The homebuying process often comes down to a series of negotiations between buyers, sellers, and their real estate agents. However, negotiations often feel like an intimidating part of the homebuying process because it can be difficult to know how much buyers should offer, how much sellers should counteroffer, and what factors negotiations can even bring to the table.
Despite these uncertainties, the negotiation process can benefit both buyers and sellers as both parties come to a fair compromise. Sellers often list their home with the expectation to receive negotiations, and buyers often approach the homebuying process with the hopes of fair negotiations. Prospective buyers make an offer, and sellers often return a counteroffer, and the negotiations proceed. But how much can you negotiate on a home, and what can negotiations include?
Keep reading to learn more information and tips for how much you can negotiate on a house.
The Benefits of Negotiation
For prospective homebuyers and sellers, the negotiation process is crucial to finding the right home at the right price with the right contract. With the help of experienced real estate agents, negotiation offers several benefits. Through negotiations, buyers and sellers can come to a fair agreement that benefits buyers while still appealing to sellers.
Importantly, the structure of the real estate market tends to expect and favor the negotiation process. Sellers often price their homes above the market value and expect buyers to negotiate for a lower price; at the same time, knowledgeable buyers might hope to expand the negotiations beyond the selling price. Knowing this, buyers and sellers can better prepare themselves to negotiate the sale of a home in an advantageous way. However, many factors influence how much and to what extent buyers and sellers can negotiate on a home.
Know the Market
The condition of the housing market provides an important place to start when buyers and their real estate agents are determining how much they can negotiate on a house. An analysis of the housing market in the geographic area where buyers want to find a home can offer a starting place to begin negotiations with sellers. The real estate market tends to include three types of markets determined by the area’s available homes-to-buyers ratio: a buyer’s market, a seller’s market, and a balanced market.
One kind of market condition is a buyer’s market, which describes a situation where there are more available homes for sale than there are interested homebuyers in the area. In this kind of environment, homeowners are typically more eager to sell their listed properties, and therefore more likely to negotiate with buyers.
It's not uncommon, in this type of market, for interested buyers to make an offer around ten percent less than a home’s listing price and then go through several rounds of negotiations to settle on a closing price. In a buyer’s market, buyers typically have more power in the negotiation process.
Conversely, a seller’s market occurs when interested homebuyers flock to an area with fewer available homes for sale, making the real estate market more competitive for buyers. When homeowners are selling in this kind of market, they often receive more offers on their home, and they can choose from the best offers. Sometimes, sellers can experience a bidding war as multiple buyers compete for the same property.
Buyers should prepare to have less negotiating power in a seller’s market than a buyer’s market. In fact, homebuyers may even have to make a higher offer than the listing price if they're really interested in a property. Of course, buyers almost always have the potential to negotiate some costs, such as repairs after a home inspection, but other interested buyers may overlook those negotiations in order to close on a home more quickly. Clearly, sellers have more authority in a seller’s market.
A balanced market represents exactly what it sounds like: a real estate market in which a roughly equal amount of buyers and sellers participate. Although negotiations remain possible, some sellers in a balanced market may not feel the urgency to sell as quickly as those in a buyer’s market. Comparably, buyers may not feel inclined to make high offers like they would in a seller’s market. In a balanced market, homeowners can take some time to consider various offers and buyers can explore several available homes for sale. Often, interested buyers in a balanced market make offers below the asking price with the hopes of negotiating to find a selling price that meets sellers in the middle.
Anyone who wants to buy or sell a home should keep in mind that markets can change over time due to economic factors and other real estate trends. Buyers should work with an experienced local realtor who can follow market trends and help buyers through the negotiation process. This is especially true for buyers who want to purchase a second home or a retirement home in a different area of the country where they have a lot to learn about the local real estate market.
What to Negotiate on a House
Although most realtors should know the best way to proceed with negotiations, homebuyers should educate themselves about all of the negotiable costs and factors in the homebuying process. The cards on the table encompass more than the cost of the home and closing costs. In fact, a common saying in real estate is that anything is negotiable.
The listing price of a home is an ideal starting place for negotiations. As mentioned, the market conditions heavily determine what an interested homebuyer should offer on a home. In a buyer’s market, the cost of the home could be reduced by ten percent or even more with a well-informed offer. Similarly, buyers can negotiate mortgage points on a home, which reduces the amount of interest they would need to pay. If the interest on the mortgage has increased, however, buyers could assume the seller’s current mortgage.
In addition to the listing price and mortgage of a home, buyers can negotiate the home’s closing costs and warranties. These additional expenses, which are not included in the sale of the property, include payments such as attorney fees, governmental fees, and insurances. While these costs may not be as much as percentages off a home’s listing price, they add up and can be used as negotiation tools if the seller won’t budge on the listing price.
Another factor that often weighs into the negotiation process centers around repairs, renovations, and cosmetic changes. A recommended home inspection may uncover repairs or replacements that buyers can use as negotiation tools. A brand new roof offers a common example. When a home needs a roof replacement, buyers can either ask the sellers to make the repair before they purchase the home, or the purchase price of the home can be reduced to compensate the buyers for making the repair themselves after they move in. Home inspections tend to become a driving force behind negotiations.
Additional considerations such as the move-in and move-out dates can be negotiated. If a buyer wants to move in sooner than the seller anticipated, the buyer may have to pay more to compel the seller to make it happen. In the negotiation process, an experienced real estate agent should know to consider nearly every factor of a home sale in order to find the best possible costs for their client, and it goes without saying that there are many different tools that can be used in this process.
How Much to Negotiate on a House
Ultimately, many buyers want to know just how much they can negotiate on a house. However, the amount that buyers can negotiate depends on many factors. The final contract of the home will have to satisfy and appeal to both buyers and sellers for negotiations to be successful.
Generally speaking, negotiations tend to range from 2 percent to 10 percent of the listing price. Depending on the price of a home, negotiations can span from a few thousand dollars to tens of thousands of dollars. The range of factors that buyers and sellers can negotiate, as explored in the previous section, also greatly impact how much can be negotiated on a home. Most negotiations begin with the listing price of the home during which buyers and sellers try to meet in the middle.
Negotiations that ask a seller to cover closing costs, for example, might cover a few thousand dollars. Minor repairs uncovered by a home inspection are often less. Serious or substantial repairs, however, could necessitate larger negotiations that reach $20,000 or more. In this case, buyers have to seriously consider whether they want the seller to fix such issues or whether the buyers themselves should oversee the repairs and ask for a discount on the listing price instead.
Buyers and sellers can take advantage of a range of negotiation tools and analytic strategies in order to make the most of the negotiation process. Importantly, homebuyers should equip themselves with knowledge about the property, the area, and the seller’s situation. Information about how long a house has been on the market as well as the seller’s motivation to move can have an impact on negotiations.
A powerful negotiation tool can also come from knowing the markets explained above. The nature of the market can work in favor of buyers or sellers, and both parties should understand how the market might influence their negotiations. Buyers and their real estate agents can also conduct research about the prices of similar homes in the area. These types of comparisons can help buyers negotiate a lower price on the home to fit in with similar homes in the area.
After buyers find the right home for them, they should have a home inspection before moving forward on the contract. A home inspection provides buyers and sellers with detailed information about potential repairs needed on a home. Based on the results of a home inspection, buyers may be able to ask the sellers to make certain repairs before they purchase the home or even ask for a reduced selling price or help with closing costs.
Negotiations about making repairs or improvements can be some of the most difficult, but experienced real estate agents can often help buyers and sellers reach some kind of agreement. However, if a seller is unwilling to compromise, buyers should be prepared to walk away and find a better deal.
For most buyers and sellers, one of the best and most important tools in the homebuying process is the help and guidance of an experienced real estate agent. A real estate agent can help buyers find the right home and help them work through the negotiation process. The assistance of a realtor can make all the difference in helping buyers and sellers compromise as they negotiate on a house.