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REAL ESTATE INVESTMENT: OTHER FACTORS TO NEGOTIATE ASIDE FROM PRICE

Posted by Mike Jordan on January 29, 2020
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Detroit Real Estate Investment

Once you get into the details of making an offer on an investment property that you’re planning to buy, you eventually learn that there is so much more than what you can negotiate for other than the sales price. Negotiating with the seller is a pretty standard procedure when investing in real estate. It’s easy to get blindsided by the price tag on a home when in fact, other factors can save you a lot. Or better yet, save you from the disappointment of buying the wrong home. Here are factors that you can negotiate other than the sales price.

CONTINGENCIES

It’s easy for first-time homebuyers to think that there’s no room to negotiate at least the standard contingencies such as financing, appraisal, and general inspection. Most of us don’t really pay much attention to this thinking that it’s already built-in to the contract. Remember, when making an offer on a home, you always have room to include (or exclude) certain contingencies.

Contingencies are a vital factor in the sales process. They greatly influence the quality of the home and determines whether it’s a worthy purchase or not. During the closing process, this can give you quite a bit of leverage over the seller, especially if you negotiate for repairs. 

EARNEST MONEY DEPOSIT

This is another key factor to determine whether you’ll be able to get the keys to the home once the deal closes. To set things straight, the earnest money is different from a down payment (and often a lot less!). This is simply a good-faith gesture that tells the seller how serious you are in purchasing their home. What most buyers fail to understand is that this deposit isn’t always a standard amount unlike what most believe. 

Your ability to negotiate the earnest money deposit depends on the current situation of the housing market. When prices reach sky high in a hot market, the same also applies to the earnest money requirement. Often times, this creates a situation where you can technically purchase the home but you don’t have enough funds to meet the much higher earnest money at the start of the deal. 

Remember, a low deposit amount may work against you by weakening your negotiating power. On the other hand, a higher deposit works in your favor by showing that you’re ready to make the deal happen. This is true especially when it comes to multiple offers on the home. A seller can easily be influenced by the buyer who sets the highest deposit over the others. 

CLOSING COSTS

Closing costs can easily catch an unwary homebuyer off-guard. Aside from the down payment, you might learn that you need to dig deeper into your pockets just to close on the deal. Although it might sound a bit counterintuitive, some sellers would be willing to pay a part of the closing costs on your behalf. 

First-time homebuyers are usually the ones who ask for a closing cost credit. The reasoning behind getting the seller to pay closing costs is closely related to the period between signing the contract and the actual completion of the deal – in other words, escrow. Sellers always want qualified buyers that don’t make much of a fuss during this period. Usually, when a buyer accepts the seller’s home in its as-is condition without demand for much-needed repairs, this could encourage the seller to agree to credits. 

REPAIRS

Assuming third party inspections have been done, repairs are one of the best ways to find a little wiggle room when you’re making an offer. It makes sense to negotiate about repairs, especially if you find out that the home needs a significant amount of work just to bring it up to today’s standards. You can either ask the seller to have them fixed or gain leverage to get a price reduction to cover the cost of work. The trade-off here is that sellers who list their home to be for sale as-is, wouldn’t be willing to make any repairs that might be needed since it’s explicitly mentioned early on. 

LEASEBACK

This is an agreement where the homeowner sells their property to a buyer while retaining the benefits of using the home, typically on a long-term lease. Basically, the sellers becomes the lessee while the buyer becomes the lessor. This can be a huge advantage to the buyer, especially for sellers who aren’t quite ready to leave their home once the sale takes place. By offering the seller the opportunity to rent the property for a certain period of time, you gain quite an amount of leverage over them.  

These are just some of the factors where you can put the seller at ease. There are other prepaid items that you can add to the mix such as negotiating for the warrant and protection plan for the home’s appliances and systems. It’s always easy to get hung up on the sales price of the home. When you offer alternatives, this makes the seller understand that the sales transaction is more of a mutual agreement rather than who gets the upper hand between the parties involved.
Of course, to fully understand everything there is in a traditional real estate transaction, it’s important to work with the right people before you dive into your first home purchase. Our team of professionals from Strategy Properties can work with you to achieve a smooth and seamless transaction to further diversify your real estate portfolio. To learn more about our services, contact us at (734) 224-5454 or reach out to us via email at info@strategyproperties.com.

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