To negotiate or not to negotiate?
Whether you are a first-time homebuyer or a seasoned veteran, the negotiation part of the transaction can be a little daunting and stressful. However, it is necessary to ensure you are getting the best possible deal for your money.
One of the things I like best about real estate transactions, is that there are a lot of variables that are negotiable. If you are working with a REALTORĀ®, which I hope you are, you should definitely leverage his/her experience and expertise to help you negotiate your deal. They may be able to get some insights from the seller's agent regarding the seller's motivation, and they also have access to previous transaction history, that can give you a better idea of how much leverage you may have.
Also, your REALTORĀ® can help you understand if you are in a buyer's market or a seller's market. A buyer's market means there are a lot of homes on the market and not many buyers. In other words, the supply is high but the demand is low. In these cases, the buyers have a lot of negotiating power, because the sellers realize the competition in the market and they will be more willing to negotiate to ensure their home gets sold. The opposite is true for a seller's market. In a seller's market, there are few homes on the market, so seller's know there is not a lot of competition (or demand) and therefore they are able to be a little more selective about the variables they choose to negotiate.
So, what determines if your market is in a buyer's or seller's market? It really depends on supply and demand in your area at different times. There are certain seasons that could contribute to pushing the market more toward a buyer's or seller's market, but generally, it depends on the market conditions and supply and demand in your area. In 2020 during the global COVID-19 pandemic when the Federal Reserve Bank lowered interest rates, we entered a strong seller's market, almost globally. There were many buyers in the market because they wanted to take advantage of the low interest rates, but the inventory of homes available remained the same. When the sellers realized they had more leverage, we noticed a lot fewer price negotiations in the housing market.
Now that you know the difference between a buyer's and seller's market, you also know when you will statistically have the greatest leverage in negotiating (in a buyer's market). So, what exactly should you negotiate when buying a home?
Closing costs. Your closing costs are determined by a variety of factors, but you can expect it to be between 2% to 5% of the purchase price. Ask the seller to cover some or all of the closing costs upfront or request a closing credit that can be used to make specific updates and fixes to the home. This is especially important if you are buying a new construction home. Builders often times offer special incentives, such as $10,000 toward closing costs, if you use their preferred lender. If your lender does not offer something like this, think about how you can add something like this into your negotiations to save you money and help sweeten the deal for you!
Furnishings. Love how the seller has furnished and decorated the home? Buyers often negotiate keeping couches, fixtures, landscaping items, patio furniture, appliances, and more. And many sellers agree, wanting to make the home more appealing.
Inspection and closing timing. Buyer offers that include a quick inspection and close timeline are often more attractive to sellers who have been going through the process for far too long. Just ensure you allow yourself ample time to get your financing in place and complete proper, thorough inspections.
Home warranty. Sellers will often agree to pay the premium on the home warranty at closing and then hand it off to the new homeowner, who is responsible for the deductible on any future claims.
Repairs. Your inspection may uncover small or large repairs needed to bring the home up to standard. You can negotiate to have these items fixed before closing or ask for a price reduction to cover the costs.
Negotiating the terms of your real estate purchase contract is not a scary task, but it is new for a lot of people. As mentioned above, be sure you are consulting with your REALTORĀ® to help you with the negotiations!
Until next time, stay S.M.A.R.T. about your finances!