Home-Buying Guide – Part 10: Tips For Smart Negotiation
Buying a home could be one of the biggest financial transactions of your life. Negotiation is all about given and take in the deal whether you are buying or selling a home. If you are buying a home, you need to be familiar with the finer points of the smart negotiation skills to get a good deal. Therefore, learn the smart negotiation skills to take control to successfully negotiate your deal.
Set a clear goal of what you want to achieve before you begin negotiating the deal. Knowing what you want in terms of purchase price and contractual terms will ensure that you’re properly prepared to negotiate the best deal.
As a buyer, your first priority should be to find and finalize a suitable home for you. Once you have found a home of your choice, make an offer on the property. Now, you need to prepare yourself for negotiating the deal to get the best price and terms.
Here are some smart negotiation tips to get the best deal:
Market Dynamics And Trend
It is advisable to do basic market research and find out prevailing rates in the area and nearby pockets before starting the smart negotiation. It’s impossible to work out how much a property is worth without doing market research. Working out the true value of the property will give you more bargaining power in your smart negotiation.
A good strategy is to get the best prices from a number of sellers. Make a list of properties in which you are interested and enquire about the price trend from the local market to get an idea about how much discount you can expect on the quoted price. You can also find out the same from public records and listing on websites. Knowledge about the local property market will make you well-equipped to make a better deal.
It’s important to find out whether it’s a buyer’s market or seller’s market. In a buyer’s market, sellers are more and buyers are less. So, there are more homes available for sale than buyers in this market. When there is more inventory of properties than buyers, properties take a longer time to sell. Therefore, in such a market, there is more room for negotiations with sellers to get a good discount as they would like to clear inventory as soon as possible.
However, in a seller’s market, there are more buyers than sellers and therefore, there is a less inventory. Therefore, in such a market, the probability of negotiating the deal is very negligible. You can’t expect to get any significant discount on the deal.
Know The Reason For Sale
For making a better-negotiating strategy is to gather maximum information about the sellers and the properties. The side with the most information will do better negotiation. Therefore, focus on gathering information about the sellers, properties and the neighborhood. You might also gather this information through mutual friends, neighbors, or co-workers of sellers. Knowing about the seller’s motive behind selling the property can help you to make a better deal.
For example, if the sellers want to sell quickly, they may accept an offer below their asking price. If the seller is cash-strapped and has a lot of unsold inventory, he will like to clear the stock to generate cash. You can also find out if the house is in foreclosure. In that case, the seller might have contracted to buy another home or he desperately needs money to pay off mounting debts. So, if the seller is in an urgent need of funds then it makes sense to bargain as a buyer.
Besides, you should also know that for how long the property has been up for sale. If houses in a residential project have remained unsold for long, the seller will be keen to strike a quick deal. Without having the details of the property market, a buyer will just throw money at the deal.
Ask Tough Questions
To find the facts about the seller and the property, you should ask many tough questions to get important information. For example, for how long a property has been on the market for sale ? Are they looking for a quick sale? How much is the vendor expecting to sell the property for ?
The answers to all of these questions will help you to understand the psychology and the motivations of the seller. Even if they refuse to answer, you can learn a lot by judging their reaction to your questions. Moreover, you’ll be in a better position to negotiate favorable terms as a buyer if you have more information about the property and the seller.
A home inspection is generally done in the case of a house that is being resold. You can arrange for an inspection of the property before making and submitting the offer to the seller with fewer contingencies. A qualified inspector will check the features and drawbacks of the property as the foundation of the home, plumbing, electrical systems, the roof, walls, and visible insulation etc.
Stick To Your Budget
Make sure that you stick to your budget you’re comfortable with even if there is competition from other buyers or simply the fear of missing out on your dream home. Don’t over-disclose when it comes to your budget or your emotional attachment to the property.
Making A Realistic Offer
Decide how much you want to pay and then submit the offer to the seller to purchase the home. Make your first offer your best offer as you feel reasonable and comfortable with. First and foremost, it’s important to gain the trust of the seller.
Let each seller know that you are a serious buyer but looking out for the best property at the most attractive price. Besides, you wish to close the deal quickly by completing the transaction soon. The seller is more likely to give a discount if he knows that you are a serious buyer. Developers are interested in selling inventory as soon as possible.
It’s a good idea to offer an amount less than your maximum limit. This gives you some room if the seller wants to negotiate. However, don’t start with too low a price, the seller may become annoyed and the deal might be canceled. If your research shows that the property is fairly priced, then offer just a little less than the listing price. Once the seller believes you can arrive at a price that is agreeable to them, they’ll be willing to negotiate.
A good rule of thumb though is to offer 10% to 15% lower than the asking price, but you should be ready to settle for a 5-10% discount. However, if you can make an upfront payment, you are more likely to get a bigger discount. So, if you have your finances in place with a large deposit, then you will be much more attractive to the seller. It gives you leverage to negotiate property deals as sellers prefer buyers who can process payment immediately.
Submit An Offer
Your purchase offer is a written contract and forms the basis of a legal contract with the seller. The contract will specify the price of the offer, as well as all the terms and conditions for the completion of the deal. Ensure that the contract meets all of the necessary legal requirements.
Once you make a purchase offer, sign it and submit it to the seller along with your earnest money. When you make your offer, there will be a space for putting a time limit on how long it’s valid. Make this a very short period. Having a longer period just invites competing offers.
The seller then decides to accept, reject, or make a counteroffer. Remember, if the seller accepts your purchase offer, the offer becomes a binding contract. So, make sure you’re comfortable with all the provisions of your offer.
If the seller is interested in your offer then the negotiations start. However, if the seller counters your offer, you may choose to reject his or her offer or walk away.
Make An Initial Holding Deposit
It’s required that you make an earnest money to create a binding purchase offer. The “earnest money” deposit can range from about 10% to 20% of the value of the home. Your earnest money is typically put towards your closing costs. However, if you enter into a contract with the seller and then breach that contract or you default under the terms of the contract, you could stand to lose this holding deposit to the seller.
Negotiate The Deal
Do not hesitate to negotiate better rates, sometimes builders might be willing to offer promotional discounts during festive seasons or if their sales are low. Also when buying a new property is in the initial stages of construction, do enquire about special pre-launch and launch prices. They are more likely to offer freebies or incentives. Moreover, you can also team up with other prospective buyers. Group-buying can also be used to get a discount of 5-15%.
If the seller doesn’t want to bring down the price, then instead of sticking to your offer price, ask for other concessions, such as home repairs, owner’s contribution to the closing costs, or other such things. In the case of resale old properties, if the home requires a significant amount of work, you can negotiate to have them fixed or get a price reduction to cover the cost of the work. These items can save you a big amount of money.
Some developers might not agree to lower the prices to your expected level due to various reasons. Wait for a couple of weeks before going for the best deal. Do not be surprised if you hear from some developers willing to close the deal at your offered price or a mutually agreeable lower price.
Be Prepared To Walk Away
The best negotiation strategy is being prepared to walk away at any point when the deal is not right for you. This doesn’t mean that you won’t secure the property that you want, but it will make you a more powerful negotiator. Keep in mind that if things don’t work out, there will be many other suitable properties available in the market. Making a bad deal is far less beneficial than walking away from a bad deal. Remember, successful negotiation results in favorable deals, not making a bad deal.
Develop More Options
Power in a negotiation goes to the person with the most options. Develop some more options before going into a negotiation. Have at least two-three more options that you would be happy with before you begin your negotiations. Let the sellers know that you have better options available to you. This move will put you in a position of strength in your smart negotiation.
Take Emotion Out Of Your Deal
Stay polite and calm during the negotiations. To make a seller receptive to your offer, make the seller feel a connection to you. Make the seller feel as though you are the perfect buyer.
Be Realistic And Flexible
Don’t get stubborn and lose the right house. Play hard to get the best deal, but stay realistic. While there may be some aspects of a deal you’re not willing to compromise on, refusing to budge at all may not lead to a desirable outcome.
Sellers will often accept a slightly lower-priced offer if it comes with perfect settlement terms. So, instead of being firm on the pricing, try to compromise a little. You will be a step ahead of closing the deal if you are flexible enough while negotiating the price.
Close The Deal
If everything goes well, try to close the deal as early as possible. Do not forget there are many other potential buyers in the market. Even after an offer has been made and accepted by the seller, it is not legally binding on either side until the exchange of contracts.
If you develop the art of smart negotiation well, you can save a big amount of money in the deal.
Ajay Verma, founder, and writer of The Housing World, a real estate and mortgage news website. He has over fifteen years of rich experience in the above-mentioned industries.