How to negotiate home price when buying
If you’ve ever haggled at a flea market, you know the thrill of getting a great deal. The housing market is far more complicated than your average negotiation, but with a bit of knowledge you can find the best possible deal. The list price doesn’t have to be the sale price when you’re buying a home. Most home sales involve contingencies and negotiations to reach closing. In addition to saving you money, smart negotiating tactics can protect you as a buyer. Learn how to effectively negotiate home price, so you can maximize your budget and gain a competitive advantage.
Tips to effectively negotiate home price
Fully comprehend what impacts the final price of a home and you can come to the table ready to negotiate wisely and make smart choices under pressure. Your agent will help you negotiate home price effectively and make a winning offer, but a basic understanding will equip you to work with them to shape a wise offer that’s right for you.
Get your finances in order
Knowing exactly what you can offer helps you stay clear on your financial boundaries, even in the midst of a bidding war.
- Calculate the down payment you’ll need and what you can reasonably afford.
- A proper pre-approval shows sellers that you’ve secured the finances you need. If you make an offer without a pre-approval letter, you’re likely to get passed over for another better-prepared buyer.
- Pre-qualification is a great tool to get a sense for what you may be able to afford early in the process, but pre-approval is essential to making an offer.
Secure a great real estate agent to help you make wise decisions
A real estate agent helps you find the right property, but they’re also essential to smart negotiations. Your agent should be an expert on the local market, property values, and trends that establish how much over or under asking a home might sell for. Real estate experts also understand how a home’s value is likely to grow, where hidden costs might arise, and when to add or waive contingencies for a winning offer. Houseful network agents are experts in their markets, specifically selected based on their skill, experience, and expertise.
Do your own research
Before you begin your own home search, get a sense for local markets to see how much local properties are selling for. Use Houseful to access market statistics for your relevant neighbourhood including sold home values. Read blogs and access online information to get a sense of what interest rates and local markets are doing. You can also save searches on houseful.ca to help you understand the pricing trends for homes that fit your criteria.
Choose your price wisely
How much can you negotiate on a house? Smart negotiating requires a deeper understanding of how a home’s price has been established. An understanding of comparative home pricing, market values, and the neighbourhood are essential elements that a great real estate agent can help you understand. Getting a low price won’t be a win if you’ll need to spend more money than you expected on renovations as soon as you move in; on the other hand, paying over asking for a home you love might not be worth it if you’re stuck with a monthly payment that stretches your budget.
When you’re establishing your money offer, consider fees, loan costs, potential repairs, closing costs, transaction costs, down payments, and mortgage interest rates to thoughtfully consider your offer. Subtle shifts like potential rising interest rates in upcoming months could make sellers more eager to make a deal. A great offer relies on solid statistics and a comprehensive assessment of your needs, upcoming housing trends, and the property’s true value.
Consider contingencies
When a seller considers your offer, the considerations go beyond the price offered. For some sellers, an offer or a proposal with appealing contingencies might cause them to accept a lower money amount. For example, an offer that involves cash or waives an in-depth home inspection. If you’re unable to raise your offer but can waive some contingencies, you might gain an advantage without spending more money. This is considered a “clean offer” and is appealing to certain sellers.
If you’re concerned about potential flaws in a home, make a contingent offer with conditions that you and your agent set. Contingencies can protect you against surprises or allow room to renegotiate upon inspection. These could include an inspection with certain outcomes, or an appraisal contingency to ensure that that home doesn’t have hidden problems or issues with its infrastructure. Your real estate agent can help you recognize what contingencies might be important to this specific seller, and which ones could put you at risk if you take them off the table.
Common real estate contingencies
What are contingencies? Real estate contingencies are often part of an offer, and may render the proposed contract void if not fulfilled. For example, an offer may be contingent on a home inspection. If the home inspection reveals an issue with the home’s foundation or a need for expensive repairs, the offer might be void, or the seller will need to pay the repair cost first. In most cases, contingencies operate to protect and safeguard the buyer, to ensure the property purchase is worth its value before fully committing. Some homes might be more prone to contingencies; for example, an older home with potentially outdated systems might require a more in-depth inspection than a newer home that was recently constructed.
Waiving contingencies is obviously appealing to a buyer because it makes the deal seamless, but if you do so you might invite the risk of surprise costs or needing renovations you hadn’t planned for.
Common contingencies include:
- Mortgage: to specify when a buyer needs to secure financing to purchase a home.
- Home Inspection: the outcome of an inspection, typically initiated by the buyer, may be part of a conditional offer. Inspection may assess whether the electrical systems, structure of the home, or other defects might affect the value of the home. If defects are found, the seller may offer to remedy them or lower the price as a result. Similarly, the buyer may conditionally pull their offer based on a defect found in the inspection.
- Sale of a prior home: the buyer may offer to purchase dependent on the sale of a former property they’re selling, if they need the cash from the first sale to afford the down payment on the new home.
- Appraisal: an appraisal is made to confirm whether the property is worth the proposed amount, and the buyer may opt out or reduce their price based on the result of the appraisal.
What does the seller want?
When you’re considering contingencies, it’s good to get specific. A great real estate agent can help you determine what the seller is looking for. Perhaps they’re eager to sell quickly, and less contingencies or a quick closing timeline will close the sale. An impatient seller might also be attracted to a “clean sale’ with limited contingencies.
Considering what contingencies might sway a seller or buyer is a key negotiation piece. If the seller is giving up an ancestral home that’s been in their family for many years, they might be inspired by a personal anecdote about your own emotional connection to the house. Why the seller is moving can help your realtor establish whether they’ll be looking for a quick sale or if they may be open to a more in-depth negotiation.
Put your feelings aside
Finding a home you love is exciting, and it’s easy to begin imagining your future self in the home. By creating clear boundaries before you jump into the homebuying process, you’ll be less likely to over-offer in the heat of a bidding war. If you know your financial limits and must-haves, you’ll be able to take a deep breath and walk away from a home that might appeal to you emotionally but isn’t the right fit for your budget or other factors. Make a list of core values to remind yourself what you’re looking for in a home. Safety, comfort, privacy, or overall well-being might be values that help remind you of what you’re looking for. A clear sense of financial standing also helps you come back to facts when it’s tempting to make an emotional offer that leaves you house poor.
You’ll also want to be careful about how you react to a property when you’re viewing a home or doing a walkthrough –– especially if the seller is present or likely to overhear your reaction or interest. If a seller knows you’re desperate to seal the deal, you may give them more leverage in future negotiations.
Timeline matters when making an offer
The closing date of your offer can impact whether the buyer accepts it more readily. The closing date of a home varies, but is typically within 30-90 days after both parties sign the offer. Contingencies like appraisal conditions or inspection outcomes will affect a timeline, and can draw out the process. Too many contingencies may influence the timeline and deter a seller. Consider whether your seller is looking for a quick sale.
Time spans can also give hints as to the home’s value or potential issues. If a home has been on the market for more than 30 days, ask your agent why and find out what’s kept it from selling. The answer might save you money, or hint at a reason to walk away.
Consider the market
Negotiating in a buyer’s or seller’s market requires a different set of negotiating tactics. Understanding the market you’re in, combined with your agent’s knowledge of market value, residential analytics, and housing trends, is an essential part of making a successful offer.
Negotiate home price in a buyer’s market
In a buyer’s market, the supply exceeds the demand. More houses are listed than there are buyers, so you’re in an advantageous position as a buyer. In a buyer’s market, you have the upper hand and may be able to get a seller to agree on a lower price, further repairs or updates, closing dates, or advanced contingencies. In a buyer’s market, you might offer 5-19% less for a home that requires some renovations, or 15-20% under asking where more foundational or larger scale renovations are needed. Your realtor can help underline a buyer’s market by including comps of local homes sold for comparable amounts.
In a buyer’s market, you might lead with an offer that’s lower than what you could afford to see what kind of deal you might be able to secure.
Negotiate home price in a seller’s market
In a seller’s market, the demand exceeds the supply, and you’re not in a position of power as a buyer. In a seller’s market, you’ll want to lead with your best offer rather than coming in low. In some provinces, homes might go for prices well over asking, and buyers may resort to clean, low-contingency offers or rapid timelines to win over a seller. In a seller’s market, you may have less power to negotiate and will need to rely on quick, intelligent responses crafted with your agent when you’re drafting an offer. Stay smart in these high-pressure situations. Don’t waive a home inspection contingency if you’re not ready to contend with the potential renovations that might be needed if foundational issues or older appliances require high-cost upgrades.
In seller’s markets, it’s especially valuable to rely on your real estate agent’s knowledge of the local market. Look at what local homes are selling for; this is just as valuable a tool as the listing price itself. In seller’s markets, a home might easily sell for well over what it’s listed as, so you might want to come in with an offer that’s well over asking where possible.
There are plenty of fish in the sea
It’s always hard to walk away from a home that you really wanted, or to let go of a property when the negotiation doesn’t go your way. Especially in a seller’s market, you might be flummoxed by an offer well above asking without a chance to respond. Be patient in your home search and know your boundaries; you’re always better off waiting for a home that’s the right fit rather than taking a risk on a home that you can’t afford. If you have time to look, be patient and wait for a home that checks all your boxes.
Looking to buy a home that’s right for you?
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Find more information on how to buy a home, how to sell your home, and mortgage and finance tips, see our Home Journey How-To’s or sign up at houseful.ca.
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