11 Things You Need to Know About Real Estate Negotiations
In any real estate negotiation, buyers ask and sellers push back -- because if you're the buyer and you don’t ask, you don’t get.
While sellers want the highest price and buyers want the best deal, the two have to meet somewhere in the middle for the deal to close. Negotiating for a home is important since this is the largest asset most people own and there’s potentially a lot of cash at stake.
“The premise or foundation for negotiation is looking at the data and the black and white of it all; then it becomes this dance of personalities -- the two agents and the parties of buyers and sellers,” observes Allison Turk, realtor associate at EWM, based in Miami Beach.
“At the end of the day, everybody has a goal to close a transaction," Turk says. "Sellers want to sell, and buyers want to buy, but sometimes, it gets a little muddy in between.”
One party always has the upper hand, however. In a buyer’s market, those looking for a property can walk away if they don’t like the terms, since they have many homes to choose from. In a seller’s market, with bidding wars and multiple offers, the homeowner can be as picky about the myriad terms of the sale as his or her agent allows.
“In any market, a truly motivated seller is less inclined to engage in lengthy negotiations -- they just want to get the deal done,” says Mazen Fawaz, CEO of OpenHouse, in Santa Monica, Calif.
For those new to the real estate dance: The negotiations start once the seller receives a written offer. Since everything is negotiable, agents for the buyer and seller go back and forth in writing, whether that communication is via email or signed forms.
The objective is agreement on the deal’s terms, which include price, time lines, contingencies and items that may convey with the property. “There’s a constant negotiation until you actually close the deal,” says Turk.
Here are guidelines for what sellers and buyers might ask:
“Buyers and sellers try to negotiate the best price possible for them, but that means different things,” says Cara Ameer, broker associate and Realtor at Coldwell Banker Vanguard Realty, in Ponte Vedra Beach, Fla. “The seller wants the highest price and the buyer wants the least amount to pay -- usually, it ends up somewhere in the middle.”
Buyers don’t want to overpay or price themselves out of a resale in the future, while sellers want to make sure the deal makes sense for their financial plan.
2. Closing costs
Buyers have to pay prepaid closing costs for their mortgage, which is money that the mortgage lender holds in escrow, for items like taxes and insurance. “A buyer may ask a seller to pay a flat dollar amount toward their closing costs, or up to a percentage for what’s an allowable contribution for a lender. Sometimes this can be up to 3 percent [of what's] included in the mortgage,” says Ameer.
“If [a buyer] asks the seller to make a concession on [his or her] behalf, they’re likely going to have to pay a higher asking price.”
3. Closing date
Sellers can negotiate for speed when they need to get their capital out of the home fast; and closing dates will affect buyers' monthly cash flow once they own the home. “Keep in mind, when a buyer closes on the house, they skip the next month’s mortgage payment,” says Ameer. “Maybe they want to close at the beginning of a month so they skip the next month.”
4. Financing contingencies
“A lot of transactions end up being cash, so sellers don’t tie up their property for 30 or 60 days, which is what’s required when there’s a financing contingency in place,” says Turk.
Buyers competing with all cash offers need to figure out if they can drop the financing contingency, which will shorten their closing time line. Buyers can do this by having their mortgage fully approved prior to making an offer. That preapproval shows that their finances are in order and they can afford the property.
5. Home warranty
A buyer can ask for a home warranty, or a seller can offer one. This protection plan covers the home’s appliances and systems, like the air-conditioning and hot water heater, in the event these things break or need repair.
The process of moving into a new home can be highly stressful and labor intensive. “If a seller needs a little extra time to get into their new home, [buyers can] offer a zero-cost rent-back for 30 to 90 days to entice the seller to accept the offer over others,” says Fawaz.
“Peace of mind is a valuable negotiating tactic.”
7. Home repairs
“Buyers also have a ton of room to negotiate when a home needs a lot of updating,” says Fawaz. When a home is out-of-date with appliances that don’t work, popcorn ceilings or cracked pool foundations, for example, a buyer can ask for a lower price because of the cost to bring the home back to today’s standards.
Sellers can also specify that their house is being sold “as is” and that they won’t make any repairs.
8. Appraisal contingency
“If the buyer’s getting a mortgage, [the seller] could push for the buyer to waive the appraisal contingency,” says Ameer. “But then they have to make good on the amount of cash to close, if for some reason the appraisal falls short and the bank will lend them [only] so much money based on an appraised value.”
Personal property, like patio furniture, chandeliers, window treatments and cabinets, is also up for grabs. “If the buyer wants all the furniture, it becomes very much of a tradeoff and compromise between what everybody wants,” says Turk.
Whatever’s excluded needs to be stated when the contract is finalized.
The stove, dishwasher, microwave and any built-in appliances may come with the property, but not the washer, dryer and refrigerator. “In different markets, people don’t always convey every appliance -- they don’t want to give it all away,” says Ameer. “They want to see how the negotiation goes.”
While waiving an inspection often comes with "buyer’s remorse," buyers can try to shorten the time frame for an inspection, from 10 days to five. Today’s lending processes and the TILA RESPA Integrated Disclosure (TRID) make this hard to do, though.
11. Condo/co-op assessments
These are used to maintain the building’s common areas, like the roof or aesthetic improvements, and sellers typically need to settle if there’s an open assessment. “That becomes a negotiation between the seller and the buyer,” says Turk.
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Andrea Murad is a New York-based writer. Having worked on both Wall Street and Main Street, she now pursues her passion for words and covers careers, investing and money.