• Your negotiation leverage when buying a home depends on various factors, including local housing market conditions, buyer competition, your financial profile, and the seller’s motivation.  
  • Getting pre-approved for a mortgage may give you more negotiating power by showing the seller that you are a serious buyer who can qualify for the funding needed to close the deal.
  • In addition to the home price, you can negotiate other terms, including closing cost assistance, the closing date, and which appliances and fixtures to include in the sale.

Many of the expenses associated with buying a home are based on your home’s purchase price. Closing costs, real estate agent compensation, the down payment amount, and even property taxes are typically calculated as percentages of the purchase price. So negotiating a good price on your new home can potentially save you money in all these key areas. 

This article will show you how to negotiate a home price while balancing housing market conditions and other financial factors to get a deal that suits you.   

How To Negotiate Home Price: Intro To Real Estate Negotiations

Real estate negotiation is the process of coming to an agreement with the home seller regarding the terms of a home purchase. Price is a critical negotiation point, but buyers can also negotiate things like closing costs, repair credits, move-in timelines, and even what appliances or fixtures are included in the sale. In fact, there is often a trade-off between a higher purchase price and more favorable terms in other areas, or vice versa. 

The goal of home price negotiation isn’t to “win” but to arrive at a fair deal that both parties can agree on.

Negotiation in real estate is influenced by many factors, including the local housing market, how long the home has been on the market, the seller’s motivation, and the strength of your offer. As a buyer, understanding the flow of this process, and knowing where you have leverage, can help you make strategic decisions.

Key Terms and Concepts To Know Before You Start

Before entering into negotiations, review these important terms and concepts:

  • Buyer’s market vs. seller’s market: A buyer’s market is when there is more supply than demand. When there are more home listings than buyers to purchase those homes, buyers have more leverage in negotiations. A seller’s market is when there is more demand than supply. When there are more buyers than listings, sellers have more leverage in negotiations. Markets can also be balanced, meaning that neither buyer nor seller has an automatic upper hand.  
  • Purchase offer: A purchase offer is the written document drafted by the buyer (or their real estate agent) to propose a deal to the home seller. It typically includes important terms, including the proposed purchase price, down payment, financing, and closing date. 
  • Counter offer. Counter offers are used when the seller is not willing to accept a purchase offer as written, but may come to a deal with the buyer under different terms. For example, a buyer might write a purchase offer of $499,000, and the seller might write a counteroffer at $525,000. Counteroffers can be proposed back and forth until a deal is reached or one of the parties walks away.  
  • Contingencies. Contingencies are stipulations that must be met before a deal can close. For example, a financing contingency stipulates that the buyer must be able to secure financing to complete the purchase. If they cannot, they may walk away from the deal. Contingencies can be used as leverage in negotiations. 
  • Concessions. Concessions are incentives one party gives the other to seal the deal. For example, the seller might offer a financial concession to help the buyer cover the cost of their real estate agent. Concessions can be requested as part of the negotiations. 

How To Prepare for Home Purchase Negotiations

Before attempting to negotiate a home purchase, complete the following steps to determine how much leverage you may have. 

1. Get Pre-Approved for a Mortgage 

Being pre-approved for a mortgage gives you more leverage in negotiations by demonstrating to the seller that you are financially qualified for the mortgage you would need to purchase the property.[1] The pre-approval process involves a review of your finances and credit score by a lender to determine if you are likely to qualify for a home loan and how much you may be able to borrow.

If you need a quick approval (perhaps because you found the right home and want to make an offer as soon as possible), some lenders offer a preliminary pre-approval. This streamlined version of a pre-approval uses a “soft pull” to review your credit score rather than a “hard inquiry” into your credit. The soft pull can be completed quickly and does not impact your credit score in the way a hard inquiry does. 

2. Research Current Market Conditions

Current housing market conditions dramatically affect how much sellers may be willing to negotiate. For example, if you’re in a strong seller’s market and there are lots of buyers searching for homes, sellers might not be willing to reduce the price or offer concessions because they feel they can find another potential buyer quickly if you walk away. However, if there aren’t many active buyers, sellers may be willing to offer you more to close the deal. 

To determine how much negotiation leverage you might have under current market conditions, consider the following metrics:

  • Months of inventory (MOI): This measures how long it would take to sell all homes on the market at the current pace. Generally, less than four months indicates a seller’s market, four to six months indicates a balanced market, and six months or more indicates a buyer’s market.
  • Days on market (DOM): The longer that listings sit on the market before going under contract, the less buyer demand there is. 
  • Sale-to-list price ratio: Homes that regularly sell for substantially less than the asking price can indicate that buyers have more negotiating power. 

3. Consider Hiring a Real Estate Agent

Real estate agents have their fingers on the pulse of the market and can be an invaluable resource for homebuyers. 

With their experience representing multiple buyers in multiple deals, as well as their in-depth knowledge of ever-evolving market conditions, a good agent can advise you on how much negotiation room you may have and what it takes to get an offer accepted in today’s market.

Your buyer’s agent can also negotiate with the seller’s agent on your behalf. Many agents have professional training in real estate negotiations. Plus, having an intermediary can put a little distance between you and the seller, which may help you maintain a position of strength through the negotiation process.   

Proven Negotiation Strategies for Homebuyers

When you find a home that meets your needs, negotiate a favorable deal with these home-buying negotiation tips.

Make a Reasonable Initial Offer

When making your initial offer, it is important to remember that the listing price does not necessarily indicate the value of the property. Some sellers list high, hoping to leave room for negotiations, while others list low, hoping to generate a lot of interest and start a bidding war that drives the price up.

Instead of starting with the listing price in mind, estimate a realistic value for the property based on recent sales of similar properties (called comparable sales). The price per square foot of comparable sales can inform your offer price.

Aggressive negotiators may prefer to make a low initial offer in an attempt to leave more room for negotiating the price down. However, this strategy can backfire if the seller is offended by the offer or believes that you are not a serious buyer based on the proposed price.

If you truly want the home, bring a reasonable offer to the table.

Bring Closing Costs and Other Items into the Negotiation

The purchase price is not the only negotiable point. You can also request a seller concession for closing costs, real estate agent compensation, and/or other home buying expenses, negotiate a closing date that works better for you, or even ask for furnishings, appliances, or fixtures to be included in the sale. 

It can be helpful to find out what’s most important to the seller and balance their wishes with your priorities. For example, if they’re looking to maximize the sales price, and you’re looking to minimize the upfront expense, perhaps you can offer a higher price in exchange for closing cost assistance. 

Leverage Home Inspections and Appraisals 

Most purchase offers contain inspection and appraisal contingencies, which allow the buyer to back out of the deal if the condition of the home is not acceptable or the home appraisal shows that the value is lower than the buyer believed when making the offer.[2]

If the home inspection uncovers maintenance issues, you can use this information to negotiate a price reduction, repairs before closing, or cash at closing so you can afford to make the repairs then. 

Similarly, if the appraisal comes in lower than the purchase price, you can ask the seller to reduce the price to match the appraised value.

Negotiation Tips for Buyers in a Seller’s Market

Negotiating the home purchase price in a seller’s market can be more difficult because sellers have the upper hand. Here are a few tips for getting the best deal under such circumstances:

  • Offer all-cash if you can. Paying in cash can make your offer more attractive by eliminating the potential of the deal falling through due to financing. 
  • Offer a larger earnest money deposit. A higher earnest money deposit can show commitment and assure the seller that you won’t back out of the deal without serious cause. 
  • Consider including an escalation clause in your purchase offer. An escalation clause automatically increases your offer up to a predetermined maximum if another buyer bids higher. This can keep you competitive without overpaying upfront.    
  • Work with the seller’s timeline. If the seller needs a quick close (or more time before they can move), adjusting to meet their schedule can help seal the deal without costing you more money. 
  • Consider waiving contingencies. Waiving contingencies can make your offer more appealing by limiting potential points where the deal could fall through. However, contingencies are there for your protection, so think carefully before agreeing to waive them.  

Get Pre-Approved Today To Prepare for Negotiations

Because pre-approval is so important to your negotiation leverage, it should be the first step on your path to buying a house. Not only can pre-approval strengthen your purchase offer, but it can also inform your budget to make sure you’re shopping in the right price range from Day One.   

Are you ready to take your first step toward homeownership? Learn more about mortgage pre-approval and get ready to negotiate the purchase of your new home.