Purchasing a home is one of the biggest financial decisions most people will make in their lifetime. As a buyer, you want to get the best deal possible on your dream home. As a seller, you want to maximize your profits when selling your property. This is where negotiations come into play.
The purchase contract is where buyers and sellers can negotiate terms to create a deal that satisfies both parties. Strong negotiation skills are essential to ensuring your client’s interests are protected during the home buying and selling process.
Here are 10 negotiation tips for real estate purchase contracts on behalf of their clients:
1. Know the Comparable Sales
One of the most important factors in real estate negotiations is having knowledge of comparable sales, also known as “comps.” Study recent sales of similar homes in the neighborhood to help determine a reasonable price range for the property.
Arm yourself with this data before writing or reviewing a purchase offer. If the seller’s asking price seems too high compared to comps, you will have solid evidence to counter with a more appropriate price point.
2. Understand Motivations
Take time to understand what motivates both the buyer and seller. This insight can help you negotiate terms that appeal to each party.
For example, is the seller eager for a quick sale or flexible on closing dates? Does the buyer need to move in sooner than typical closing timelines? Knowing these motivations allows you to negotiate creatively to meet mutual goals.
3. Write a Strong Offer
A strategically written purchase offer can set the tone for successful negotiations. Include favorable terms for the seller whenever reasonable. Make sure the offer is clean, professional, and complete to show you are serious.
Being organized and detail-oriented upfront indicates you will be easy to work with through the transaction process. A strong offer gets negotiations off on the right foot.
4. Avoid Lowball Offers
Resist the temptation to lowball with an excessively low offer price. Most sellers will immediately reject unrealistic offers well below market value. You want to start negotiations somewhere in the reasonable range.
Aim your initial offer at the lower end of fair market value based on comps. This allows room to increase the price during negotiations if needed to reach a mutual agreement.
5. Be Ready to Negotiate
Understand that negotiations are a normal part of most real estate transactions. Do not get discouraged if your initial offer is not accepted. Expect that some back-and-forth will be required to get to a final purchase contract.
Be mentally prepared to negotiate on price, closing dates, fixtures, repairs, contingencies, and other terms. Have a strategy in place, but also remain flexible. Negotiations require compromise from both sides.
6. Keep Emotions in Check
Negotiations can sometimes get heated when large sums of money are on the line. As the agent, it is your job to keep emotions in check for yourself and your clients. Remain calm, professional, and focused on objective data like comps.
If negotiations start spiraling into personal attacks, take a break to reset. Refocus the discussion on mutual goals rather than individual agendas. Cooler heads prevail.
7. Know When to Walk Away
Sometimes it becomes clear that you have reached an impasse. If you cannot get within a reasonable range of the buyer’s top budget or the seller’s bottom line, it may be time to walk away.
Know when to stop negotiating to avoid bad deals or frustration. Be ready to politely discontinue discussions and move on if needed. There are other great properties and buyers to work with.
8. Close with a Final Offer
When you feel negotiations have a chance to result in an accepted offer, make a final “best and final” offer for the seller to consider. Indicate this is your final position in an effort to close the deal.
Hopefully the seller sees you have negotiated in good faith and will accept the last offer. Make your final terms as appealing as possible while protecting the buyer’s interests.
9. Get It in Writing
Verbal negotiations mean nothing until they are officially documented in the purchase contract. All agreements, terms, prices, and other details must be put into a written contract for review.
Never rely on verbal commitments alone. The written contract codifies the negotiation results in a legal document. Review all details and language closely before signing.
10. Build Negotiation Skills
Like any expertise, negotiation skills require education and practice to master. Take courses, read books, review case studies, and learn from mentors. Pay attention to the approach and style of seasoned real estate professionals during negotiations.
Additionally, try your hand at mock negotiations and role playing exercises to gain confidence. Refine your skills with each transaction. Effective negotiators are not born overnight.
Real estate negotiations require skill, preparation, and strategy. As an agent, you play a key role in developing purchase contracts that satisfy both buyers and sellers. Keep these negotiation tips in mind as you represent your clients:
- Enter talks armed with data like comparable sales
- Understand each party’s motivations and limitations
- Make initial offers within a reasonable range
- Remain professional if negotiations get tense
- Use contingencies appropriately to protect clients
- Know when to walk away from a bad deal
- Get all the final terms in writing before signing
With practice, you will become more adept at crafting “win-win” deals through purchase contract negotiations. Hone your skills to advance your real estate career while protecting your clients’ best interests.
Frequently Asked Questions About Real Estate Purchase Contract Negotiations
What terms are most commonly negotiated in a real estate purchase contract?
The purchase price is almost always negotiated between buyers and sellers. Other commonly negotiated terms include:
- Closing date
- Inclusions/exclusions of appliances, fixtures etc.
- Home repairs to be completed prior to closing
- Home warranty or protection plans
- Payment of closing costs and fees
- Home inspection contingencies
- Appraisal contingencies
- Length of due diligence period
- Earnest money deposit amount
What repairs should be negotiated in real estate purchase contracts?
Any repairs or defects uncovered in a home inspection report are ripe for negotiation with the seller. Most sellers will not agree to all repairs but may cover some. Focus negotiations on:
- Repairs for health/safety issues like mold or broken railings
- Roof, foundation, plumbing, electric – major systems
- Updates that seriously impact function like HVAC
- Aesthetic fixes like carpet stains or broken tiles
Cosmetic fixes like paint chips or worn countertops usually are not worth negotiating over. Prioritize major repairs in negotiations.
How do you determine negotiation strategy for a real estate purchase contract?
Consider these factors when formulating negotiation strategy:
- Client’s must-have needs vs. flexible wants
- Evidence from comparable sales to support price
- Seller motivations like need for quick sale
- Competitiveness of the real estate market
- Condition of the property
- Strength of your client’s offer
Align strategy with client goals, market factors and seller considerations. Adapt your approach as negotiations proceed.
What makes a buyer’s initial offer weak in real estate negotiations?
Watch out for these weaknesses in an initial purchase offer:
- Offer is lower than comparable sales justify
- Earnest money deposit is too small (<1% of price)
- Few or no concessions offered to seller
- Too many demands for repairs and credits
- Aggressive closing timeline
- Numerous contingencies that favor buyer
A lopsided offer in buyer’s favor will likely be rejected or set the wrong tone for negotiations. Offer fair terms to get talks started.
What are contingencies in a real estate purchase contract?
Common contingencies benefit the buyer by providing outs if certain conditions are not met. Contingencies may include:
- Home inspection – buyer can opt out if major issues found
- Financing – buyer has right to cancel if loan is not secured
- Appraisal – buyer can cancel if appraisal is lower than offer price
- Sale of current home – buyer’s offer dependent on selling current house
Contingencies favoring sellers also exist like “as-is” purchase. Limit contingencies to necessary ones only.
What makes a good “final offer” when negotiating a real estate purchase contract?
An effective final offer:
- Is within a reasonable range of seller expectations
- Contains your best terms offered in good faith
- Appeals to seller motivations when possible
- Is clearly labeled as “final offer”
- Includes an expiration date for acceptance
Final offers still require some compromise from buyer but represent your best possible position. Make it appealing for the seller to close the deal.
What are the risks of negotiations falling through?
If negotiations ultimately fail, possible consequences include:
- Buyer loses earnest money deposit if contingencies are waived
- Sale falls through wasting time for buyer and seller
- Property has to be relisted by seller, delaying sale
- New negotiations start from scratch with another buyer
- Transaction costs incurred are lost like inspections
Fallout from failed negotiations can be expensive and time-consuming. Avoid risks by negotiating carefully.
In another related article, Investment Properties Guide: Your Comprehensive Real Estate Handbook