Every real estate negotiation is a delicate dance between buyers and sellers. In many markets, sellers currently hold a stronger position. The competition is particularly intense among first-time buyers looking for entry-level homes.
To avoid common mistakes, develop a negotiating plan with your real estate agent. A knowledgeable agent can help you understand current local market dynamics and provide a thorough analysis of the home’s listing price.
But the price isn’t the only factor! Sellers also care about other aspects of your offer, your financial strength, and whether the transaction is likely to close.
Here are seven ways to strengthen your position as a buyer and make your offer more attractive:
1. Select a lender with a strong reputation.
There are many sources of mortgages, including banks, mortgage lenders, and mortgage brokers. It pays to shop around before deciding who you want to use.
It’s also a good idea to ask your buyer’s representative for recommendations. Often, they know which lenders have the best (and worst) reputations in the local community, based on their ability to process applications promptly and meet closing dates.
Suppose a seller is considering two comparable offers using two different lenders. In that case, the listing agent may encourage their client to go with the buyer backed by the lender with a superior reputation since this will improve the odds that the transaction will close on time without a hitch.
2. Get your loan fully approved.
A pre-approval letter is better than a pre-qualification letter in the sellers’ eyes because it means a lender has taken a serious look at your financial credentials.
But you can also ask your lender to go a step further than pre-approval and move your application into the underwriting process.
If you can include a packet from your lender showing excellent progress on your mortgage, the seller will be more confident that your financing will be approved.
3. Provide proof of funds.
You might also be able to gain an edge by giving the seller extra financial details, like a proof of funds statement for your earnest money deposit and your down payment too. It’s not a requirement, but your willingness to share additional information can raise a seller’s confidence that your financial facts are concrete.
4. Write a larger earnest money check.
Every local real estate market operates under different assumptions about what’s a reasonable good faith deposit. If you decide to deposit more earnest money into an escrow account than other buyers, you’ll be sending a signal that you are seriously committed to finalizing a sale.
Since earnest money is a good faith deposit typically applied to your closing costs or down payment, you aren’t paying more for a home if you offer extra earnest money.
5. Offer flexibility on closing dates.
Most sellers prefer a quick and easy closing. But a seller may also face unique circumstances, like trying to line up another purchase.
In this case, a seller may choose a buyer who isn’t under time pressure and can offer a window for closing the transaction or taking possession of the property.
6. Streamline inspections.
You want to feel confident that a home doesn’t have lurking problems that are expensive to repair. That’s why most homebuyers include an inspection contingency in their purchase offer.
But there are ways to make this contingency less problematic for sellers. For example, you can shorten the inspection period. Also, consider prescheduling your inspection and communicating the dates to the sellers when you submit your offer.
7. Minimize other contingencies.
In a seller’s market, buyers need to reduce their demands as much as possible.
You may be able to navigate an inspection clause, but delaying closing until you’ve found a buyer for your current home will almost certainly drop you out of contention against other buyers.
When it comes to contingencies, stick to your must-haves and avoid anything off-putting, like requiring a home warranty, a paint allowance, or asking for the owners’ patio furniture.
Other Considerations
Of course, buyers can always put themselves in a stronger negotiating position by offering to put more money on the table. There are many ways to do this, including using an escalation clause, declining to ask the seller to pay closing costs, or raising your offer price.
You might also be attempted to write a letter to the sellers, appealing to their emotions. Even though “love letters” have been commonly used in the past, especially in hot real estate markets, it’s a practice that is now frowned upon since it can unintentionally lead to discrimination.
