Freddie Mac on Negotiating a Sales Price

Before you negotiate a sales price, it's important to determine if you or the seller has the stronger position. Knowing this will help you plan your negotiation.

The seller may have the stronger position if:

• The local real estate market is strong and homes are selling quickly.
• They aren't in a rush to move.
• Similar houses have sold for close to or above their asking price.

The buyer may have the stronger position if:

• The local real estate market is weak.
• The seller needs to move quickly.
• The house has been on the market for a long time.

When negotiating, more information is better. Look at your notes from when you looked at the house. If there's anything in need of repair or replacement, you may include these costs in the negotiation. If you want certain appliances or fixtures to stay, be sure to include them in the negotiation. You may also want to make your offer contingent upon your obtaining financing or the house passing a professional home inspection, especially if it is an older home.

There are several steps to negotiating:

• Asking price.
  This is the price the sellers have originally listed. In a buyer's market, you may be able to successfully offer below the asking price. However, in a seller's market you may want to be prepared to offer more. Before making an offer in a seller's market, know how much above asking price you are willing, and able, to bid in case the seller gets multiple offers.

• Initial purchase offer.
  This is your first offer. It may include contingencies (such as a requirement that the home pass a professional inspection or that you receive adequate financing from your lender.)

• Acceptance of offer or counter-offer.
  The seller can accept your offer or make a counter-offer of a new price or additional contingencies.

If you've made a home inspection part of the contingencies and something serious is found during the inspection, you may want to submit a new counter-offer and discuss the situation with your lender. The process may go back and forth several times before you and the seller reach an offer that is acceptable to you both. Remember that in some instances, your lender may not approve your mortgage if the home has serious deficiencies that could affect its value.

• Escalation clauses.
  If you live in a market where homes are selling quickly and have multiple offers, your contract may need to be offered with something called an escalation clause, which allows the offer to increase by certain dollar increments if another competitive offer is obtained and entertained by the seller.

A word of caution about a "hot" market

If the real estate market where you are looking to buy is "hot", meaning that the houses are selling quickly and often for above the asking price, don't be tempted to bid more than you can afford for a home.

You may find that you are outbid on a number of houses but don't be discouraged – the right home is out there. Remember, it is truly only the perfect home for you if you can afford it. If you get caught up in a hot market, you may find yourself with a bigger mortgage than you can comfortably afford.

(Article from FreddieMac.com)