When Are The Negotiations Over?
The primary negotiation in a home purchase takes place when the contract is agreed upon that includes the price, closing and possession. With inventory down over 19% in the past year and multiple offers being more of the norm than the exception, the first round of negotiations can be challenging.
Buyers and sellers alike feel relieved once it has resulted in an agreement, but experienced agents know there is more to come if there are contingencies for financing, inspections, or other things. The competition for the home may be so tough that the buyer waived their rights for what would be normal contingencies.
Financing is one of the most common contingencies in normal situations but when multiple offers are involved, the cash offers tend to have the advantage. If you don’t have the resources to make a cash offer, the next best position is to be pre-approved with a commitment letter from the lender. Arrange for the lender to confirm the pre-approval directly with the listing agent prior to the listing agent presenting the offer.
There have been buyers who know they don’t have the cash to close and apply for a mortgage anyway and try to reinsert the provision outside of the contract. Experienced listing agents will advise the seller to have the buyer provide proof of funds necessary to close and verify that they do indeed exist.
The purpose of an inspection is for the buyer to receive an objective evaluation about the condition of the home and its components to identify existing defects and potential problems. The expense for inspections can be several hundred dollars and it’s reasonable for buyers not to want to spend the money before they find out if they can come to terms with the seller. From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections because they could be losing time. For that reason, inspection time frames are limited to a few days from acceptance of the offer.
Sometimes, buyers will expect sellers to make all the repairs listed on the report and this is where the second round of negotiations begins. If the seller refuses, the negotiations can go back and forth until the other party accepts the offer on the table.
When purchasing a new home from a builder, it is expected for everything to be in working order; after all, it is new. However, it is reasonable to expect that existing homes, that are not new, have a different standard. While it’s understandable that buyers would want to be aware about major items that are not in “working order”, normal wear and tear of components based on its age should be expected.
In a highly competitive seller’s market, buyers might do whatever they can to get their contract accepted, realizing that there is another place to negotiate when they’re not competing with other buyers’ offers to purchase.
The negotiations involved in a home purchase are not complete until the buyer and seller have signed the papers and the title has passed to the buyer. Up until the closing is finished, any item that comes up could prolong the negotiations.
For this to be a WIN-WIN situation, both seller and buyer must feel good about the negotiations that led to transaction closing. Neither party should feel that the other party had an unfair advantage over them.