivoted horizontal lever with arms of equal length, the beam, and a weighing pan suspended from each arm. Objects of a certain weight must be placed on both weighing pans to as close to the equilibrium as possible, otherwise, the scale will just topple heavily to one side. In a negotiation deal, the final price needs to end up somewhere in the middle for both buyer and seller to be satisfied.

Buyers don’t want to overpay or price themselves out of a resale in the future and sellers want to ensure that the deal makes sense for them financially and won’t put a hole in their pockets. 

Closing Costs

Closing costs are fees paid at the closing of a real estate transaction that are associated with your home purchase and home loan and can be incurred by either the buyer or the seller. Many of the fees that make up closing costs are negotiable. Closing costs can vary widely based on your property market, such as where you live, the property you buy and the type of loan you choose. Some of the fees that may be included in closing costs are: application fee, appraisal, attorney fee, escrow fee, courier fee, credit report, home inspection, homeowner’s insurance, property tax, transfer taxes…just to name a handful.

Homeowners can negotiate with the seller on who pays these closing fees. It’s really a case by case, and sometimes the seller will agree to assume the buyer’s closing fees. 

Closing Point/Closing Date

Closing point/closing date is when the title of the property is transferred from the seller to the buyer. The closing date is set during the negotiation phase and is usually several weeks after the offer is formally accepted. The closing date is one of the many factors that are negotiable during the offer and acceptance of a purchase contract. When making an offer, the buyer will include a closing date and depending on the realty agent’s circumstances, it may be acceptable or they may counter with terms that work better with their schedule.

Sellers may counter your proposed closing date in cases when they may need to move out quickly, they may want to put the date earlier. 

There are occasions when (if) the closing date just won’t work for one party, it can mean the collapse of the deal altogether.

Financing Contingency

The financing contingency is a clause in a home purchase and sale agreement that expresses that your offer is contingent on being able to secure financing for the home. Typically, a buyer uses this clause to establish a set period of time to apply for a mortgage and/or close on the loan.

Dropping the financing contingency will shorten the closing timeline and give buyers a leg up when competing with all-cash offers. Buyers can do this by having their mortgage fully approved prior to making an offer to the seller, which shows that their finances are in order and they can afford the property. 

Home Warranty and Home Repairs

A home warranty is something that a buyer can request or a property estate agent can offer in the negotiation. It is a one-year service agreement that covers the repair and replacement of most major home system components and appliances that typically break down over time due to normal wear and tear. The protection plan can cover things like air-conditioning, hot water heater, and heaters in the event that these things need repair. 

Buyers can also negotiate for home repairs if a home needs a lot of updating. If a home has a lot of wear and tear, with appliances that are broken, cracked ceilings, and wall foundations peeling off - a buyer can actually ask for a lower price because the cost to bring the home up-to-date will be costly. However, sellers can also specify that their house is being sold “as-is”, which means that they will not make any sort of repairs.

Leaseback

A leaseback agreement is the leasing of a property that is recently purchased, back to the seller. This can entice the seller and help close the deal faster in certain situations. The seller can continue to use the asset but no longer owns it. 

A seller may ask to rent the property for a time after the settlement for whatever personal reasons.

Appraisal Contingency

Waiving appraisal contingencies can strengthen a buyer’s offer. In today’s competitive real estate market, buyers are doing whatever they can to give themselves a competitive edge to win the deal and one of those strategies involve waiving the appraisal contingency. Sellers know that an appraisal means the possibility that the valuation will be lower than the contracted price, which is why sellers are leaning towards buyers who have removed this contingency.

Essentially, when a buyer removes the appraisal contingency in a competitive market, they are promising the seller that the buyer will close the deal whether the appraisal comes in at value or not. This can be very attractive to sellers.

Furniture and Appliances

Sometimes, a buyer will want to buy all of the furniture in the home as an all-inclusive. This means that the seller can just walk away with a good financial compromise for what’s included when the contract is finalized

Appliances like the stove, dishwasher, microwave, and any other built-in appliances may come with the property but depending on the property market, people will negotiate which appliances stay and which ones will go.

Remember, each seller will review the buyer’s offer and react with counters according to their motivation. Knowledge is power in negotiations, so try to find out as much as you can about the other party. Having your agent find out as much as they can about the seller’s selling motivation and needs before writing an offer can make yours shine in a sea of generic offers. It’s so important to have an experienced property estate agent who can strengthen your negotiation. Sellers and buyers can both put themselves in advantageous positions through intelligent planning and smart counteroffers. Communicate often with your real estate agent to let him or her know exactly what you want from the negotiation process. 

A good real estate agent, with knowledge of the property market and negotiation experiences, can make the biggest difference in whether a home purchase is successful or falls apart. Buying a home will probably be the single largest purchase you will ever make, and you need to find a trusted party negotiating on your behalf.