HOME BUYERS: HOW TO NEGOTIATE PRICE

When you've found the house you want, it's time to make a written offer to purchase. Typically, your agent will prepare this document and present it on your behalf to the sellers and their agent. Before he or she can do this, you must choose the amount you will offer. Although your agent might suggest a price, only you can make this decision. And only you can set the standards of your side of the negotiations. That's because only you will benefit most from a lower price. Everyone else - the seller, his agent, and your agent - will benefit from a higher price.

You are in control

As a buyer, you are already in a strong negotiating position. You represent something that the sellers want - a sale. Don't be reluctant to make a low offer. Don't succumb to pressures and ploys to increase your offer beyond that which you are willing to pay. It's okay for the agents to be pushy or the seller to have high expectations. Your anxiety that the deal might not go your way is nothing compared to that experienced by the seller.

Do not fall in love with a house that is not yet yours

Powerful feelings can emerge when you visualize yourself and your family in a particular house. Try to resist your fantasies. They will only make you more vulnerable to paying more. Sellers can smell an eager buyer. It is strategically wiser to give the impression that you don't really care if you get this house. In truth, there really are many more houses out there. If you don't get this one, you'll find another - possibly better one.

Beware of pressure

Even if you resist falling in love with the house, you can still be influenced by pressure to increase your price beyond that which you are willing to pay. Pressure is part of the negotiation game. Some of it will come from the sellers and some will be of your own inspiration. As you make your offer and counter-offers, you might be told that the sellers will walk away or another buyer has appeared with a higher offer; (sometimes this is true but usually it isn't)! Stay with your plan and stick with your price.

Avoid dealing directly with the seller's agent

The majority of real estate transactions involve agents. As an average buyer, you will fare better if you have an agent of your own. He will gather market information for you and present your offer and counter-offers to the sellers and their agent. If you deal directly with the seller's agent, it is you against a professional who is squarely on the side of the seller.

How do I prepare for negotiations?

Before you make an offer to buy, you should gather information that will support you during the negotiations. You need to know three things:

Is the asking price reasonable? Your agent can provide recent selling prices for comparable houses in the area. (To be comparable, a house must be similar in size and construction, number of bedrooms and bathrooms, lot size, kind of heating system, overall condition, and so on). If comparable houses have sold in the range of $200,000.00 to $220,000.00, you should expect that an asking price of about 10-percent higher, or $230,000.00 to $240,000.00, is reasonable. A house that is listed at more than 10-percent over its average selling price could be overpriced.

Does the house need major repairs and what will they cost? Major repairs are a valid reason to reduce a price. (Minor repairs or imperfections, and decorating choices are usually not). Ask for a second viewing of the house in order to take a closer look. Check it from top to bottom. Examine everything: turn on all the taps, flush all the toilets, turn on the furnace and air conditioner, check the basement for dampness and the attic for leaks, look everywhere for signs of neglect. Note any needed repairs, inferior materials or workmanship, and anything else that might support your pitch for a lower price. If major repairs are needed, note details of size, materials, models, etc., that will allow you to inquire about repair costs. Then, call the appropriate tradespeople and describe the needed work. Explain that you are buying a house and you just want an approximate repair cost. Most tradespeople will be helpful in the hope that you will return to them for the repair work.

Is the seller motivated? By definition, all sellers are motivated to sell, otherwise they wouldn't list their homes. When we say that a seller is "motivated", we mean that he or she is more anxious to sell. A motivated seller will be more open to negotiations. Occasionally you will see real estate ads that openly announce a motivated seller. They include phrases such as: "Owner must sell.", "Seller has bought.", "Bring all offers.", or even, "Seller is motivated." Other sellers will be more secretive about their urgency. You should know if you will be dealing with a motivated seller. Simply ask your agent these questions:

• How long has it taken for comparable houses to sell and has this house been for sale longer than the average?
• Has this house been reduced in price?
• Has the seller bought another house or made a firm offer? Or, has she at least made an offer conditional on the sale of this house?
• If the seller has made a firm offer on another house, is the closing date near?
• Is the seller required to move by a certain date (for a job transfer, etc.)?
• Must the seller otherwise sell for urgent reasons, (to liquidate an estate, sell due to divorce, financial difficulties, etc.)?
• Has the seller recently tried to sell the house, taken it off the market, then relisted it?

The more "yes" answers you get to these questions, the more motivated is the seller.

What should I pay?

Statistically, most houses sell for from 5 to 10 percent below the asking price.  Sellers expect you to bargain over the price. That's why they ask for more money than they expect to get.

Your final purchase price will depend upon the information you've gathered on the asking price, repairs, and seller motivation. It will also depend upon who pays for repairs - you or the seller. The bottom line is to not pay more for the house than it is reasonably worth to you.

When you set a final purchase price, promise to yourself that, whatever happens, you will not exceed it. This is your safety-belt. It will protect you from the inevitable pressure to increase your offer by "just another $1,000.00."

What should I submit as my opening offer?

Assuming the house is in good condition, is reasonably priced, and the seller is not exceptionally motivated, a typical first offer will range from 5 to 10-percent below the asking price. This is only a general rule for average situations.

When unique circumstances let you make a lower offer, first determine if the asking price is reasonable. If it is, keep it as the starting point. If it isn't, use the average reasonable price as a starting point. Then . . .

- Automatically deduct 5 to 10-percent from the reasonable asking price as per a standard offer.

- Deduct the estimated cost of repairs.

- Deduct a percentage for a motivated seller. (This is subjective; the more motivated the seller, the lower you go. Typically, the deduction is from 3 to 6-percent).

Now you are ready to make an opening offer. If you have done your homework and can support a low offer, do not hesitate to make it so. Remember, you can always negotiate up but you can't negotiate back down.

State your offer to your agent. He or she will prepare the written document and will submit it to the sellers and their agent.

Use discretion when confiding in your agent

When discussing the offer with your agent, it is best to not reveal exactly how much higher you will go. If asked, simply advise that you will respond to the counter-offer when you see it. Even if your agent does not deliberately share your final price with the sellers and their agent, he or she might be subconsciously led by the knowledge that there's room to go up. This could weaken your bargaining position. Unless this is a private sale and you are dealing face to face with the seller, you must convey your negotiation strategy through the agent. As you will not be present when your agent meets with the sellers and their agent, you can only ensure confidentiality if you are discreet about your price range. (Don't confuse this with your agent's knowledge of what you can afford. It's okay - and recommended - to discuss what you can afford. But just because you can afford a certain amount does not mean you will pay as much for any given house).

The seller's reply

Once your offer has been presented to the sellers, they will do one of two things: a) accept it, b) reject it, or, c) make a counter-offer.

If your offer is accepted ... wonderful! If it is rejected, you can make another offer on the same house or, you can look for another. More likely, the seller will make a counter-offer.

How do I respond to the seller's counter-offer?

If the seller's counter-offer is close to your own, you will probably reach a deal without much special effort. However, if both you and the seller are very far apart in price, you will have to work harder. This is where your preparation pays off. Choose an amount to counter-offer. You can resubmit your original price or increase it by as much or as little as you wish. Whatever you propose, support it with facts about comparable selling prices and repair estimates. It is easy for sellers to reject an arbitrary offer. It is harder for them to ignore one that is backed up with numbers. Include an itemized list of major repairs and cost estimates.

What if the seller doesn't agree with the repair estimates?

If the sellers don't want to accept that the cost of repairs should come out of the price, try to get them to handle the repairs. Insist that the work must be done by professionals and that it be subject to your inspection and approval. If that doesn't work, offer to share the cost. Most reasonable sellers will negotiate on one or the other platform. You should never pay a unadjusted price for a house that needs major repairs.

What other negotiating platforms can I use?

Depending on the circumstances of your negotiations, you can:

Offer a short closing:Most real estate transactions close in 60 to 90 days. During that time, the sellers continue to pay the mortgage, taxes, utilities, and other costs. When the sellers have already bought another house or are in financial difficulty, that can be a long time to carry the house. In these situations, you can leverage time into money. Offer a shorter closing. It's like money in yours and the sellers' pockets. If your circumstances allow you to move quickly, a closing can be done in as little as two weeks. That will significantly reduce the sellers' carrying costs. When dealing with a motivated seller, you can reasonably request that the short closing should be worth a lower price. After all, you are offering them a quick and easy way out of their financial burden.

Get concessions in return for price increases:When you agree to increase your price, get a concession from the seller. For every $500.00 or $1,000.00 more that you pay, ask for something to be thrown in: appliances, window coverings, or whatever else you saw in the house that you'd like to have. If the seller agrees, be sure to itemize everything in the contract.

Offer to assume the existing mortgage:If the existing mortgage is of a good rate and terms, offer to assume it. Otherwise, (unless the mortgage is transportable to the sellers' next house), the sellers must pay legal and administrative fees, plus interest penalties to close it. By assuming the mortgage, you save them these costs. Therefore, your offer is worth a small price concession of from $500.00 to $1,500.00.

What if negotiations fail?

You shouldn't pay more than you are prepared to pay for a house. Most sellers will try to accommodate a serious buyer. If however, the seller won't budge on anything, you have the option to say thanks but no thanks.