When you're in the market to buy a house, the fun part is browsing listings and touring places in person, imagining yourself in your new abode.
The intimidating part: the negotiation. Especially in the current seller's market.
According to a report from Freddie Mac, the housing shortage has recently increased by 52% from 2.5 million in 2018, to 3.8 million in 2020. Translation? There aren't nearly enough houses, making the current market sway very strongly in the seller's favor.
Despite this unsettling news, everything in real estate is still relatively negotiable, and the back-and-forth can work in your favor. But there are a few general ground rules you'll want to keep in mind.
We're here to demystify the process and explain how you can best negotiate the price on your future home, even in a sellers market.
When Does the Negotiation Start?
Some real estate agents like to say the negotiation process starts when you go 'under contract' with a seller â€" in other words,you've made an offer and they've accepted it.
But it's worth considering your negotiation power even before then, as in the very first time you see the home in person.
'Realistically, anything the buyer doesn't like can be a negotiating point,' says Peter Farsai, senior partner at California Top Brokers Inc. This can include repairs that need to be done, what appliances or furniture may come with the home, and any facets of the property that may need to be fixed up or completed.
For example, if a house has an unfinished guest suite, this might not be considered a 'repair' but is still a worthy point of negotiation. Since completing this space would require your time and funds in the future, it might be worth running those costs by your real estate agent (or even asking a builder to provide an estimate) and then asking the seller to come down in price to accommodate them.
Any concrete estimates you can provide a seller will ultimately be better than spitballing, so consider making an upfront investment to get those estimates if you're serious about a home that will need major repairs.
How Does the Negotiation Work?
If negotiation starts the first time you see the house, it's important to note that it doesn't end until you actually close on the property.
Take the Pre-Closing Paperwork Seriously
Closing usually occurs 45 days after you sign the contract, and in between a whole lot happens to protect the buyer and make sure you're fully informed on your investment.
That means that from the time the seller accepts your offer, you typically have over a month to review the home and its documentation and go through the necessary steps to make sure the house doesn't have any hidden problems and is worth the price you're paying.
Be thorough here. The paperwork is exhausting, but well worth the read.
Schedule the Inspection ASAP â€" and Don't Be Shy
One key step in this process? Getting a home inspection. Home inspectors check out all the systems of your house, plus all the nooks and crannies.
Once you go under contract, schedule a home inspection ASAP, as this â€" more than anything â€" will alert you to anything major that needs to be discussed and negotiated with the seller.
Don't be shy about bringing these issues up, even if you're buying in a sellers market.
Once problems are found (and documented) by a home inspector, the seller has a legal obligation to address them. Meaning, those problems will follow them as homeowners, no matter who they decide to sell to.
Even if your deal falls through, that documentation should theoretically be passed on to the next buyer. In other words, the seller has every incentive to address the problem with you, and you definitely shouldn't accept faulty terms or a bad deal on a fixer-upper house, no matter how much you love it.
It's Not Just About Price: What Else Can You Ask For?
Beyond what the home inspector finds, or anything obvious (such as unfinished construction projects), there are a lot of small things you might want to try and negotiate as well.
Keep in mind that small details may not actually affect the value of the home. Rather than negotiating on price (especially if you have a money-motivated seller), you might just be asking a seller to include (or remove) something from the property.
'The most important factors impacting the value of a home is the location in which it is found, its livable square footage, and the size and usability of the land on which it sits,' says real estate attorney Rajeh A. Saadeh.
'Other factors, such as the presence and size of garages, whether the basement and attic are finished, water damage, old carpeting, old appliances, and even creaking floors all impact value because it can affect whether a buyer is willing to purchase a property with these conditions.'
If you love the furniture in a home you're viewing, you might even ask the seller if they'd be willing to include it. If there's old carpeting that smells like mold, this could be something you negotiate to have removed before closing.
Keep in mind that negotiation isn't just about your findings and perceptions of the property. A lot depends on the seller.
Understanding Your Market (and Seller)
Negotiating is a lot like playing cards, and it's helpful to know a bit about the cards your seller is holding.
Get a sense of why your seller is moving and how motivated they are to sell. If your seller is already settled somewhere else and is renting out the home for extra income, they may be less likely to deal with many buyer contingencies â€" aka your requests.
When sellers really need to get rid of a place either for financial or logistical reasons, they'll likely be more willing to go along with whatever needs to be done to close the deal.
Another thing to keep in mind when negotiating: the market you're in, and whom it favors.
'It's basically a supply and demand situation,' says real estate developer Bill Samuel. 'Right now, almost every market is at record low inventory levels, making it very much a seller's market.'
Depending on what other offers the seller knows they can get, they may be more or less willing to negotiate the finer details with you. And in the current market that's almost certainly true.
Work with your real estate agent to strike the right balance between getting the best possible deal and also keeping your seller happy. This last bit will go a long way in ensuring the deal actually closes, and that the negotiation process remains amicable for both of you.
Is This the Home of Your Dreams?
Finally, ask yourself how much you love the home. Does it check enough boxes? How much more money will you need to pour into it after closing, and can you afford to do that?
Seller's markets are tricky times to buy, mainly because they can create panic among buyers. Unless you have a very urgent reason to get into a new home, don't fall into this trap. Weigh the pros and cons of your investment, and decide in advance how much you're actually willing to negotiate to secure your dream home.
Contributor Larissa Runkle specializes in finance, real estate and lifestyle topics. She is a regular contributor to The Penny Hoarder. Â
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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