How to Negotiate on a House Deal
Bridging the gap between what you want and what they want may not be as daunting as it seems.
When you think of negotiating on the purchase of a home, is price the only aspect that comes to mind?
I don’t blame you, price is a major influencing factor over whether you will (or can) purchase a home. Plus, no one wants to overpay for a home that doesn’t have a market value that matches the asking price.
But, price is far from the only part of a home purchase deal that you can negotiate on. And although it is major, it may not be the most important detail on the deal for some.
Let’s walk through some examples of other aspects of a purchasing contract that you can negotiate on, and how negotiations happen.
How to negotiate on a home
So, first of all, in order to negotiate, you need to have two parties (one who is selling, one who wishes to purchase) who:
don’t see eye-to-eye on the existing purchase contract details and
want to negotiate.
That last point is key.
Some people think that all they need to do to enter negotiations is submit an offer, but the seller has no obligation to negotiate at all. They can simply walk away from your offer altogether, at any point.
That being said, most negotiations that I’ve been a part of or have seen, tend to happen when both parties are pretty close in what they want. In this case, negotiations make more sense as both parties feel that they stand a chance of closing the gap and find a mutual ‘win.’
The process of negotiation
If an offer is put through on a property, and the seller wants to see if the buyer will modify their offer to make it more attractive, the seller can ‘sign back’ the offer. When you get a sign back, you’ll receive a document that walks you through what the seller wants included (or excluded) from your offer in order to make it attractive enough to close on. In all cases, your realtor will walk you through the conditions and specifications of the sign backs/offers, and provide you with advice on how to proceed.
This process can go back and forth a few times.
Example of a home sale negotiation
Seller John Smith has listed his home for $650,000. He wants a $10,000 deposit and a 90 day closing period.
After going through a private viewing, potential buyer Jane Doe has fallen in love with the Smith house. However, she feels that $650,000 is a little high for her budget, so she decides to offer $620,000. Additionally, she hopes to move out of her rental in 60 days, so she has her realtor put in a 60 day close. The $10,000 deposit is no problem, but she also adds in conditions for financing and home inspection to come back with satisfactory findings.
When John Smith reviews Jane Doe’s offer with his realtor, he expresses how $620,000 feels too low. He knows that he needs to sell the home for a bare minimum of $630,000 in order to receive a return he believes is fair. Additionally, he needs the 90 days close as his next residence won’t be ready until 3 months from now and he doesn’t want to be without a home for a month to bridge the gap.
John Smith decides to sign back an offer for $637,500 to Jane Doe. The closing date is amended to 90 days, and they specify that they’re okay with the conditions on inspection and finance.
When Jane Doe’s realtor gets the sign back, they review and decide to offer a maximum of $635,000 and agree to the 90 day close. They sign it back and resubmit.
John Smith agrees to accept Jane Doe’s offer, and they enter into a conditional sale (conditional upon the satisfaction of the home inspection and financing). Luckily, both of these conditions are met and Jane Doe can celebrate purchasing her first home. And John Smith can celebrate the sale of his house too.
What you can negotiate on
If it’s in the contract, it’s part of the negotiation. That being said, there are a few areas over which most buyers and sellers tend to go back and forth.
Let’s explore:
Price
Not to belabour the point, but price is definitely an aspect of a sale that people negotiate on. It’s as simple as deciding:
What do you think the house is worth on the market?
What are you willing to pay for this house (if buying)?
What is the minimum you’re willing to accept (if selling)?
As you can see, pricing can be personal and subjective. Value is, after all, determined by what someone is willing to pay.
But that being said, pricing a home properly is an art and a science in and of itself. The advice of a professional realtor is key.
As a point of caution, if you’re buying, it’s important to understand the value of shopping within your budget. Falling in love with a home that’s $100,000 over your budget but priced fairly for the market will only end in heartache.
And on the flip side, if you’re selling and feel that your home should be priced at the top of, or above market value, beware that buyer’s may not feel that your home stands out over and above other comparables.
Closing date
The closing date is the date upon which the home changes hands. Buyer becomes owner and the previous owner becomes… not the owner :)
This can be a really important variable in a house deal, as closing date can affect other areas of your life. For instance, many people worry about closing dates because it can affect whether their children enter a new school zone before or after the start of the school year.
Others are concerned about selling their home and having to be out before their next residence is able to receive them (not a fun gap to close!).
The good news is that closing dates can sometimes be easier to navigate and find a compromise on, than other negotiating factors, like price.
Deposit amount
Many people are surprised to learn that when you enter into an agreement to purchase a house, you are also asked for a deposit that is to be delivered to the listing agent’s brokerage, usually within 24 to 48 hours.
Don’t let this catch you off guard.
For instance, if you’re leveraging the Government of Canada’s first-time homebuyer program and plan on using funds from your RRSP to fund your purchase, you may not have time to secure these funds in time to get the deposit over to the listing agent’s realtor.
Make a plan for deposits in advance and ensure you have funds ready to go.
Also know that there are no standards per sae when it comes to deposit amounts. Some seller’s may ask for a hefty deposit, and others may not. The deposit is meant to provide proof of your serious intention to purchase the property, although it can be paid back to you in certain situations - for example, if you purchased conditionally upon a home inspection, but that inspection turned up more issues than you bargained for and you choose to walk away.
Be sure to have your realtor walk you through the deposit amount being requested, and if you feel necessary, negotiate on the amount.
Home Inspection
I’m a fan of home inspections. When I was purchasing my first home, I definitely added in a clause on my offer that the sale was conditional upon home inspection.
Although home inspectors have definite limitations - for example, they cannot make holes in walls in order to see what lies behind them - they can still offer a wealth of information on the home, it’s infrastructure, and whether or not it meets today’s code requirements.
There tough part is that you may find out some less-than-awesome facts about the home that you had been so excited to purchase…. and the seller may not be willing to fix any of them (you can ask, but they can say no). At that point, you will be forced to make a decision over whether you’re willing to accept the risk (of both the known and unknown aspects of the home) and/or whether you’re willing to do necessary repairs on your own.
However, in my opinion it’s always better to have more knowledge than less… and more choices vs. none.
During several period of hot market activity, buyers who wished to have the comfort of a home inspection often found that they were not able to do so. Winning offers tended to be those with no conditions. However, if the market allows and you see the value in having a professional review your home’s condition, then you can always make your offer conditional upon a satisfactory home inspection.
Financing
Similar to home inspection, I always recommend that my buyers put a condition on financing whenever a mortgage is involved.
This is true even when you have received a pre-approval. Why? Pre-approvals aren’t the same as approvals.
One scenario that comes to mind, is when a buyer agrees to purchase a home for a certain price… Only to then learn that the bank won’t fund the mortgage because it doesn’t believe the house is worth that much (yikes!).
If you offer without a condition upon financing and it turns out that your financial situation changes and you are unable to pay for the home, legal action could follow, and no one wants that!
Also similarly to adding a condition on home inspection, there’s a chance that placing a condition upon financing could make your offer less attractive against a competing, no conditions offer. Sometimes, market movement puts pressure on buyers to go without conditions. But, if your market is more balanced or shifted towards a buyer’s market, then a condition on financing can is worth including.
Inclusions
Did you know that if you loved that sectional that perfectly suited the space, you can ask for it to be included in the sale?
The worst thing that the seller could say is no.
However, often, when people are moving to a new home, they’re also looking at finding the right furniture to fit their new space. Including certain furniture or fixtures into the sale could be seen as a bonus for the seller (who may ask for a certain $$ if you want their stuff!), as they’ll save on moving costs and avoid the hassle of trying to find a buyer for their things.
Sale of a home
Last but definitely not least (this is a BIG one) is placing a condition on an offer based on the sale of an existing property. Translation? You own a house and can’t afford to carry the existing property and the new one at the same time, so your offer is dependent on selling your property too.
This type of clause is one reason why first time home buyers often have an advantage over existing home owners when it comes to purchase. It’s a lot easier to give your landlord notice than it is to hope and pray that your current home sells both in time for the closing date and for the price you’re hoping.
That being said, if you’re in the above situation and are hoping to sell your home in order to buy the next one, there’s no shame in adding this clause into the offer.
Once again, the worst thing that can happen is that the seller says no.
The most important thing is that you get into your next home, in a way that’s as comfortable and stress-free as possible.
What else would you add?
What other aspects of a home sale would you negotiate on?
Let me know what’s important to you when buying and selling, and share you advice and tips for others in the comments below.
