Negotiation: When to Say Deal. When to Walk Away.
Buying a house is stressful. Really stressful. We never sugarcoat that here at the Pathfinder HomeOwnership Center. We’re real, raw and honest with our customers. Because in the end, that will help our customers face the challenges that will undoubtedly be coming during the process of buying. We want people to be prepared.
So, here’s the deal. You can get advice from a realtor, from a relative, a friend or a stranger. In the end, you need know your own situation well enough at the time of negotiation to know when to say deal or when it is best to walk away.
In 2009 my wife and I stood in the kitchen of a beautiful remodeled home in a small town in northeast Indiana. We were 24 years old. We had been married for 2 years. And we were intimidated at the thought of negotiating face-to-face with the seller of our hopeful home.
He started the discussion asking us to name our price. What were we willing to offer him? We had no clue. We hadn’t really prepared. We knew what he had put on the For-Sale sign, but we had no idea what the final sales prices were on comparable houses. And the seller wanted to keep a realtor out of the mix, so he could save on fees. We had no one to help us think it through.
We told him our price. He countered about $6,000 higher than our starting request. We stood there trying to communicate quietly with each other without him eavesdropping. We countered $1,000 higher than our original offer. He scoffed at it and complained about how he wouldn’t even make any money on the deal at that price. It was very awkward. This went back-and-forth for about 45 minutes as we negotiated multiple things. Whether or not he would include appliances. Would he pay our closing costs? Would he pay for a survey of the property? When would he let us move in? Would he fix a couple of things before we closed? After a tense conversation, we found ourselves shaking hands on a price and writing up the purchase agreement.
Fortunately, in hindsight, I can say that we negotiated well and that we got a good deal on that house. Even so, we made some serious mistakes that day that could have cost us a lot and opened the door for the other party to take advantage of us. We were already too emotionally invested in that house to walk away. We had no clue what other houses were going for in that area to see if we were even in the ballpark. We had no one there to help us run the numbers. But one thing that we did know was how much of a monthly payment we could afford and what price our loan needed to be for us to keep that ideal monthly payment.
Thankfully things worked out okay for us. But after several years of working in the homeownership world, I have heard story after story of people who said “deal” and later came to regret it. Whether you’re negotiating face-to-face or through a realtor, you need to keep a few things in mind to make sure you come out clean:
- Know your “walk away” price. You need to have that top dollar price you’re able to pay for the house already set in your mind before you start negotiating. If the deal can’t get done under that price, remember step #2.
- Walk away. Be emotionally prepared to not get that house. There are almost always other opportunities that will come along. Yes, the current market is very tight, and houses are selling fast and for higher amounts. That does not mean that you need to damage yourself or your family financially just to get THAT house.
- Have a baseline knowledge of what similar houses have sold for over the last couple of months. Realtors always work the “comps” or comparables when listing a house; however, it’s ultimately up to the seller to name their listing price. Often that price is high. You can easily look up some comparables by going to Zillow.com and selecting “recently sold” from the Listing Type dropdown. This will give you the ability to look at similarly priced houses, square footage of those places sold and see pictures to get a feel for similarities to the house you’re getting ready to put an offer on.
- Don’t be too stubborn. At first this one may seem to contradict my previous statements, but you do need to keep in mind that you can’t put an $80,000 offer on a house listed at $130,000 and expect it to work out well. Part of negotiating is understanding that the seller has needs in the deal as well and you need to work to find some common ground while also staying within your budget. You may have to sacrifice a couple of things like taking the washer and dryer out of the deal but keeping the refrigerator so that the seller will stay within your price range. All that said – know what you want, but more importantly, know what you need.
There are several other tips and experiences we could share about this part in the homebuying process but know that if you ever have questions or need someone in your corner to help we are always glad to serve.
Next month’s topic: Closing On Your Home – What to Expect, Plus Moving Costs & Tips