Buying a Home - Negotiation
Negotiation is the Realtor’s “prime time,” when the professionals take the stage to represent their clients’ interests. This phase has changed greatly over the past 25 years, with the advent of buyer’s housing inspections, the clarification of agency relationships, and the advance of new technologies that have radically changed the way we handle offers. Presentation techniques and accepted procedures have changed, too, along with rising and falling markets. But we won’t bore you with the “old days,” rather let’s walk through the steps of the initial offer and acceptance, the buyer’s home inspection, and the resulting 2nd negotiation.
The Offer
By now you’ve found a house you’d love to call home, and you’ve seen enough houses to understand value. So it should be easy to know what to offer, right? Well, just a few years ago it was that simple. But today the market is less certain: how do we know prices won’t drop in the future? Buyers typically offer less than the asking price these days, and savvy listing agents understand that negotiation in a buyer’s market is a complicated business, often requiring 2 or 3 counteroffers before both parties are satisfied. As a buyer hoping to discover the seller’s “bottom line,” you would want to make an offer under the asking price, if your agent feels it is not too risky. The key here is to offer enough so that the seller is not offended. An offended seller is less likely to give you any counter-offer, or to discount only slightly with a “take it or leave it” attitude. But a seller who sees your offer as a reasonable starting point may meet you halfway; and being the flexible buyer you are, and being totally in love with the house, you can agree to the deal and pop the champagne! Unfortunately, variables to this desirable scenario can radically change the outcome. A few:
- The price was just recently lowered, so you may feel the need to offer the full asking price quickly, before a competing offer comes in.
- The house is new to the market, and is obviously well priced.
- There isn’t enough equity in the house at your hoped-for price to allow the seller to buy another house. (Unhappily, this is all too common these days.)
Now is when you need to rely on your handpicked Realtor for guidance. Your agent may do a quick market analysis to see if a higher price is justified, or he/she may have personal experience with homes recently sold in the area that can help sharpen your evaluation of the house you want. Reliable information can help you make better decisions in negotiation.
Small Things
Sometimes negotiations can hinge on smaller things: the closing date, or appliances, or type of financing, or seller concessions such as paying some or all of the buyer’s closing costs. All these (and more) in total can make a big financial difference for both seller and buyer. But with experienced agents guiding the negotiation, there should be enough give and take so that both parties have a chance to win something in the end. In our quaint parlance, we call this a “win-win” transaction. We’ll move on without further explanation, but we like to remind buyers (and sellers) that it just doesn’t make sense to let small things keep you from your larger goals.
The Buyer’s Inspection
The home inspection was born in the 1980’s as a simple informational aid for buyers and has grown in importance over the years to become an essential element in a transaction. These days we believe that everybody benefits from the home inspection: it brings nearly all conditions of the house to light, providing buyers with necessary information, and an opportunity for the buyer to ask that certain conditions be met in order to proceed with the transaction. It’s a benefit to sellers, too (although at the time some may see it merely as a pocket-picking), because a buyer who has been fully apprised of existing conditions is far less likely to kick up a fuss after the sale.
Here’s how it works: the purchase agreement is made contingent upon the buyer approving the results of a home inspection, usually allowing 3 days (the time periods are negotiable) for the buyer to get a home inspection performed on the house, and 1 more day to formally reject or accept the purchase agreement as written. The seller then has a day to respond to any buyer demands that arise from the home inspection.
Your agent will recommend several home inspectors that he/she has confidence in, and of course you’re free to find one on your own as well. But be careful; some inspectors are more thorough than others, and it’s in everybody’s interest to use the best inspector—it makes for fewer problems after the sale. Inspections usually take around 3 hours for a single family home; often the inspector will start without you, and expect you to join in for the last hour or so. Everything accessible in the home will be inspected, including the roof and exterior, all mechanical systems, appliances, foundation and structure. You will always get a full written report from any reputable home inspector, but it’s good to spend as much time as possible with him/her to get an education as well as the report you’re paying for (usually around $350). Inspectors are generally happy to answer all your questions at that time. Many agents like to be around for the verbal wrap up at the end of an inspection to hear about any concerns, and to help make sure the right questions are being asked to determine the real importance of any problems discovered. An interesting note: the inspectors we know have all graciously offered to answer questions long after the buyer has moved in, even up to a year!
The Second Negotiation
Very occasionally a house will “flunk” the inspection, often because of a foundation problem that is too expensive to negotiate; however, even in those circumstances it is worthwhile to ask for the fix. But in our experience 99% of inspections turn into either an acceptance of the house as it is or Negotiation Round Two. Of course all existing houses have problems, some larger than others; the home inspection should give you an idea of what can be ignored, or deferred, or what needs immediate attention. After the inspection you have a day or more to go ahead with the contract as written; or to ask the seller to correct any unsafe conditions, and for any other work you believe needs to be done as a condition of your final acceptance. There is no standard response: some buyers present a long laundry list of smaller fix-ups, or ask for a price reduction in exchange for assuming responsibility for the work themselves.Other buyers have lower expectations in buying a used house and limit their requests to health or safety issues.The seller then has a day or more to respond. Any reasonable seller will agree to correct unsafe conditions, but may balk at a list of fix-ups, or a demand for money. Usually this phase of negotiation goes smoothly; but at an impasse, both parties need to view the specifics in the larger context and ask themselves: will giving on this issue keep me from my larger goal? Again, the parties are communicating via their respective agents, and experienced agents will wisely choose to keep the negotiation positive even over the rough spots, until a “win-win” can be achieved.