Three Types of Negotiations in Residential Real Estate

Normally, when we think of negotiations in residential Real Estate, we probably think of negotiating the purchase price, and that is indeed the first negotiation. There are, however, a couple of other types of negotiations which often come up so let’s discuss all three.

  1. Purchase Price negotiations are indeed the most common negotiations in residential Real Estate. A seller might ask $300K for a property. The buyer might offer $275K…and from here, it’s not uncommon for a little back and forth to occur. Often, an agreement is reached although not in all cases. Some buyers will low ball their offer which can offend some sellers which could result in declining that offer. Also, some sellers will list too high. A good REALTOR® would have run comps at the beginning of the process in order to recommend a strategic list price. At the end of the day, the client makes the decisions, and the REALTOR® is the advisor. It would, however, behoove the seller to heed the recommendation due to the pending appraisal (more below on appraisals).
  2. Repairs & Concessions – A second type of negotiation comes up after a home inspection report is produced. This negotiation can involve potential repairs which may be needed. The seller can repair some or all of what the buyer requests or they can decline the request. Another option is to get an estimate from a professional contractor and then lower the sales price by that amount so that the buyer can then arrange for that contractor to make the repairs after the transfer of ownership.
  3. Appraisals – A third type of negotiation involves appraisals. In most financed purchases, an appraisal is required by the lender so that they don’t loan more than the value of the property. If the agreed price is $285K, but the appraiser determines the value to be only $275K, the lender will now loan ONLY $275K. This leaves a gap of $10K. So, the seller can agree to reduce to $275K, the buyer, if feasible, can pay the $10K difference in cash, or the deal can be terminated if a new agreement can’t be reached.

In one of my columns a few months ago, I talked about how important it is to have a high-octane REALTOR® who has relationships with the other local professionals in this industry. Arranging for contractors to estimate repair costs (see #2 above) is a perfect example of why this is vital. You need a real human who’s based locally and knows all of the other local players who help bring your transaction to fruition. It’s also vital for your lender / loan officer to be local for similar reasons. A national company is fine so long as the loan officer is based locally.

As you can see, negotiations can come up multiple times within a transaction. You need someone experienced to advise you on each step. Utilize that advisor to help you manage potential stress!