The Best Possible Terms

For you to get the best possible terms and price on a real estate transaction, you need the help of a realtor and a lender.  Your realtor will have first-hand knowledge of the current real estate market; with this information you will be adequately prepared to negotiate a fair price on the subject property.  You will also depend on the services of a lender.  A lender can provide you the necessary information when inquiring about seller concessions.  Also, a lender will know the amount of your closing costs and the maximum allowable concessions, for the mortgage program in which you qualify.  The lender and the realtor rely on each other’s services to efficiently negotiate the best possible terms.  It is the combination of their expertise and efforts that will give you the essential advantage in negotiation of the best terms from the sellers.  Before you plunge into the negotiation process, there are a few crucial items you should know right from the start.

Your realtor will provide you with the fair market value of the home you intend to buy.  Having this knowledge at your disposal will allow you to more accurately calculate what the sellers will accept.  It will also ensure that you avoid the error of an offer to the sellers with terms that might be construed as insulting or absurd.  Sellers that have been presented with an unrealistic offer will most likely reject the contract altogether and dissolve any further negotiations with you.  You would not want that to happen, especially if your intentions are to have an offer accepted on this home.  Your objective, in negotiating the best possible terms, is to draw as much equity away from the seller as possible and still have the offer accepted.  This is where you should employ the expertise of your realtor to help you in the negotiation process.  

Most home buyers will look for an opportunity to have the sellers responsible for paying their closing costs.  You have the option of asking the sellers to pay your closing costs, but in return you will need to concede on the price offer.  Your lender will be able to direct you on what the market will allow in seller concessions.  They will also be able to give you the information on the total seller contribution accepted by the mortgage program in which you qualify.  As you can see, it is important that you have both realtor and lender experts working for you to negotiate the best possible terms in a real estate transaction. The best way to illustrate this concept is to take you through a real life example: 

Let’s propose that you have found a condo in an elegant neighborhood in downtown New York.  The asking price of the condo is $560,000 and the condo has been on the market for 92 days.  After speaking with your realtor you determine that the fair market value for this condo should be around $550,000.  You and your realtor can validate this amount by canvassing comparable condos sold in the last 90 days.  You and your realtor develop a strategy to find the best offer and conclude that $550,000 will be your final offer.  As previously stated, it would be offensive to arrive at an offer substantially lower than the fair market value and, therefore, should be avoided.  Making an offer of $500,000 on this property may be seen as an insult and could banish you from the possibility of any continued negotiations with the sellers.

Once you have established the bottom line figure to offer on the property, you should speak to your lender to identify any seller concessions permissible by the mortgage product you are qualified for.  Most mortgage products will allow you up to 3%; in this case 3% equals $16,500.  Note: if you decide to ask for seller concessions, you will need to increase the offer by the additional amount requested.  Increasing the price empowers you to be consistent in the offer you plan to negotiate with the sellers, at which sellers are more certain to consider the offer. 

After talking with your lender, you have decided that you will ask for $8,500 to help offset closing costs on your loan.  You then use the fair market price (determined by you and your realtor) of $550,000.  After including the $8,500 in your computations, you have decided to make an offer of $558,500, with $8,500 in seller concessions.  If the sellers are undeterred to sell the condo, it is safe to assume their realtor will help them validate the offer and advise them to accept or reject.  If they do not accept the offer and decide to make a counter offer, then you and your realtor will have to decide if the terms meet your expectations. 

Remember that in a buyer’s market you will find sellers willing to negotiate to the fair market value of the home; if they are not willing to work with those terms, moving in another direction may be your best option.  You will be amazed by the promptness of the response from the realtor if you decide to ignore the counter offer.  It is best to not waste your time bargaining over small, incremental amounts.  If your offer is within the fair market value of the home, then stand by it.  This will ensure that you have negotiated the best possible terms for yourself.