Negotiate Terms

Many books exist on the art of negotiation. If you haven't read a book about real estate negotiation, you can still come out a winner by remembering two important rules. These rules will help save you more money than virtually all other negotiating techniques combined:

1. Deal with a motivated seller.
The more someone wants something, the more they'll sacrifice to get it. In the case of buying real estate, find a seller who wants your money more than you want their house. A motivated seller is much more likely to make concessions in your favor. You may have to make offers on several properties before you find a motivated seller. When you find one--you'll know it.

2. Know when to walk away. If you reach that point--walk.
How do you determine ahead of time when to walk away? Before making your offer, you completed (or had your agent complete) a Competitive Market Analysis (CMA). The CMA helps you determine the value of the home. Can you offer more than the CMA suggests? Sure. And in a hot market, you may have to. But decide ahead of time how high you'll go, and what concessions you're prepared to make. Price isn't the only reason you might walk away. Don't compromise on home inspections, removing contingencies too soon, allowing enough time to act, etc.

General principles

By all means, negotiate.
Negotiation is part of the process of buying a home. Price is just one point of negotiation. Personal property, home inspections and repairs, closing dates, etc., may also come into play. If you're like most people, your home is the largest purchase you'll ever make. It's likely the home-buying experience will be an emotional one. If you find yourself reaching the limits of your patience and endurance, don't despair -- that too is sometimes part of the process. By remembering the two rules, you'll do fine.

Maintain your objectivity.
This isn't always easy. At least two compelling influences will test your ability to remain objective: a hot market and finding the "perfect" home. A hot market can sway you to offer more than the home is perhaps worth. Finding the perfect home can also have such an effect. It is true that no two homes are exactly alike. For practical purposes, most homes are very much alike, however. When you think you've found the perfect home, chances are there's another one available just like it and for possibly a better price.

You can always increase your offering price.
But you can seldom decrease it. Unless you have the misfortune of buying in a hot market, start by offering lower than asking price. Just how low you make your first offer depends on several factors. How well is the home priced? If it's priced well and you don't want to risk insulting the seller, offer close to what the CMA suggests. If it's a hot market, you may have to offer full price or more. If it's a slow market and you think you have a motivated seller, you may be successful offering a relatively low price.

Get it in writing.
Your state may require that contracts for the sale of real property be in writing. Do not expect oral agreements to be enforceable.

Give up something to get something.
Ask for something you can easily give up. If the seller sees you're making concessions, they'll be more likely to give you what you really want. In your offer, include some things you can do without. Here's a hypothetical example:

A home is for sale for $110,000. What you want most is to buy it for $105,000. You offer $100,000, 45-day escrow, you get the refrigerator and a $1000 credit to clean the home.

During negotiations, you give up the $1,000 credit, the refrigerator and agree to a 30-day escrow. The sellers feel like they won something, and you get the home for $5,000 less than you were willing to pay!

The Impasse
There may be an item which bogs down negotiations. When this happens, quickly move off the item and onto something you can agree upon--no matter how small. This approach is also used to delay negotiations over an item you're sure will be a challenge to overcome. By reaching agreement on several smaller points, an environment of successful cooperation is created which helps to resolve larger issues.