Push Me, Pull You: How to Negotiate a Home Purchase



Want to save some serious money? Well, you won’t do it by clipping coupons and giving up lattes. That’s chump change compared to what you can put in your pocket when buying a home.  Play your cards right, and negotiating your home purchase could easily save you $10,000 – or possibly a lot more.

Big Buys = Big Savings

Real estate investment provides one of the biggest money-saving opportunities of your life. A five percent reduction in the price of a $200,000 home is $10,000. And if you live in Arlington, Virginia or Silicon Valley? More expensive properties and special circumstances can yield even bigger savings. Here are nine tips for getting the most out of this exercise.

© Andy Dean - Fotolia.com

© Andy Dean – Fotolia.com

1. A Little “House Work”
It’s not hard to get local home price data online, using real estate valuation sites, your county recorder and your local assessor. Examine homes in your price range in the specific neighborhoods you’re considering. What have similar houses sold (not listed) for in the last six months? Are there other houses currently for sale nearby? How are prices trending? This will tell you how much leverage you’re likely to have with sellers.

2. Case the Joint
Once you understand the neighborhood, put property you’re considering into context. How does it compare with nearby comparably-priced listings? It’s not just about square footage and acreage. Visit in person and check out more subjective criteria like curb appeal and condition. Remember that some special features only add value for certain people. A seller might consider the swimming pool, hot tub and water feature to be major plusses and price accordingly. However, you may not wish to assume the cost and maintenance involved, so you should probably move on.

3. Stalk the Sellers
Find out how long the property has been on the market, and why the owner is selling. The longer the property’s been on the market, the more leverage you should have. On the other hand, a really old listing could indicate an extremely unmotivated seller, which could make negotiating very frustrating. Try to discover if the sale is under some time pressure because of an impending foreclosure or job relocation — you should have more leverage in that case.

4. Know Yourself!
Use a mortgage calculator to give yourself a clear picture of what you can afford before you shop for a home. Having firm limits makes it easier to be a tough negotiator. Your limit may have to be adjusted as mortgage rates change

5. It’s Called “Asking” Price for a Reason
Value the home without considering the seller’s opinion. Say you think a home is worth $250,000, but the seller is asking $300,000. If you didn’t know that asking price, you’d offer $250,000 — or perhaps even less. However, knowing the asking price, people are inclined to meet in the middle, and offer $275,000. This then becomes the starting point for negotiations, rather than $250,000. You may end up meeting in the middle, but don’t start there.

6. Establish Your Credit
A prequalification letter is the bare minimum you should provide with your offer. Pre-approval (also called credit approval) is better. A pre-approval letter should let the seller know that you’ll be able to close escrow as long as the property meets the lender’s guidelines. However, don’t give the other side a letter saying that you are approved to buy a $400,000 home when you’re offering $350,000. You letter should match your offer. Finally, try an old investor trick and attach a check for the earnest money to your offer.

7. Set a Time Limit
Never leave an offer open-ended if you want to be taken seriously. Give the seller a reasonable time to accept or counter (one to three days). After that, you’re free to move on to other properties.

8. Beyond Price
Price is only part of the negotiation. There are closing costs to cover. In most locations, there is a “customary” split between seller and buyer. However, that split is not required and anything is negotiable. Keep in mind, however, that a sales price that exceeds the home’s appraised value will require a larger down payment. In addition, most mortgage guidelines limit seller contributions – for mortgages of 90 percent or greater, Fannie Mae’s limit is three percent of the property value, the VA’s is four percent and FHA’s limit is six percent. Other points for negotiation include the inclusion of furnishings and allowances for repairs and upgrades.

9. Beware the Agents
The book Freakonomics famously concluded that real estate agents have a conflict of interest with their clients. Understand that the listing agent has a duty to the seller, not to you. By carrying out his / her duty (getting the highest price), the agent can’t possibly also help you get the lowest price. So get your own buyer’s agent. Keep in mind, however, that even a buyer’s agent also makes more income when the price is higher.

You Can Do It!

The home buying process doesn’t have to be ugly or adversarial. You and the seller are trying to come to an agreement that will make the transaction a success for you both. Make it clear you want to get the deal done, but there are a few things necessary in order for that to happen. The savings from a successful real estate negotiation are well worth the time and effort you’ll commit.

Author Bio: Gina Pogol spent over a decade in mortgage lending, originating, processing and underwriting home loans. She has written about mortgage and finance issues for a number of publishers since 2006. Currently a senior marketing manager with Lending Tree, Gina advocates for consumers and loves answering their mortgage and personal finance questions.