How to Negotiate a House Price

Unless you are a real estate investor or developer, there are few personal items that will cost as much as the home you buy for your family. Your home represents far more than just an investment. It will become your castle, your nest, your family's home base. The point is that when you negotiate a house price you may or may not be the best person to do so because there are emotional issues that may hinder your ability to negotiate effectively. An example might be the pressures of a spouse who really, really, really wants the house.

Buying a house comprises two diametrically opposed issues. One is location and configuration. These are personal issues that are based on your preferences, proclivities, and desires. They are emotive and philosophical by nature. The other is financial. It is based in hard numbers and facts. One reason real estate brokers can be of value is that they can take on the negotiating aspect of the transaction leaving the personal issues to you. It is up to you to find and select a home that meets your personal criteria. It is also your responsibility to manage how the broker handles the financial negotiations.

Just because you delegate the financial aspect of the acquisition does not mean you relinquish control. To manage the broker's efforts on your behalf when negotiating a house price you will need to provide him direction.

Brokers are not acquiring the house. They are not paying the mortgage. They are looking to make money on the deal as efficiently as possible. You can help them achieve their goal by clearly giving them direction about your expectations from them while they act as your agent.

1. Determine how much you can afford to pay in terms of down payment, monthly payments and total price. Then tell the broker not to waste your time with anything more than 15% over the maximum you know you can comfortably afford. You can likely get the asking price down a bit but there are always hidden costs that creep into the picture so a little buffer is always nice to have.

Brokers frequently try to get you to stretch. You need only be firm. Your time is valuable and if you have set your budget accurately, there is little reason to look at anything that is out of reasonable reach. Do not let the broker tell you not to worry about the price just find what you want. He or she is trying to draw your emotive side into the equation hoping to get you to stretch a bit. This is not servicing your needs. Brokers should be directed to do what you ask not what they think might be best.

2. Determine the requirements you need in terms of size, number of rooms, lot configuration, distance from work, and whatever other criteria is important to you. Tell the broker these are your requirements and that you do not expect him to bring in properties that deviate substantially from your criteria. If you are looking for a three bedroom house and the broker continually presents you the perfect five bedroom homes you are working with the wrong broker as he is wasting your time as well as his own.
3. Make sure the broker is showing you all available properties that meet your needs not just the listings from his company. Too often brokers try to maximize their commissions by only sharing their listings. You need a broker who will try to service you fully regardless of his or her commission.

4. Some brokers represent both parties. This is known as dual agency. By law they need to tell you if they are representing both parties. If so, realize that your broker is legally obligated to fairly represent the seller as well as you. This is not an optimal situation if you are going to rely on the broker to negotiate the best possible deal for you. In such a case you can refuse to approve a dual agency listing asking the broker to find you or the buyer another broker or you can assume the negotiations yourself.

5. Set the price you are prepared to offer. Depending on the broker's role you will want to establish the maximum you want to pay and the minimum you should offer. Do not let the broker recommend a high initial offer to not offend the seller. Brokers traditionally try to narrow the gap quickly to get a deal made before losing the opportunity. You should be more interested in negotiating the best possible deal. The seller, just like you, wants to see a deal made and is not likely to get too upset with a modest offer. Just keep it reasonable from your perspective based on comparable sales which the broker should provide you and the economic climate.
6. Ready to negotiate? When you are ready to make an offer and start negotiations you should provide your broker with specific guidelines that he can work within without your prior consent. I recommend that you:

• require the broker to discuss any offer with you before it is tendered;
• obligate the broker never to intimate to the seller what you might be willing to do;
• thoroughly debrief the broker as to how the seller reacted when presented with an offer; and,
• require all offers and counter-offers to be in writing.

I actually prefer you be in the room so you can assess the reaction personally but sometimes this is not possible. The reason is that the reaction goes a long ways towards guiding your next response. When the broker, any broker, relays what happened they will, consciously or not, bias their report to you. It is like the old 'telephone' game. A phrase is repeated through several people and changes with each restatement.