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February 17, 2012
Top 10 - Common Sense Negotiating Tips for Buyers
Buying residential real estate is a complex and multi-faceted process. There are challenges and opportunities for negotiation at nearly every step in this process. Using persistence and a great deal of calmness in discussion to reach an agreement may be an unfamiliar skill to many buyers and even with the assistance of an experienced real estate agent, a buyer's emotions may get the better of them since they have a personal stake in the outcome. As a result, it is important for buyers to be armed with some commons sense tips to make the process go more smoothly.
For buyers, effective negotiating skills for buyers is something that can't be taken for granted as a known skill in a real estate agent. They often need additional training in this complex task, especially if they haven't worked in an executive level of a company or are newly licensed since the licensing program focusses mainly on seller and their needs. Buyers should look for real negotiating expertise in their real estate agent. The number of successful transactions may not be the best measure here - compromising a buyer's needs can often complete the negotiations, but seldom benefits the buyer. Buyers should look for other evidence of honing this skill.
In order to better equip buyers, we have prepared this list of negotiating tips. Most of these tips are just common sense but being familiar with them can be extremely helpful in this often face-paced process of negotiations.
The seller's asking price is not the only thing to dwell on when considering purchasing a home. There are several other areas that may be just as important to the seller that the buyer needs to be aware of. Some of those can be negotiated in order to save money for the buyer. The possession date may be something that of more value to you than to the seller. The inclusions, like stove, fridge, pool table, hot tub or wash and dryer, can often be negotiated without increasing the purchase price. Sometimes sellers will contribute towards closing costs and will pay for legal fees, home inspections or even their shortfall in real estate commissions that a buyer will otherwise be obligated to pay. Occasionally a home is marketing without the seller knowing that they don't have permits for a basement development other improvements or they don't have an up-to-date Real Property Report (an enhanced survey) – the absence of these items makes the purchase somewhat riskier and a value for their absence often needs to be negotiated.
Before a buyer begins a real estate search, they need to ensure they're fully pre-approved for financing. While the home itself may need to meet financing scrutiny, being pre-approved for financing will allow the buyer to shop only within their approved price range and to make quick and viable offers when they find that right home. Failure to be pre-approved and ready with financing can mean unfortunate disappointment when you can't make a fast move on your desired home. For real estate agents, negotiating for buyers means being ready to offer immediately when the right home comes along. It is quite often, that when a buyer sees the right home in the right condition, that other home buyers are also seeing it.
Often viewed as a binding element to a contract, the deposit for a home in one of our Alberta real estate contracts is only a good-faith amount and isn't even necessary to make the contract binding. The seller wants to know that after the Purchase Contract is made binding, that the buyer has a significant reason not to breach the contract and not take possession of the home. A hefty deposit will do this. The higher the amount of the deposit, the more confidence the seller will have in the contract. A larger deposit actually only reduces the amount that is due on closing and almost always isn't impacted by your financing. A deposit can be provided in two stages - an initial deposit with the offer, and an additional - often more substantial amount - up on the removal of all conditions. This two-step process keeps from having your deposit tied up should the conditions not satisfactorily be met.
Experienced listing agents know to include all the appliances that the seller is willing to part with. However, there are times that sellers wish to bargain for appliances, such as the washer and dryer, in order to get a few thousand dollars more in their negotiations. Also, if there is a piece of furniture that interests you, it does not hurt to ask the seller if that item can be part of the deal. Sometimes the seller doesn't have an emotional attachment to it or it could be that it wouldn't even fit into the home that they're planning on moving to. It doesn't always work, but it may even provide some beneficial leverage in the negotiations. Just don't try to add them onto a price that has been already negotiated - add these items into your initial offer or an early counter-offer during the negotiations.
Asking for possession in less than 15 days is not only unreasonable, it's usually not even possible. Lenders, lawyers and other real estate service providers can't complete their necessary due diligence for either party in too short of a timeframe. Likewise demanding that an entire house is repainted, or re-carpeted, is not likely to be considered seriously by a seller, since they are large expenses of time or money on an asset that the seller would have already emotionally detached themselves from and won't want to invest any more resources into it. Most often it's better to consider these items in your offer and your move-in date so that you can have them done by your own contractors after you take possession.
Offering an amount that is significantly below the seller's asking price can sometimes be justified. Perhaps the home has been upgraded far too much for the neighbourhood. Perhaps there is a great deal of work needed to bring the home up to standards that the seller wasn't aware of - like permits for basement development or roof shingles that imminently need replacing. If recent sales of homes show selling prices in the neighbourhood that are far below their asking prices, this too could be a reason to make a lower offer. Sellers often only hear of the asking prices of their neighbour's home and don't readily know their selling prices. Simply offering a price that is far below the asking price in an attempt to get the seller to negotiate is often futile in getting any kind of counter-offer at all. Often, the seller perceives this as insulting and may not negotiate at all. Always proceed with much caution - and justification - if you wish to present an offer that is much below 1 or 2 percent below the asking price.
Don't assume an "all cash" offer is a better offer: Whether your offer is "all cash" or has an element of lender financing, to a seller they get their money in "all cash" for the transaction. The colour of your cash is the same as the colour of the money they receive from the bank. Further, if a seller knows that a lender has had to verify and approve your finances as being readily available and unencumbered prior to a condition being removed, then they should have much more confidence in the Purchase Contract being actually completed.
A professional home inspection is of critical importance when buying a home. While a home inspection mainly deals with visual, non-destructive inspection of the home and the operation of the main mechanical systems of the home, this process can make you aware of potentially serious issues about a home that can be missed by the cursory inspection of a home buyer. Knowing these issues before you have a firm purchase contract, can save you from making an expensive mistake. Our contracts are written so that buyer's conditions are for the sole benefit of the buyer, so don't forego something that could protect your interests unless you are fully prepared for the consequences.
For both buyers and real estate agents, the process of negotiating can be a very stressful one. There are often already emotional investments already made by the buyers even before negotiations begin. It is important for everyone to remain calm and even detached from the emotional aspects of the buying process so that everyone keeps focused with a business-like approach to the points that can be actually be negotiated. A real estate agent should provide this dispassionate demeanour that can keep the attention on the actual issues in the Offer to Purchase and not on the nervousness of the potential buyer. Having the seller or the seller's agent pick up on this nervousness can seriously compromise your bargaining position.
Keeping things in writing will help ensure that both parties knows clearly what is expected of them and what was agreed to for the contract. If there are agreements that need to be made, either during negotiations or shortly thereafter, get them written down and signed by all parties. Making them a term of the Purchase Contract is the only way to help ensure that they will, in fact, be delivered upon as part of the agreement.
Relying on your professional real estate agent can take a lot of the burden off of your shoulders. Try not to fixate on the negotiating process -- try to relax! Sometimes it's just common sense to take a bit of a breather and come back to the negotiations a little later with a clear head. That will allow you to focus on what is really important to you instead of just the details of the transaction.
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