7 Techniques for Bargaining Down Your Dream House
A prospective homebuyer with a knack for negotiation can secure a reduced price, free upgrades and other perks while bargaining for a home. Even so, knowing that negotiation is possible for other people doesn't make the prospect of bargaining down your dream home the least bit less stressful or intimidating.
First and foremost: relax! Negotiating real estate is neither rocket science, nor diplomacy. Others have done it, and so will you.
Follow these 7 techniques to snag the home of your dreams.
Are you hoping to purchase a house like this one?
When REALLY, you're aiming for a mansion like this one?
Then listen closely!
Know the Housing Market . . . and Leverage Your Knowledge
Your real estate agent will be your conduit of communication to the listing agent and seller—but in order to not be at the mercy of your agent’s personal fallacies, enter the process with the mindset, “At no point will I take everything* my real estate agent says or recommend at face value.”
We're about to explore the Knowledge Leveraging Technique in some detail. Since it’s a little dense, you might just want to skim the key points now, and then return to this pot to hone in on the nitty-gritty later. If so, good for you! We’re kindred capable-yet-ADD-ridden spirits. Here’s this section’s bottom line: local housing market information you personally hunt down is the best leveraging tool you can use.
Ideally, your first phase of housing market research takes place before you apply to be prequalified for a loan. . . or contact a local real estate agent. For a comprehensive guide to proactive steps you could take before reaching the negotiation phase, check out the post “The SMART Homebuyer’s No-Nonsense Checklist for Purchasing Your First House,” available here.
*Please note the word “everything.” If you cannot trust or count on 75% of what they have to say, the agent you’re working with probably doesn’t deserve you.
Even if you can afford to send your children to private school, and have every intention to do so, pay attention to the quality of the home’s assigned public schools. If they are underperforming, you can use that as a bargaining chip to haggle down the price. However, don’t underestimate the risks. If the local schools fail to improve, it will also negatively impact your home’s value when you are ready to put that some house on the market in the future.
Ready? Let's go!
Now let’s break things down.
First, know whether you are walking into a buyer’s or seller’s market on a national, regional and local level. Your real estate agent should help advise you in this, but as mentioned above, take nothing for granted. Maybe the interest rates are at historical lows, but your preferred area of town is a sellers’ market undergoing full-blown bidding wars. The opposite can also be true: interest rates have risen, but you are moving into a city like San Antonio, which is renowned for its exceptionally low housing and living costs.
The main thing is to know, independent of your realtor, whether you will have a matter of minutes, hours or even a full day to think over your options before another homebuyer is likely to slip in a bid before you. Even the best real estate agents seem to be gung-ho on prompting their clients to purchase in a rush.
Also, know the area in detail. Conduct thorough research into the neighborhood, crime rate and precise schools assigned to the “dream house” you just toured and are now pent on purchasing. It’s
Want a personal example?
I once came very close to purchasing an adorable house in Richardson, a nice, family-friendly city that is part of the Dallas Metroplex. It was an adorable 3 bedroom, 2-bathroom house with a fourth bedroom which had been converted into a mouth-watering walk-in closet, a covered porch and cheery red front door. Interest rates were at record lows, the roof had been recently replaced, and it faced a relatively-quiet road.
My real estate agent taught me many, many valuable lessons about purchasing a home in Richardson, North Texas and in general. In other words, he was a legitimately helpful, knowledgeable and for the most part reliable real estate agent. However, I would later realize that even he, for all his knowledge, could be strategic in which areas he assured me that I had no reason to worry. I will return to this house several times over the course of this post. But first and foremost, know this:
If your real estate agent blithely says, “Don’t worry about the school district. Everyone sends their kids to private schools around here,” take that as a BLAZING RED FLAG that you have research to do!
Know the Difference Between the Home's Value and Asking Price. Then Lowball.
The asking price is a statement of perception:
- The owners' perception of their house's desirability and value
- The haggling "high ball," designed to result in the selling price they realistically expect
- The owners' attempt to markup home improvements . . . even when the value of those home improvements may depend on personal tastes.
Therefore, the asking price is like a peacock with it's feathers unfurled to impress its enemies.
Peacock feathers are dazzling but useless.
The home value is the body of the bird.
Zillow, Trulia, Realtor.com and Trulia all provide tools to help you know the estimated value of the house based on compareable homes in the area. However, no rough estimations will be as refined as the tools your realtor has at his disposal.
This is where you will need to trust his numbers over your own findings.
Once you know the true home value, you and your real estate agent will agree on a bid based one the home value, with the awareness that the owners will want to negotiate up to the asking price. Therefore lowball -- always lowball first, unless you're in a highly-competitive market--without being insulting. Generally aim for a bid within 10% of the actual home value on occasions when the value is relatively close to the asking price.
Want to learn more? Here's an excellent 5-minute video by real estate agent Stacey Johnson-Cosby
Once You're In Escrow, You're In Power
You're now in escrow? Excellent. It's time for some fun.
Get a Home Inspection. ALWAYS.
Let's return to the house I mentioned in the second section. Between the low interest rates, location, neighborhood, asking price, and adorable red door, everything seemed perfect. There were a few minor cracks running along one corner of the house, but such things are a matter of course for houses built in the ever-shifting soil of North Texas. We placed an offer, and funds were in escrow. Nothing seemed wrong.
I thank my lucky stars that the real estate agent urged a home inspection. Even with no visible signs of trouble, he considered it a matter of course.
The home inspection cost roughly $1,000. I never got the money back. But that inspection saved me at least $40,000 in costs.
Essentially, sewage was running under the house. The current owners had not gotten a home inspection when they purchased the house five years earlier, but the problem started over a decade before my sleuthy home inspector took a look.
The couple refused to budge their asking price. We went our separate ways. Months later, they were still unable to sell their house.
Wait Until After the Home Inspection Before Making Complaints
Assuming that your home inspection turns up issues less dire than raw sewage, it's time to prioritize your complaints.
Do not complain about aesthetic issues, like the style of bathroom appliances, or color of the carpet. Make a fuss about verifiable issues, like the age of the carpet, or the fact that an appliance is corroded or leaks.
If you start making demands before the home inspection, your priorities will be skewed. You're not firing up your bargaining gun in order to shoot yourself in the foot.
Now Complain About Everything You (Reasonably) Can
Once you've ascertained your home inspection-backed wishlist, determine which issues are your priorities. You can ask your real estate agent to emphasize your concern about the "real" issues, or if you are aiming for a quick sale in a competitive market, you can offer to "let them slide" in exchange for freebies.
- "I will excuse (X) if you throw in the (oven/refridgerator/microwave/laundry machine)."
- "I will overlook the (carpet stains/scratched floor/broken ceiling fan) if you throw in the (curtains/smoke screen/garage storage cabinet)
- "I will hold off the moving date to X if you will Y."
. . . Or Be a Really, REALLY Good Person
My parents once bargained down the price of a flat in Boston because the Irishwoman who owned the place took one glance at the young, strapping, financially-struggling red-haired couple (both redheads; it's strange, I know), and decided that they deserved the flat because they were clearly (to use her phrase) "the right sort of people."
My older brother is the nicest fellow I know, and bought the house from a little old lady who had been gardening in her tiny yard for some fifty years, and who wanted her "babies" to go to a responsible owner. Largely due to his contagious personality, she chose my brother. Her goodbye ceremony (after providing specific directions for the plants' care, she personally walked to each flowerbed and whispering goodbye before leaving) did not save the flowerbeds from the fact that my brother was a twenty-something bachelor who frequently forgot to water. She felt great about leaving her home to my brother, and my brother both was and is grateful for his home. And by some miracle, those plants are still alive.
What I mean by these stories is that you need to be YOU, no matter how hectic, stressful, or advantageous the negotiating process. Cut-throat negotiators don't always come out on top . . . not by a long shot.
Even When Your Heart Aches, Be Willing to Walk Away
Owning the house is not the end-game. Making a home is. And sometimes, as much as we hate it, we benefit from slap-in-the-face reminders that the two are not the same.
So . . .
Get a home inspection.
Proceed in light of what the home inspector finds.
Remain human. Be aware of all factors, but remain kind.
Respect the current owners. Someday, you might be in their same human.
Trust that if this house is meant to be, it will happen. If it falls through . . . falls through like my dream house with the red door . . . you will someday feel grateful. The future holds many unforeseen opportunities in store.
Leave a Comment!
Have any questions I might help you with? By all means, speak up!
Remember: no matter how slow or intimidating this process may seem, there's a world of people out there to help. As the best teachers always say, there is no such thing as a dumb question. And in asking your question or describing your plight, you might just help someone else just like you!