Dos And Don'ts Of Negotiations

Welcome to the most important and challenging part of the home buying process: the price negotiations.

Start with advanced knowledge of your financial status estimation and available financing options.  As discussed earlier, if you are a first-time homebuyer there will be federal programs and state loans to help you with down payment and mortgage interest rates.  By this point in your search you likely know how much money you wish to spend.  Seriously considering all available opportunities and possibilities will give you flexibility during the negotiation process.

How To Make Your First Offer The Best Offer

Making your first offer is an important step and calls for a significant amount of preparation and analysis.  Go in knowledgeable, with consideration of all the components of your price offer when submitting the proposal to the seller.  You are not so much responding to their listing price as using your own factors in arriving at your offer.  The two are not necessarily related.

An important component is a comparative market analysis, which is a process used to estimate the value of your future home.  It calculates basic elements, such as number of bedrooms, bathrooms, and existence of yard or swimming pool.  Then it compares your potential home to similar houses on the market in the area.  This component gives an estimation of the local cost, which is fundamental for your offer.

Research the market trends.  Is the local market going up or down?  Are there new houses being built that will soon be for sale?  Are existing houses being remodeled?

Those calculations and forecasts may take time and effort, but they will provide you with options to consider.  The real estate agent's services will be very helpful here in particular.  It will not take this professional as much time to evaluate all the pros and cons to arrive at a proposal.

Your real estate agent will assist in this analytical process and advise you on your offering price, but the final decision on the offer amount is yours.

 After you determine your offer, the agent will send the proposal to the seller or seller's agent.  The seller or their agent will either accept it or present a counter-offer.  Negotiations will go back and forth until you settle and reach an agreement.  After that, the home buying process will move into the escrow stage.

Negotiating The Price:  Which Tactics To Use

The goal of your negotiation is to buy a house for an amount of money you are willing and able to pay, and if you get it for less than you are willing to pay, you have exceeded your goal.  Decide upon the highest maximum amount that you can afford and do not ever offer more.  If you pay more than your maximum amount, you have already lost.

Depending on what kind of market you are in, strategy and tactics will vary.  In a buyer's market (there are more houses on the market than buyer's looking), you have move opportunities to succeed.  You can make a less reasonable offer, demand some house improvements, a better closing date, and even payment of closing fees by the owner, depending on how dramatically the market leans in favor of the buyer.

In a seller's market, you have less leverage, as you are not the only one in line.  You ae most likely to succeed by offering a price close to or the same as the seller's price.  If he does not get it from you, he will receive another offer soon, and can afford to turn down a lower offer.

It is vital to understand that both the buyer and the seller may lose sight of the final goal: to buy and to sell.  Sometimes the parties get carried away in a battle of negotiating.  Lock your eyes on the ball, but at the same time keep your expectations realistic.

The following tactics will hopefully help you stay focused.

• Use the Middleman.  Your real estate agent should be your middleman to negotiate with your seller's representative.  Using him as a buffer will save you time and aggravation.
• Be Curious.  Asking questions may draw valuable information from the seller.  It might help uncover the reasoning behind the house's sale.  This could offer valuable leverage.
• Consider Compromise.  Be ready to give away something during the negotiation.
• Focus on the Main Goal.  Remember your main goal: to get the house.  Sometimes you will get stuck negotiating on minor details.  It can be a good tactic to wait until you come to an agreement on the main points before proceeding to the details.

How To Avoid Mistakes During The Negotiations

Whether you are buying a house for the first time, or just got carried away in the intensity of negotiation, mistakes happen.  Keep these simple rules in mind.

• Be Nice.  No one likes rude people.  Try not to offend your seller during a house visit.  For example, discussing necessary renovations and the poor taste of the decorations may hurt feelings, if not the deal also.
• Be Calm.  Do not express too much interest.  If sellers know how much you want this house to become yours, they will not accept your first offer.  To avoid a counter offer, you should always play it cool, no matter how perfect this property is for you.
• Think like a Seller.  Change your perspective.  Take a different look at this situation.  Imagine you must sell this house in a few years.  Will it be possible, or does it lack some basic features that the housing market considers essential?
• Do Not Expect the Price to Lower After Inspections.  Bid lower than you can pay and make your final offer with the most comfortable price you can afford.
• Sign Cautiously.  Make sure you acknowledge all terms and realize all liabilities before you sign any documents.  Once you sign the contract there is no way you make amendments without renegotiating and signing a new one.

What If There Are Multiple Offers?

In a seller's market, you will probably have competition for the house you wish to buy.  Sellers might be considering several offers at the same time.  They will make their decision based on the best offer.  They may also choose to work with one potential buyer and only send counter-offers to them.

You as a buyer will not know.  The best way to protect yourself from multiple offers is to make your offer better than the others.  Receiving pre-approval for the mortgage will be a good start to becoming the seller's choice.

Bid close to the listing price.  There is not much sense in offering significantly less in a seller's market.  Doing this will save you time and curtail an extended counter-offering process.

It would be helpful to review your contingencies list.  The fewer clauses you have there, the more attractive your offer seems to the seller.  However, it is recommended not to remove home inspection.

Showing your intentions by offering a large good faith deposit and down payment will usually convince the owner of your commitment. This may tilt the balance towards your proposal.

Negotiating the price is a very stressful period in a house buying process.  You cannot be sure what the results will be.

In any case, keep in mind that the owner is interested in selling his home and you are willing to buy it.  With a little time and effort, you will be able to do that.