Real estate negotiations: What to expect and how to strategize
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When buying or selling a home, there’s an expectation that you might need to negotiate. If this is your first real estate transaction, here’s how the negotiation process works, what to expect, and some of the best strategies to get what you want.
What to expect in real estate negotiations
Once a buyer decides to make an offer on a home, the buyer and their real estate agent will propose a purchase agreement that includes the price they’re willing to pay, a timeline and any contingencies, such as an inspection contingency, that’ll allow the buyer to walk away from the deal if the contingency isn’t met.
The seller can choose to either reject, accept or counter the offer. In a counteroffer, the seller might ask the buyer to remove a contingency or make some other revision to the agreement. If the buyer agrees to the counter — or if their offer was accepted outright — the deal will move forward.
This is just one example of how real estate negotiations can play out. Of course, the outcome will depend on many factors, including the type of market you’re in and whether you’re on the buying or selling side.
The current market is very much a seller’s market, with low inventory and high prices. Many homes hit the market and go under contract within days, often for over the asking price. That’s good news for sellers but bad news for buyers. If you want to buy a home now, you won’t have much leverage to negotiate because the seller likely has at least one other offer they can turn to — one potentially with less headaches. If you’re the seller, you have more power in this situation to ask for higher offers or refuse concessions.
Many sellers are also negotiating with multiple buyers at once, asking for “best and final offers” to try to obtain a higher price for their home. Once the seller settles on a solid buyer, they’ll start a more personal negotiation that gets into the nitty-gritty details of the transaction.
6 real estate negotiation tips
1. Add an escalation clause
An escalation clause is one tool buyers can use to win a real estate negotiation. This provision in the purchase contract stipulates that the buyer will beat the highest offer by a certain amount, up to a limit. For example, you might make an offer to buy a home for $30,000 more than the highest offer, up to $365,000.
2. Think beyond price
“Understand what is important to the other party outside of price,” says Bill Samuel of Blue Ladder Development, a Chicago-based real estate investor. For example, sellers often need time to find a new place to live. As the buyer, you could offer to rent the home back to them for a period of time or push the closing date out. If a buyer needs furniture for their new home and the seller’s motivated, the seller could offer to include certain pieces in the deal.
3. Come with cash
All-cash offers are the best kind of offer for a seller because there’s no mortgage to hassle with. Of course, not every buyer can make an all-cash offer using their own funds. If you’re in an especially hot market, there are many companies now that assist you with making an “as good as cash” offer by backing your offer so you can remove the loan contingency. Consult with your real estate agent to learn how this strategy might work for you.
4. Price low to sell high
“A negotiating or selling tactic that I recommend is the ‘price low to sell high’ strategy where sellers will intentionally price their homes lower than the market value in order to attract more buyers,” says Robert Scott, founder of Sell Land, a St. Louis-based raw land buyer. When you receive multiple offers, you can use that as leverage for a bidding war.
5. Do your homework
Information can be a powerful tool in negotiations, and for buyers, that means researching comparable listings, or “comps.” If you find comps that diverge from what the seller’s asking, you might be able to justify a lower offer. In addition, check how long the home has been on the market and its sale history. A home that’s sat for a while — or come on and off the market over the years — could mean the sellers are more motivated, which you can use to your advantage. Sellers can also use research to strengthen their position by touting a well-performing school district, walkability, or other appealing aspects of the home.
6. Don’t blink first
For either party, it’s important not to seem overeager. Your real estate agent will communicate with the other party’s agent, and it can take hours or even days before you hear back. Stay patient.