When it comes to investing in real estate, everyone needs to start somewhere and buying your first home is a great first step in learning how to negotiate with sellers. A large part of my role as a real estate and development consultant is structuring large deals at a round table with parties who are playing to win. You can find out more about my humble beginnings on stevenvornea.com and how I got to where I am today.
These starter tips will not only help you with your first purchase, they will serve you in other negotiations whether they are billion dollar deals or buying a TV.
Do your homework
It is most important that you enter the negotiation armed with knowledge and preparation. Knowing the ins and outs of the current market in the home’s particular area should be in your arsenal. Is it a buyer or seller’s market? This will affect how you should negotiate. If it is a buyer’s market, you have some leeway. If it is a seller’s market, you won’t have much clout and will need to present a “clean,” attractive offer. Know the neighborhood. If you are aware of comparable properties you will have realistic expectations about prices. Have your finances in order. This is the most important factor and although it’s not imperative, it certainly gives you significant leverage during your negotiations.
Don’t get hung up on small price differences
Do the math to establish for yourself what is worth negotiating and what isn’t. For example, if the interest rate is 4.3 percent, the difference between $195,000 and $199,000 is $19 a month. There may be other ways you can get a better deal such as time for escrow, acquiring personal property or conditional loan approval.
Don’t base your offer on the listed price
This is where knowing the neighborhood will benefit you in your negotiations. Recent sales in the neighborhood can guide you to offer a price that demonstrates your understanding and indicates your position as someone who is prepared. Given that the listed price is what the seller would like to get, they have probably based it on other properties in the area with a considerable markup. Meaning, they are also aware of the current market in their neighborhood.
Learn the seller’s motivation
Knowing your seller’s motivation will help you construct the most attractive offer. For example, if the seller has already purchased another home, they will be motivated by time and possibly the need to sell their existing home to purchase the next. On the other hand, if the seller has not yet purchased their next home, they will be less motivated to sell and looking for the highest price so that they can upgrade to a larger home.
Structure your offer so that it is appealing
Although every seller wants the highest price for their property, there are other factors which can make your offer as attractive as possible. Some of these factors are conditional loan approval; escrow timeframe; use of inspectors; type of deposit; how contingencies are structured and comparative analyses of the property. For example, if the seller is trying to flip the house, they will want one escrow process only and you must walk into the negotiations sending out a clear message that you are ready to close. Similarly, some agents will recommend that their clients demand hefty reductions for relatively minor repairs which are discovered in the inspection as a penalty for unknown future expenses.
Take emotion out of the equation
It is best if you are genuinely not attached to the home you wish to purchase. After all, a better house might be just around the corner (literally). If you are actually very attached to the home, it’s best to behave as though you aren’t. Most agents will be able to gauge whether the buyer has fallen in love with the property but the smartest buyers never let the seller or agents know that they are looking to absolutely buy the property. You may even want to mention that you are considering buying another house. In short, you will maximize your bargaining advantage if you can keep your emotions under control.
Steven Vornea is the founding CEO of Lions Gate Development. To read more about real estate, architecture and negotiating using “the Art of the Possible” you can read his blog.