Have you ever overspent on a major purchase and regretted it later? If you are looking to buy a house or have just purchased one, it’s important to realize that houses are listed higher than what the sellers expect to receive. Many listing agents do this on purpose in anticipation of negotiation. Failing to negotiate will cost you for many years to come. The most skilled negotiator can get everything that s/he wants and make the seller feel like they won the battle.
I Learned the Hard Way
I haven’t always been an expert negotiator when it comes to major purchases. I learned the hard way when I was the seller. I was approaching my graduation from college. My wife (fiance at the time) and I were going to get married two months after graduation. We were also getting ready to leave the country for a year. We didn’t need either of our cars so we decided to sell mine before leaving school. The first mistake I made as a seller was put a short time limit on selling my car. The biggest blunder, however, came much later when the first person came to look at the car.
I had originally listed it for $4000, but didn’t hear anything for 2 weeks. I bumped the price down to $3700, expecting to get more calls. Instead, there was nothing but the sound of crickets. No one called. As a last resort, I dropped the price all the way down to $3000 with about a week before graduation. The car was worth somewhere around $3500, but I had to get rid of it in the next week.
This did the trick. I got a few phone calls and set up the first appointment. When the guy came, he test drove the car and started negotiating with me. He offered me $2500. I wouldn’t accept this. Given his first offer, I then crafted my counter offer at $2750. After a few minutes, he “reluctantly” accepted. I thought I had won the negotiating battle until hours later when I realized how much of a deal he received. He purchased a car for nearly $1000 less than market value.
Start Low
While I felt like an idiot, this one mistake taught me a lot about bartering on major purchases. One of the first steps in saving money on that next home purchase is to ask for more than you expect to receive. This may sound crazy, but this is the best way to enter into negotiation. If you ask for what you expect the seller to accept without any negotiation, you have basically handed over free money to them.
Just think about the guy who purchased my car. He started lower than what he expected me to accept and this won him nearly 10% of the asking price. The best part about starting low is that when the seller makes a counter offer, it makes them feel like they have won the negotiation. I certainly felt like I won in selling my car because I got him to come up $250 from his original offer.
Get Creative with Your Offer Letter
The only downside to this approach is that sometimes the initial offer will get rejected with no response. Certain sellers will see your low offer and refuse to counter because you have offended them. This may happen from time to time, but it shouldn’t force you into paying more for the home. The way to get around this is not to offer more money, but to be creative in writing up the offer. Instead of having one item to negotiate, you might as well put more pieces into play.
For example, let’s say that you find a house that is listed for $90,000. If you are willing to pay$75,000, one option would be to offer $60,000 with the hope that they would counter to split the difference. Offering this low of an amount would almost certainly offend the seller. Instead, why not offer $70,000 and ask the seller to pay $5,000 of closing costs. While they may not accept this initial offer, it is closer to their asking price and provides you with things to give up. If they counter with a higher price, you can always present them with another offer and remove the request to pay for closing costs. This not only saves you money, but also leaves the seller feeling like they won the battle.
This is only the beginning. Being creative with writing up an offer on a house starts here. There are many other ways to give yourself the upper hand. Here are other things that you may want to include when writing that offer:
- Major Appliances
- Maintenance Fees (for a condo)
- Personal items (lawn mower, gardening tools, etc.)
- Certain repairs to be made
You may not care about the lawn mower or washer and dryer, but they are great pieces to give up in later rounds of negotiation in order to convince the seller that they are winning. Next time you want to make an offer on, try to come up with ways to give yourself the advantage in negotiating.
Have you ever negotiated a better price? What are some negotiating tactics you have used to save money on big purchases?
This post was written by staff writer Corey from 20′s Finances. His personal finance blog helps people plan for the future. To receive updates, follow @20sfinances on Twitter.
We negotiated $34,000 off of the asking price of our house, and received a one year home warranty. We bought right as the bubble started to go down, so we basically adjusted the price down to post-bubble levels. I am extremely glad that we did, or I would likely be under water right now.
MoneyforCollegePro recently posted..Why FastWeb is a Complete Waste of Time
MoneyforCollegeProject, I am glad to hear that you negotiated the price down. You are right, there are many people that failed to do so and owe more than the house is worth.
20′sFinances recently posted..Is it Hard to Time the Market in a Recession?
We bought a short sale last year and my realtor offered a starting price that took my breath away it was so low. If they had accepted it I literally would have skipped around the block in joy. The bank came back with a price that was way under what I expected to pay. The owners of the house even chipped in $2,000 of their own money to make the deal happen.
So yes, it’s worth starting super low. If they want to sell they will counter. It would be pretty tough to offend them so much they won’t even counter.
Ashley @ Money Talks recently posted..Co-working
Ashley, that sounds like you got quite the deal and that you picked the right realtor.
20′sFinances recently posted..Is it Hard to Time the Market in a Recession?
just a note, not all houses are listed higher than what they expect to get for it. Sometimes they set the price low and hope for multiple offers or a bidding war. You really have to gauge your bid based on the comps in the area and how your house measures up.
I can say for a fact, had I lowballed for my house, they would have laughed at me and thrown out my bid. (of course I am in a HCOL area, and our home prices haven’t fallen nearly as much as the rest of the country, and we also have a pretty high turn over of sellers/buyers because we have a lot of military and government workers that move in and out of the area)
Mercedes recently posted..What a spendy month it has been
Mercedes, thanks for the clarification. Indeed, there are exceptions to every rule of thumb. Every market is unique and offers many benefits and challenges. At the very least, it sounds like you have some security in your home purchase, even if it is was more expensive than other markets.
20′sFinances recently posted..Is it Hard to Time the Market in a Recession?
Great tips! When we bought our house, we came in with an “insulting offer.” But the house needed a lot — and I mean a lot — of improvements. We wrote a list that included all the work we needed to do on the house to bring it up to date. The realtor presented the list with our offer.
When the sellers countered, they came closer to our offer. It was still $$8,000 more than our offer, but we were nervous, first-time homebuyers; we didn’t counter back. Even so, I’m happy with our final price!
Christa recently posted..Financial Mistakes: Planning to Live on Social Security
Thanks Christa. Yes, writing all of the things that need to be accomplished is a great way to get the seller to come down in price.
20′sFinances recently posted..Is it Hard to Time the Market in a Recession?
The most important part of negotiation is be willing to walk away and stay emotionally detached. If you can do those two things, you have a better shot of getting what you want.
krantcents recently posted..Am I Training for a Race?
Krantcents, that is a great tip. Being too emotionally involved can change the price that you are willing to pay.
20′s Finances recently posted..Time is your New Best Friend
When selling large purchases, such as a car, it helps to have a longer time period to make the sale and get the highest price. This way you can wait for the right buyer to come around.
World of Finance recently posted..Alexa Rank Drops Below 200K
Thanks WOF. Absolutely. That is one of the mistakes I made, but won’t make again (unless I have to).
20′s Finances recently posted..Time is your New Best Friend
You have some great insight into the negotiating game. I haven’t always been a good negotiator, either as a buyer or a seller. Similar to when you sold your car, I have been in situations where I was under time constraints and had to settle for less than the best price.
Dave recently posted..Simple Investing With Little Money, Best Ways to Invest Money for Busy People
Thanks Dave. I’m not the best at it yet, but it is important to keep learning from your mistakes.
20′s Finances recently posted..Time is your New Best Friend
Yeah, with the right negotiating way, we surely can save more money as well as get the “things” with its fair value. That’s why we should learn how to negotiate in the right way.
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[...] In case you have not heard, I am the new staff writer at Life and My Finances. I am excited about being part of an established personal finance blog. If you haven’t checked out my first article as a staff writer, please check out my tips to save on your next house purchase. [...]
[...] your currently house hunting, make sure you read up on Negotiating Tips over at Life and My Finances. I am slightly disappointed in my tactics, I think I caved and went [...]
A good real estate agent can also help with these negotiating stances. What to offer for a home, what to ask for the sale of a home, and they usually have an excellent knowledge of the market/neighborhoods.
Brandon recently posted..What Makes a Great Closing Gift?
Since quite a few houses on the market right now are bank owned forecloses (REO’s), I thought I would comment on something I run into quite a bit.
I see a lot of these REO contracts state they wont pay ANY closing costs. The problem is these homes are in terrible shape and lenders will not fund a loan until the repairs are made. Well, a buyer should never do repairs on a house they don’t own, so the bank who owns the REO is usually forced to issue a credit (unless their dealing with an all cash offer).
I’ve seen huge credits on contracts which originally stated they wont pay ANY closing costs. The further in the process, the more likely a credit will be, and the more you can ask for.
These banks want to get rid of these REO’s and just because the contract says NO credit, that’s not always the case. There is plenty of room for negotiation.
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[...] Negotiating Tips to Save on Your Next House (Life and My Finances) [...]
It is nice to be here.i was in search of some tips before buying any real estate and i got it here. I was looking for such useful sites.
Thanks.
Acharya@property in mumbai recently posted..1 Rk Apartment,For Sale in ,Near Inorbit Mall,Hanuman Nagar,Goregaon (W)
Glad we could help!