Negotiating the Home Purchase

Most folks think of real estate negotiation as a one-time event that occurs when a buyer first makes an offer on a home. Actually, there are several points of negotiation that take place throughout a typical residential transaction. Price and terms constituted the first phase of negotiation. The second point of negotiation follows the ten day Due Diligence (DD) period. The third phase of negation only occurs if the appraisal comes back for lower than the purchase price.

Each of these points can make or cost a client money and other headaches. (Note: There could be other issues which arise during the transaction that will require more negotiations, but these are the main ones).

First Stage of Negotiation: Price and terms.

It’s rare that a buyer doesn’t ask their agent, “how much should I offer?” A good question certainly, but a veteran professional most often would reply that he or she would need to look at the comparable sales (aka: Comps). In effect, doing an appraisal for their client. Once we know market value, then we would look at other data such as amount of days on the market, and seller motivation.

Comps can be the most effective strategy to bring a seller, or seller’s agent down to earth. After all, if the buyer’s agent does a good job using comparable sales to align their offer, they can rationalize that an appraiser will come up with a similar valuation. This will save heartache down the road.

If a home is newly listed with multiple offers, it’s safe to assume that list price is at least market value. This is because a home is ultimately worth what buyers are willing to pay for it, and if multiple buyers are willing to pay at least asking price for it, that is as good a confirmation as any on value!

If this happens, the negotiation strategy changes from, “how much lower can I buy this home for, to “what will it take to get this home!?” This is where the Realtor professional must have a serious dialogue with their buyer client about the highest they are willing to go. I’ve had clients look me in the eye and say, “Mike, whatever it takes, get us the home!” Umm, no pressure there.

The question we agents should be asking ourselves is, “If my client doesn’t get this home they absolutely love, will I be able to find them a similar one for near that price?” Even though we have a common saying that “there’s always another house,” sometimes it’s really only second best.

The buyer has a major role to play in negotiations as well. The up-front qualifying of the buyer is imperative in ALL transactions. An Arizona Pre-Qualification Form which is now a requirement of the purchase contract, is only the beginning. If a buyer is “pre-approved” rather than “pre-qualified,” this can help negotiations immensely. “Mr. and Mrs. Seller, my client, Buyer Bob is already loan approved!”

Another effective strategy can sometimes be writing a cover letter to the seller. This can be from the agent or the buyer, though generally we like to undertake this task ourselves. In it, we explain how much the buyer loves the home and envisions how they would raise their family in it, or praising the design colors of the home, or how well the home is kept. This personal touch is especially valuable if multiple offers are on the table. This approach has little to no value if the seller is an investor.

Second Stage of Negotiation: Due Diligence (DD)

Arizona residential purchase contracts call for a Ten-Day DD period for a buyer to be able to have any and all inspections they want. Beyond the standard home and termite inspection, the home inspector may recommend further inspections such as roof, mold, Heating/AC, electrical, etc.

Besides the physical inspection, the buyer can check out many online sites such as neighborhood crime stats, proximity of registered sex offenders in the area, schools, commute times, you name it.

The ten-day DD period concludes when the Realtor provides the seller with a form called a BINSR (acronym for Buyer Inspection Notice and Seller Response). At this point the buyer has three options. They can accept the property as is requesting no repairs

Third Stage of Negotiation: A Low Appraisal

Sometimes, a house won’t appraise for what the agreed on price is.  This becomes an issue because banks generally won’t lend money to a buyer for a property they don’t believe is worth the amount they are paying. Why?The bank will use the home as collateral for the loan, so if the buyer doesn’t pay the mortgage and the bank has to reposes their home, they will be stuck with a property that might not sell for high enough to pay off the loan.

When this happens, the seller either needs to lower the price to come into line with the appraiser, or the buyer needs to come up with more cash to make up the difference.  If neither of these things happens, the deal is lost! The seller has more to lose here than the buyer in most cases.

Our contracts here in Arizona are written in such a way where the buyer will get their earnest money (deposit) back if they can’t close on the home because of an appraisal issue. Therefore, they have lose nothing except for time and disappointment.

The seller on the other hand now has to face the prospect of putting the home back on the market. This will cost them time AND money.  Depending on the difference in value, most sellers would opt to lower the price than lose the deal. Knowing this, buyers have an opportunity here to get an even better deal on the property than first negotiated.

About the Author

     I was born and raised in San Rafael, California, from the mid 50’s to the early 70’s. I had super parents who worked hard to provide 5 kids with a good Catholic education – despite my best attempts to overthrow the knuckle-cracking regime of Sister Mary Anselma. My dad worked as a self-employed butcher until his retirement at 65 and enjoyed many wonderful years until mom passed away in 1992.

     Dad passed away in the fall of 2006 having lived a great and full life into his early 90’s! In California, I attended college in Chico and Sacramento as a “Sosh” major, but like many of my contemporaries, I did not have a clue what I wanted to do when I grew up. Because of my age, I missed the Vietnam War and into my early 20’s I had many typical youthful indiscretions.

     Thankfully, that was a brief period of my life, and with greater thanks, not too much damage was sustained in those early and rebellious years. And by the way, those thanks are due to the answered prayers of faithful relatives who prayed for years that a wayward Michael would turn his life over to the Lord, and in January of 1982 that’s what happened.

     I lived in Sacramento, California in the mid 70’s, and later moved to Truckee, California, which is near Lake

Tahoe and Reno, Nevada. Truckee’s often labeled the “coldest spot in the nation.” Why did I move there?

My father-in-law was a real estate broker in Donner Lake, California, and despite his cantankerous disposition, he seemed very successful in his real estate endeavors. I joined him in sales in July of 1976.

    The Truckee and Lake Tahoe area was a wonderful place to raise a family, but a difficult and cold environment to live in, but we did so for 18 years. In 1994, my wife, Karen, and I visited Scottsdale at a friend’s request, and within 8 months, our family of 5 had relocated to “the valley” – or is it a desert? Whatever it is, it’s warm. At any rate, 24 years have gone by since we made the break from the late great state of confusion, uh, California, and it’s turned out to be a great move.

     As for hobbies, I enjoy family, friends and travel. My kids Robert, Kendra, and Jonathan are now 40,

34, and 31 respectively. I recently became “gramps” for the 4th time as well. It’s a nice time of life. Karen remains as lovely on the inside and outside as the day we were married. We continue to wonderfully grow together as the years advance. As an ordained Christian Chaplain, I volunteer Preaching at Florence Prison with Along Side Ministry. The ministry helps make the formerly incarcerated able to function, even thrive, on “the outside.”

     Should you choose to have me represent you in the sale or purchase of your home, you’ll be receiving my 40+ years of real estate knowledge, counsel, and experience (including negotiation experience).

    Beyond the transaction, I’m always available to you, should you ever need my real estate advice.