How buyers can negotiate house price

When you make an offer on a home, the seller may expect you to haggle over the asking price.  The thought of bargaining can feel intimidating, but knowing what to expect and having a real estate agent you trust can make the process easier to manage.

What should you do before negotiating a house price?

You must be ready to make an offer on a home before you can negotiate a price. To get to that point, you’ll need to be ready to qualify for a mortgage, find a real estate agent to represent you, and know your market.

Get your finances in order

Most aspiring homeowners need a mortgage to buy a home. To get one, you need to meet specific financial criteria, such as a minimum credit score and a maximum debt-to-income ratio. You also need enough money to afford the down payment your loan requires and closing costs.

One way to see how close you are to these goals is to apply for mortgage prequalification. This is a lender’s informal estimate of how much you likely can borrow to buy a home, based on information you provide. Prequalification is helpful for understanding how much you can afford to borrow right now.

When you’re ready to start shopping for a home and make an offer, it’s time to apply for mortgage preapproval. This also is a lender’s estimate of how much you can borrow, but it’s based on at least a cursory review of your financial documents. Preapproval shows agents and sellers that you can obtain funding to back up an offer.

Work with a real estate agent

A real estate agent is a crucial partner in your home buying journey.

An experienced agent can help you decide how much to offer and advise you on how to negotiate buying a house and getting the best price. They’re experts in the local market and can help you understand everything from which school districts are best to what you can expect to pay in property taxes. Agents also can separate their emotions from the home-buying process.

A good agent will help you draft a strong offer letter that includes all the contingencies you want and need to protect yourself. Having been through the process before, agents have experience in negotiating the price on home sales. They can help you decide on your upper and lower limits, and directly communicate with the seller and their agent.

Contact a local real estate agent before you start shopping for properties. Not sure where to begin? Consider searching for an experienced agent through Redfin^®.

Know your market

The state the market where you’re looking to buy plays a significant role in whether you’ll need to negotiate the sale prices. Your agent can tell you if it’s a buyer’s market or a seller’s market.

A seller’s market has more demand than available homes. That gives the seller the advantage in setting the asking price and other terms of the deal. When demand is high, buyers have less room to negotiate. A buyer’s market has more demand than available homes. A seller who’s looking to close a deal quickly in a buyer’s market may be more willing to negotiate a lower price or commit to repairs to attract a buyer.

Tips for negotiating a house purchase

When you’re ready to buy, have found a home to buy, and are ready to negotiate, here are some tips that can help.

Get a home inspection

A professional home inspection gives you an objective report on the home’s overall condition, which is essential to negotiating the sale price. An inspection will reveal any problems with the home, from foundation cracks to a malfunctioning heating, ventilation, and air-conditioning (HVAC) system.

If the home inspection reveals problems that are a deal breaker for you, you can ask the seller for concessions. You may want to ask the seller to fix a problem, give you a credit for closing costs, or reduce the price. You have some leverage here if your offer included an inspection contingency, which allows you to cancel the sale agreement without penalty if problems are found.

Remember that an inspection isn’t the same thing as an appraisal, which estimates the fair market value of your home and is required by your mortgage lender.

Always communicate through your agent

There’s a lot of jargon used in real estate transactions. Many of these names and terms have legally sensitive definitions, and it’s easy to conflate one with another. Many home shoppers often confuse an appraisal with an inspection.

Ask your agent to handle communications between you and the seller. Your real estate agent knows how to phrase questions and requests in a way that doesn’t put your interests in jeopardy or create misunderstandings.

Ask for closing costs

A down payment isn’t the only item you need to pay to close the deal. You must also pay closing costs, which include the fees required to underwrite and fund your loan, as well as to transfer legal ownership of the property. Common closing costs include appraisal fees, inspection costs, and credit check fees. Closing costs on a home purchase are usually 2% to 6% of your loan amount.

Remember these fees when negotiating with the seller. If the seller won’t reduce the asking price, they may agree to seller concessions such as paying some or all of your closing costs to close the sale more quickly. If it’s a seller’s market, it may be easier for the seller to accept an offer that isn’t asking for concessions.

Find out why the seller is moving

The more you know about a seller, the more effectively you can negotiate. If a seller is moving because they’ve taken a new job and bought a new home, agreeing to a discount on the price may make more sense than paying for repairs uncovered in the inspection report.

Ask your agent to find out more about the seller’s timeline and motivations. Learn if the seller prefers a shorter or longer closing process. If your seller is getting a divorce or wants to move to an area with a better school district before the start of the school year, they may be eager to sell. This gives you more power to negotiate, especially if their property has been on the market for a while.

Don’t be afraid to walk away

Not every seller will negotiate. They may have several offers or are extremely attached to the property and unwilling to give it up for less than they think it’s worth. In these circumstances, it can be tempting to throw your budget to the wind and offer more than you can afford to win a bidding war. Offering more can reduce your down payment percentage, but it may also trigger private mortgage insurance (PMI) payments, which can increase your monthly payment and strain your budget.

Go into the home buying process assuming you’ll need to walk away from every for-sale property you see. Attend plenty of open house events, ask your real estate agent to set up several private showings for you, and try not to get too attached to a particular home. This can help you negotiate more effectively and stay within your budget.

How much can you negotiate on a house?

The amount you can offer below the asking price will depend on the house's condition and comparable sales. In a buyer’s market, it can be reasonable to bid as much as 20% less than the asking price if the home requires extensive repairs, such as replacing the roof or foundation repairs. Offers of 5% to 10% below the asking price also are acceptable, depending on the need for remodeling or if the home needs an appliance upgrade.

Your greatest asset here will be recent sales of comparable homes in the area. If comparable homes in similar condition sold for less than what the seller is asking for, it can encourage them to reconsider.
For this reason, it’s a good idea to have an appraisal contingency. If the seller refuses to lower the price more than the home is appraised for, an appraisal contingency allows you to walk away without losing your earnest money.

The bottom line on how to negotiate house price

Negotiating a home purchase price can be challenging, especially for first-time buyers. You can make the process more predictable by getting mortgage preapproval so you know how much you can afford to spend on a home, and choosing an experienced real estate agent who can advise on market conditions and work directly with sellers on your behalf. Don’t be afraid to walk away from a sale if you can’t reach an agreement that works for you.

Now that you better understand how to negotiate the price on a house, it’s time to begin your house hunt, apply for a mortgage, and use your negotiation know-how. Get preapproved today and put your newfound negotiating knowledge to the test.