Which brings us back to buying a home. Here, everything is negotiable the most important items usually being the price and the terms. If you’re a good negotiator, you may end up paying 5 to 30 percent or more below what the seller is asking. Negotiation is an inherent part of buying real estate and if you’re going to participate, you should plan on learning the basic skills.

Should I Rely on the Agent? At this point, I’m sure some readers are saying, “Hold on. I worked with an agent when I bought my last home. The agent did my negotiating. The agent saw that I got a good price.” I doubt it. You may have gotten a good price, but if you did, it was largely because of your own efforts. The agent in many cases is the seller’s agent, with a fiduciary responsibility to the seller to find a buyer. In most states it is unethical if not outright illegal for the seller’s agent to even suggest that you offer less than the seller is asking! This doesn’t mean that agents don’t, in fact, do so. In my experience many agents do. But they may couch their suggestions in language such as, “The sellers have indicated that they are anxious to sell and that they’d be agreeable to an offer of a little less than the asking price.” Indeed. The sellers may be desperate and may be willing to take an offer of 25 percent less than the asking price. But the agent can’t come right out and tell you that if he or she represents the seller, unless they have authorized her to say it. In addition, most agents don’t really want you to make a lowball offer. The lower your offer, the harder it is for the agent to get the seller to accept, and the less chance there is of getting a commission. (The agent normally gets a commission only when there’s a sale.) On the other hand, if you offer just a little bit less, sure the seller might be willing to accept that. A sale is quickly made and a commission obtained.

So instead of offering $25,000 less than the asking price, you offer $5000 less and get it. The seller is happy. The agent’s happy. And you, you big dummy, are happy because you think you got yourself a “good price.” The point is that you can’t rely on anyone but yourself when it comes to negotiation. Agood agent can handle the actual mechanics of speaking for you to the seller, and that’s certainly a big plus. But the agent can’t or at least shouldn’t tell you what to offer. It’s ultimately up to you to determine what the parameters of the negotiation are going to be. You set the price, the terms, and all the other conditions of sale that you will accept. (Also see Article 6 for picking a good buyer’s agent.)

Are You Your Own Worst Enemy? Which brings us back to you. Most house hunters, particularly house hunters who don’t regularly invest in real estate, are worried about hurting the seller’s feelings, about insulting the agent by offering a price far lower than the asking price, and most important, about doing anything that would appear foolish. If that’s the way you feel when you open negotiations for the purchase of your next home, you are a gone goose. Remember the example of buying shoes in Mexico? The seller and buyer in Mexico often argue back and forth for a long time, haggling over the price. But then, when it’s all said and done, they shake hands and become bosom buddies. Well, you may not end up bosom buddies with the seller, but remember that when negotiating for real estate you are participating in that same age-old ritual of bargaining. You are relying on your own cleverness and personal will power. If you are weak and susceptible to the influence of the seller (or the seller’s agent), you could be talked into paying a higher price, getting less favorable terms, or (worst of all) accepting a house that you really don’t want. On the other hand, if you are a good “horse trader” you are going to get a good deal all around.

Can I Negotiate on a New House? A few exceptions are in order here. Sometimes you’re buying a brand new home instead of a resale. The builder/developer has a set price written in ink on the brochure. Either you pay that price, you are told, or you don’t get the home. Right? It depends. If the market is hot and new homes are selling as fast as they can be put up, yes, you’ll have to pay the set price. In fact, when the market is very hot people will sometimes camp out in front of builder/developers’ offices for days just for the privilege of paying full price for a new home! On the other hand, if the market is slow, there’s no reason you can’t offer a builder/developer a lower price and get it. (Just remember that builder/developers often have a relatively small profit margin and they may not be able to accept a severely reduced price. See Article 12 on buying a brand new home from a builder/developer.)

Should I Negotiate Directly with the Seller? Sometimes sellers will bypass the use of an agent and attempt to sell their homes themselves. (In the trade these are called FSBOs for sale by owners.) The temptation is to think that because no agent is involved, the seller doesn’t have to pay a commission and, hence, can offer a lower price. Maybe. On the other hand, you now not only have to set the parameters of your negotiations (price and terms) but also you have to carry those negotiations out face to face. If you’re a good horse trader and if the seller is too, things should go fine and no agent may be needed. But, unfortunately, in our country most people have been inured into thinking in terms of fixed prices and not negotiation. Hence, when you offer the seller far less than he or she is asking, you could be asked to leave in not so pleasant terms and further negotiations may be impossible. Or, if the seller is a good negotiator and you aren’t, when your low offer is rejected along with suggestions that you’ve insulted the seller’s integrity, you may be put off and leave without realizing that it was all part of the game. As a result, for the vast majority of people, buying direct from sellers (contrary to what the TV “get rich quick” gurus of real estate may push) is more difficult, and less likely to result in a good price and terms, than dealing with a broker/agent. (I’ll have a lot more to say about working directly with a seller in Article 13.)

Can I Learn to Negotiate Successfully? In the old days in real estate (by old days I mean as late as the 1950s) the Latin expression “caveat emptor” was often quoted: “Let the buyer beware.” Since that time, consumer protection laws have swelled to the point where today the buyer who knows how to take advantage of these laws is protected and even has advantages as never before. However, when it comes to the actual negotiations, there are no protections for the buyer. You are at your own mercy. You can make a good deal. Or you can get yourself into terrible trouble. The question naturally arises, therefore, of how a person who is not a real estate professional can negotiate successfully in what may be a den of wolves. How do you avoid cheating yourself by your negotiation inexperience? The answer is by acquiring knowledge. Having read this article thus far, you’ve already acquired a great deal that you may not have known before. You now know that everything is negotiable. When the agent says, “There’s no way you can ask for the refrigerator. It’s personal property and goes with the seller automatically.” You can stand back, catch your breath, and say with confidence, “Either I get that damn refrigerator or there’s no deal!” Grumbling, the agent will write into the contract that the refrigerator goes with the house, knowing full well that he or she is going to have to fight the sellers for hours to get them to agree. You should now know that there’s nothing embarrassing about submitting low offers and making your agent struggle to get the seller to sign. There’s nothing wrong with insisting on terms that are totally favorable to you. You should also now know that it’s a mistake to let the seller’s agent “assist” you in determining the price to offer.

Finally, you should now know that there’s nothing foolish about getting down on the ground and scrambling for price and terms. It’s an ancient tradition that, regardless of your particular background, is your human heritage. You were born to do it!

Knowledge Is Power The best way to negotiate is to negotiate from strength. There is only one way to get strength: through knowledge. Ultimately, how you fare when buying a home is going to be a direct result of the knowledge you have. The more you know about the condition of the house, the motivation of the seller, and the state of the market, the better a position you’ll be in to negotiate from strength. How do you get that knowledge? In the next articles we’ll go over much of what you need to know. We’ll look at common and not-so-common traps that most buyers fall into. Hopefully, perhaps for the first time in your house-hunting experience, you will have the tools in hand to become a good negotiator. Once you know how the game works, you can play. Now, here are some quick tips for negotiating that you may find particularly helpful:

Tips for Negotiating   Never be insulting remember, it’s only business. If you insult an agent or seller, you can turn it into a personal fight, which you’ll probably lose.   Get time on your side Give the sellers very little time to make a decision on your offer, perhaps 12–24 hours or less. It forces them to choose and helps prevent a better offer from slipping in.   Appear “hard nosed” If you convince your agent you won’t pay any more, he or she will more likely be able to convince the seller.   Find out the seller’s motivation If the seller is out of work, has been transferred, the house must be sold in a divorce, or the seller otherwise must move quickly, consider a lowball offer. A desperate seller should be willing to give you a better deal.   Be willing to compromise (counteroffer) but only when you’re absolutely sure you can’t get your original offer.

If you can’t get your price, try to get your terms sellers are often hung up on price. If you give them their price, they may be willing to give you a low-interest rate mortgage, lots of personal property, early possession, or almost anything else that you might need, which may be worth more than price to you. For more information on the topic of this article, you may also want to read, Tips and Traps When Negotiating Real Estate Irwin, (McGraw-Hill, 1995).

Accepted I’ve never heard of a buyer who boasted about paying too much for a home. We all want to get the lowest price we can, a price that we feel makes the property a good value at the least, a bargain at best. But how do we achieve that? If you ask your agent, you may meet resistance. Most agents would prefer an easy negotiation, which means that you come in at close to full value. (Remember, an agent doesn’t normally get paid unless there’s a sale.) In addition, the agent may be working for the seller (unless you’re using a dual or buyer’s agent) and may not owe you allegiance. Consequently, in many ways when you ask your real estate agent how much to offer, you’re in a position similar to asking an automobile salesperson how much to offer. You’re asking the wrong person. You’re, in effect, asking the seller, or at the least, someone who’s more interested in getting any deal, rather than a good deal for you. Whom should you ask?

Rely on Yourself If you’ve been looking at homes for a while, you should have a pretty good idea what similar houses are listed for. This gives you a good idea of the price range your prospective house is in.

Selling prices and listing prices are usually different. In most markets they sell for less than listed. In some hot markets, of course, they may actually sell for more! Check the “comps.” Ask your agent to let you see the selling prices of similar homes going back at least a year. Any agent worth her salt has these figures readily available from a listing service see Article 7. (You can also sometimes get this info from the Internet see Internet Resources at the end of this article.) Pick out all sales for similar houses, then try to get as close a match as possible (same number of bedrooms, bathrooms, pool, amenities). In an active market you’ll find half a dozen sales or more. Extra features such as a new kitchen or bathroom or other remodeling do add to the value of a house. However, they don’t normally make the house significantly more valuable than its neighbors. Any house that’s priced more than 5 percent above its neighbors because of improvements may be a “white elephant.” Also, it’s important not to feel sorry for sellers who have sunk a ton of money into remodeling and are now trying to get every penny back from you. It’s not up to you to bail them out of their foolishness. Remember to recheck the comps. See if you can find a home that recently sold that also had similar improvements, and compare prices.

How Much Should I Offer? Sellers in most markets ask more that they are willing to take for their homes. They are expecting to come down some, hence the above-market asking price. If you pay what the seller is asking, you could be wasting money. The real trick is knowing how much less than asking price a seller will take. Sometimes a seller will only come down a few thousand dollars. Other times they may drop 10 percent or more. And, of course, there’s that occasional seller who refuses to come down a dime. (And in very hot markets, there are multiple offers from buyers, and to win you must pay more than asking price!)

Unless you’ve got supernatural powers (or the seller’s agent spills the beans), you don’t know. That means you have to learn through the negotiating process. Your offer and each counter-offer the sellers make tells you more. Eventually, if you’re a good negotiator, you will have gotten the lowest possible price.

Should I Lowball the Seller? It all starts out with a low bid. You can’t very well go lower after you’ve previously made a high bid; you would lose credibility and the seller’s interest. However, if you bid too low initially, the seller may not believe that you’re in earnest in buying the property and may simply turn your offer down without even a counter. Which brings up the biggest risk when lowballing, you may lose the property entirely. Now it’s a matter of understanding yourself. From an investment perspective, it’s better to lowball 10 houses and not get any of them than to pay too much for one house. On the other hand, if you’re looking at this property more as a home than as an investment, you may not want to risk losing it. You may feel that you’ll simply die if you don’t get it. You just can’t lose it! If that’s the way you feel, then don’t bother with lowball offers. They’re simply too risky for you. Come in close to full price, so that this one won’t get away. (In a very hot market, you may want to offer full or even more than full price!)

TRAP KNOW THYSELF Are you more investor or more habitat buyer? Are you in love with the property? Or can you just walk away? Are you willing to make offers on a dozen properties before getting one? Or is the whole process so overwhelming that you simply want to get it over with? How you answer these questions should guide how low . . . or high an offer you make.

How Much Should I Lowball? You may want to offer as much as 25 percent or more less than the asking price. However, that’s usually just a test offer, trying to see what the water’s like. In all but a very cold market, a seller’s likely to simply reject it out of hand. Indeed, the seller may simply ignore the offer and not counter it, and that could mean the end of the deal for you. Often the goal of the initial lowball is to get a counter-offer from the seller. Try to offer enough to entice the seller to at least respond. The counter-offer can be very revealing. If it’s just a thousand dollars or so off the asking price (or right at the asking price), you can assume that this seller won’t budge much. Then it’s time to fish or cut bait. Either move up to the seller’s price, or move on. Remember, to succeed with making lowball offers you must be willing to make a lot of them. You have to play the odds. You have to expect that most of the time they will simply be ignored.

It’s a good sign. It’s a better sign if the seller accepts your original offer. But a counter means the seller is willing to dicker with you. After a seller counters at a significantly lower price (but not as low as you’ve originally offered), you’ve really got only three alternatives: 1. Accept the seller’s counter, if you think it’s low enough. 2. Counter at a price compromising halfway between your original offer and the seller’s first counter-offer. (You can’t both accept and counter. Countering is making a new offer.) 3. Repeat your original offer, if you think it’s a good price. Compromising at halfway between the seller’s last offer and your original offer (#2 above), may land the deal. Or the seller may cut the remaining distance in half again with yet another counter. Or again the seller may simply pick up his or her marbles and leave the game. If the seller does counter, however, you’re well along toward getting the home at a reasonable price. Sticking to your original offer (reoffering it as your first counter) has some negotiating drawbacks. It tells the seller to take it or leave it. It says you’re not willing to compromise.

A certain percentage of the time (no one knows how much, but it’s not high), you’ll win by holding pat. The seller will indeed capitulate and accept your original offer. This usually only happens, however, in a cold market and with a desperate seller. More likely the seller will simply throw up his or her hands and say there’s no dealing with you. The seller will then simply walk away. After all, if you don’t raise your offer, what choice have you left the seller but to take your offer, or quit? My suggestion is that unless you think your original lowball offer is actually realistic, always counter the seller’s counter, even if you only come up a thousand dollars or so. It keeps the negotiations open and gives the seller another chance to come down even more! Eventually, you’ll get the house you want at the price you want to pay. Or you’ll move on.

GET AN AGENT WHO WANTS TO MAKE YOUR OFFER Some agents simply refuse to take a “lowball” offer. They may say something like, “I can’t take this offer to the seller. You’ll just have to offer more.” Baloney. The seller’s agent has to take every legitimate offer to the seller. A legitimate offer is one that is in writing with a deposit. Your agent may not like it, but he or she will do it. On the other hand, if the agent is reticent to submit the offer, you’d do better by finding a different agent who is more willing to try to get your price accepted. By the way, if you are using a buyer’s agent (as described in the Article 6), it is incumbent on that agent to get for you the best price the seller is likely to accept. You can rely much more heavily on a buyer’s agent’s advice than on a seller’s agent’s or a dual agent’s comments.

Your agent isn’t likely to encourage you to talk to the seller. That bypasses the agent and arouses all kinds of suspicions (like maybe you’re trying to finagle a deal to avoid paying a commission). Don’t worry. They won’t put you behind bars for talking to the seller. Just remember, the seller is only a phone call away. On the other hand, don’t try to bypass the agent to avoid the commission even though a seller may suggest this, offering to split the cost of the commission through a lower price. You probably won’t succeed and you’ll only offend the agent, who you want to be on your side. If an agent shows you the property, then almost certainly the house is tied up by an exclusive listing. The only way for the seller to avoid paying a commission is to wait until the listing has expired. Even then, most listing agreements provide that a commission must be paid to an agent for months after the listing expires if the buyer (you) was shown the house during the listing period by the agent. You would have to wait months in order for this finagling to be effective, and during that time chances are that someone else would come along and buy the property out from under you.