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Is Price The Most Important Part Of Negotiating In Real Estate.

David O'Doherty
Published on December 19, 2016

Is Price The Most Important Part Of Negotiating In Real Estate.

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What’s Negotiable In A Real Estate Transaction?

Negotiating in Real Estate

Negotiating in Real Estate

 

Most buyers think that the price is the only thing that’s negotiable when buying a home, when in fact almost everything is negotiable. In some real estate sales negotiations can include the most unusual of items. Price of course is the main negotiating part of a real estate sale but it is sometimes secondary to other aspects of the transaction that are more important to the buyer or seller. One never knows what motivates a seller to sell or a buyer to buy and anyone who has been involved in a multiple offer situation will tell you that when you lay out all the offers on the table the price is merely a part of which offer the seller will accept.

 

How can price not be the most important part of a real estate negotiation you might ask. Well from the sellers point of view getting the house sold and moving to their new house often takes precedent over how much money they make on the house. This is especially true if they can afford to take less or have built up a lot of equity in the home. A quick close with no contingencies may be more attractive than a higher sale price that comes with strings attached. The more flexible a buyer can be in negotiating a real estate transaction can mean they get a better deal on the house. The same is true for a seller who may be able to work with what’s best for the buyer and may see them get more for their home.

 

Price.

Sometimes but not always the most important piece of negotiating in real estate transactions is price. It’s typically where everyone starts but it is actually often a small part of getting a deal closed. One example where price plays a small role in negotiating is when the seller can’t afford to sell the house for any less than they are asking for. Sellers need to have equity in their home or enough cash to bring to the table if they still owe money to the bank. If the house is worth less than they owe they might have to do a short sale and then you’d be negotiating with a bank. Even if they owe the house free and clear some sellers have a price in their head that they want for the house regardless of what the market may say and all the negotiating in the world won’t get them to change. These sellers often end up never selling their homes.

Negotiating in Real Estate

Negotiating in Real Estate

When buying new construction a builder is often very reluctant to lower their price but may be willing to offer incentives such as paying buyer expenses, including a refrigerator or offering upgrades. When a builder has homes that are selling they have no reason to reduce their price and trying to negotiate on price is futile. On the other hand if a builder has a lot of homes that aren’t selling price can be part of a negotiation.

 

Closing Costs

Probably one of the most important pieces of a real estate transaction especially for first time home buyers or cash strapped buyers is seller paid closing costs. A homebuyer must get pre approved to get a mortgage and part of that pre approval is the loan amount they can borrow which is often what they can spend on a house. They can’t spend more than that so any home priced higher than that is out but they need money to pay for their closing costs, if they don’t have the cash they need the seller to pay them. No closing costs equals no house to many home buyers and so the closing costs become the most important part of the negotiations. If the seller has had a discussion about paying closing costs with their listing agent they may already have calculated what typical closing costs might be and factored that into their list price. It is essentially a price reduction as far as the seller is concerned. A couple of thousand dollars over the life of a thirty year mortgage is probably not going to affect the buyer’s payment enough for them to be concerned and so the seller may agree to pay the closing costs by raising the sales price. As long as the home appraises this can be a negotiation that gets the deal done.

 

Earnest Money Deposit

The earnest money deposit in a real estate transaction shows the seller that the buyer is interested in the home and at least has some money to put down in order to get it. It is completely negotiable the seller wanting to see a higher amount while the buyer may not want to put a whole lot down. The earnest money deposit typically goes up as the price of the homes go up and can be as low as zero and up to thousands of dollars. From a seller’s point of view they like to see that this buyer is committed to the house and is likely to continue to closing. When negotiating the earnest money deposit buyers need to be mindful that the money will be deposited in a trust fund account until the transaction is terminated or the house closes.

 

Due Diligence Period/Fee

In North Carolina a real estate contract has what we call the due diligence period which may  be called something different in other states but have the same meaning. This feature of a real estate transaction has two parts, the due diligence fee and the due diligence period. Both are negotiated between the buyer and seller and both are very important. The fee is paid by the buyer directly to the seller for essentially taking the house off the market (contingent) . The seller keeps the amount regardless of whether the buyers complete the transaction or not. If the buyers close on the house this amount and the earnest money deposit is credited to the sale price of the home. The due diligence period is an amount of time that is negotiated between the buyers and sellers to allow the buyers time to get their loan approved and have any inspections done on the house they are buying. The reason these two parts of the contract are so important are because that money from the buyer is gone should they not buy the house therefore the buyer wants it to be as small as possible while the seller is risking losing other potential buyers by taking the house off the market and wants the amount to be higher. Likewise the buyer wants the period of time to be as close to the closing date as possible to avoid losing their earnest money deposit while the seller wants a shorter period

Negotiating in Real Estate

Negotiating in Real Estate

 

Closing Date

One of the most important parts of a real estate contract and often requires some serious negotiating in real estate sales  is the closing date. One might think that both sellers and buyers want the closing date to happen as soon as possible, however this is not always the case. Buyers may have a home to sell which hopefully is already under contract but without that selling they can’t move forward and that has to happen first. A seller may be surprised by how quickly their home sells and may not be ready to move therefore a later closing date would need to be negotiated with the buyers. There may be school start dates that are important to either party that would determine how the parties negotiate the closing date.

 

Repairs

Negotiating repairs in a real estate transaction can make or break a deal. The older the home gets the more work may be needed and sometimes those repairs can come as a shock to the seller. When a seller needs to make repairs to the home they may be such that they become a material fact meaning they would have to disclose them to any potential buyers. They may be such that they are a deal breaker meaning the buyer will walk away from the transaction if the repairs are not completed. Some repair requests are minor and sometimes they are too minor and should not be asked for. If a seller sees a laundry list of petty repairs they may get upset and refuse to make them, so when negotiating repairs buyers should only ask for the important major repairs to be done. It is possible that a seller may refuse to make any repairs which happens when they may have multiple offers on the house and feel that someone else won’t care, if a buyer feels up to taking on those repairs it may be something that can get negotiated.

 

Personal Property

Personal property that usually becomes part of a real estate contract are things like the refrigerator or washer and dryer but can really be anything, as long as the bank is ok with it. If an appliance like a dishwasher is built into the counter space it is considered part of the property, if something is attached to the walls light say a light fixture it is considered part of the property. Plants that are growing in the ground versus in movable pots are considered part of the property as are basketball goals that are in concrete. Anything that is not attached is considered personal property and if the buyers wants it they have to negotiate for it. A seller may be either reluctant to sell or more than willing to give it up. A separate bill of sale may be used for personal property rather than they be part of the contract. When selling vacation homes it is common to see them sold fully furnished which is personal property.

Take a look at these other helpful articles from real estate professionals

10 Tough Pills To Swallow When Selling A Home by Lynn Pineda

Down Payment How Much Do You Need To Buy A Home ? by Debbie Drummond

How To Avoid No Down Payment Mistakes When Buying A House by Inlanta Mortgage

 

 

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Is Price The Most Important Part Of Negotiating In Real Estate.
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