If you thought buying a car was stressful, wait until you try buying your dream home! Determining how much you can negotiate on a house can be tricky. But there are 3 things you can do to make it less stressful and easier.
Get pre-approved for a loan
Whether you’re a first or multiple time buyer you need to be able to prove to a seller that you can get a mortgage in the first place. Once you have your credit rating figured out, next it’s important to get pre-approval for a mortgage loan. Mortgage pre-approval is when a lender reviews your financial background to measure your qualifications as a borrower. This tells you two things. First, if they can approve you for a home loan, and second, how much you’re qualified to borrow. With that, knowing your budget helps you understand how much you can negotiate on a house you love.
This will also help you identify any problems you have from the lender’s perspective. Once you have a pre-approval amount, you can “reverse engineer” some home prices you’ll be able to afford. The lender’s number will be a maximum loan amount. But you need to break it down into monthly payments to see if it falls within your ability to pay.
Additionally pre-approval for home buying will help show real estate agents that you mean business when you’re looking to choose an agent to help you with your housing search.
Keep in mind also that pre-approval and pre-qualification letters aren’t the same thing. For pre-approval, your lender takes a look at your income, assets and credit before they issue your pre-approval letter. This allows your lender to give you the most accurate estimate possible. When you’re pre-qualified, the lender usually doesn’t verify the information you provide. This means that your pre-qualification number holds less weight than your pre-approval. Remember to always include a pre-approval letter when you submit an offer.
Get a real estate agent
Choosing an excellent real estate agent is the best way to better understand how much you can negotiate on a home. Plus, by working with an experienced agent, you won’t have through the process alone.
- Choose by experience – When you’re buying a house, choose your agent by experience. You can find experience information for real estate agents on Zillow. It doesn’t matter how many years your agent has been in the business. Some may have been out there for multiple years but only do a few transactions per year, and barely know the market, much less the neighborhoods where you’d like to live. Checking out their actual experience is always a good idea. How many transactions have they done? Hand have they been in the neighborhoods you’re checking out?
- Check out the agent’s online reviews – You can read public reviews on Zillow, Google, and Facebook for the realtors you find. Too many negative reviews are always a red flag. But beware of too many excessively-worded overly positive reviews that say the same things over and over too. As with anything, online reviews can be gamed. Pay attention to how many reviews an agent or team has. The more reviews they have, the less likely they’ll be generated from just their happiest clients.
- Keep the interviews under control – And if you interview more than 3 agents, you’re not doing it right. When you find 3 that look pretty good on paper, stick to choosing from one of those. If you start talking to or considering more than 3, you’ll only succeed in confusing yourself. So avoid the confusion and stick to 3. Of course, if you pick 3 that are not great, then start over and do it again.
Know your market
Your real estate agent will obviously help you with all of this. But it’s important for you to understand what you should or shouldn’t do. How much you can negotiate on a house largely depends on what is going on in your real estate market, area, or even neighborhood.
How much to negotiate on a house in a buyer’s market
A buyer’s real estate market occurs when supply exceeds demand, and there is more inventory of houses available than there are people who want to buy. In other words, this means that there are more people trying to sell their houses than there are buyers that want to buy those houses. This gives buyers an advantage over sellers in price negotiations. And a supply increase with constant demand necessarily puts downward pressure on prices.
In a buyer’s market, houses tend to sell for lower prices and sit on the market for a longer period of time before receiving an offer. The competition in the marketplace exists between sellers, who often must engage in price wars with each other and provide better perks to entice buyers to make offers on their homes. Buyers can often ask for the seller to pay more for closing costs and to fix more items than usual from a home inspection.
A buyer’s market is a great time to buy a home, as the amount you can negotiate on a house is usually much higher. Thus, you may be able to get an excellent deal and buy your house for lower than asking price. Your chances of landing a lowball offer are higher here. And remember that if you’re trying to sell a home in a buyer’s market, the buyer will have the advantage.
A market will change from a buyer’s to a seller’s market, or vice versa, when the level of supply or demand moves without a similar change in the other, or when the two move in opposite directions.
How much to negotiate on a house in a seller’s arket
A seller’s market in real estate, on the other hand, occurs when demand exceeds supply, or there are more buyers looking to purchase homes than there are available homes on the market. This can often lead to multiple buyers interested in a single property, resulting in bidding wars and multiple offers.
In a seller’s market, in contrast to a buyer’s market, houses tend to sell for higher prices and are on the market for a shorter period of time. Ultimately, how much you can negotiate on a house in a sellers market typically leaves the sale price leaning in the sellers favor. Your offering price may need to be higher than the listing price here. Plus, if you try a lowball offer here, you may insult the seller, and then you’re out of the running for that house entirely who might not even waste time with a counter offer. And rather than sellers competing to attract buyers, the buyers compete against one another for the limited supply of homes available.
A seller’s market is a great time to sell your home as you could secure a sale price that’s higher than your listing price. Or at least more than your bottom line – the lowest price you’d be willing to accept for your home. If you’re buying a home in a seller’s market, be aware that the seller will have the advantage.
How much can you negotiate on a house: Your offer
Now that you have these 3 things all lined up, your pre-approval, your real estate agent, and your knowledge of your local market. You can work with your agent to negotiate for the houses that interest you.
- Buyer’s market – If you’re looking to buy in a buyer’s market, sellers will be more likely to accept a lower offer. This is because there is less demand overall and greater supply of inventory. Or, you might decide to come in with a low offer if you’re not super excited about the house, but maybe you could nab it if you get a great deal.
- Overpriced compared to comps – If you and your agent think the house is overpriced compared to comps, then you might want to make a low offer. Or come in low, if you’re willing to let certain contingencies go.
- High days on market – Or maybe the house has been on the market for a long time. You might try a low offer if the sellers already reduced the price at least once while on the market.
- Low appeal – If the property doesn’t have great appeal and needs some love but isn’t already being appropriately priced “as is,” a low offer may get you the job done.
- Seller’s market – In a seller’s market where there is more demand than supply, you might consider making a list-price offer.
- Fair price compared to comps – Consider offering list-price if you really like the house. It’s important that you and your agent have looked at comps and think the price is fair.
- Low days on market – If the house was recently listed, and there’s already buyer interest, it might make sense to make an asking-price offer. If there are multiple offers, you can still sweeten the deal by going easy with contingencies.
- Strong seller’s market – If demand is much higher than supply in your market, you might need to come in over list price with your offer. this is especially common when competition between buyers is high.
- Underpriced compared to comps – If you and your agent think the house is underpriced based on the comps, you may wish to make a higher offer than listing price.
- Low days on market, high interest – You might also want to offer high if the house was listed recently, and there’s already a lot of interest in it. But try to hold fast on contingencies.
- You love or need the house – If you really love the place, or it has something you need that is difficult to find – like a workshop or a basement mother-in-law, then you might choose to go with a high offer. If your emotional need to purchase a particular house is high, then chances are you won’t regret it later, if it’s still within your budget.
Christopher has been been in the Real Estate industry for 8 years and has had the opportunity to close over 1,000 deals while acting as the Managing Broker for thousands more. Christopher is passionate about continuing to find ways to simplify, maximize, and serve Trelora’s clients exceptionally well and spends his time building teams to deliver high levels of service. When not doing real estate Christopher can be seen training for marathons and ultra relays with his 2 year old daughter, eating pizza, and drinking a steady stream of Diet Coke.