Negotiating Your First Home Purchase

First-time homebuyers are hit with a slew of firsts. Whether it’s picking a real estate agent or deciding what neighborhood you want to live in, the homebuying process can be daunting.

Once you find an agent and the home of your dreams, you may feel like the hard part is over. However, you’ll need to be prepared for the potentially grueling process of offering and negotiating on a home before you pack up your things.

Buyer’s vs. Seller’s Market

Understanding the homebuying market can make your negotiation offers stronger. The market typically depends on the amount of interest in a home. If it’s a seller's market, there is generally a lot more interest in homes than the amount of inventory. This means sellers have the upper hand, and your offer will likely need to be highly competitive.

If it’s currently a buyer’s market, you may have an easier time negotiating the price. Let’s take a look at a few negotiation points you can propose to a seller.

Negotiate Closing Costs

The main points of leverage you have to negotiate with a seller are your closing costs. VA closing costs include legal and tax fees associated with buying a home and usually total between 3 and 5 percent of the total sales price. If a home is just slightly out of your price range or you feel that it is overpriced, try negotiating with the seller to cover some of the closing costs.

It’s also worth noting that because it’s necessary to pay closing costs upfront, having them covered by the seller can make a big difference for someone with little to no cash on hand for a home purchase.

Ask For Seller Concessions

Seller concessions go beyond the typical closing costs associated with a VA loan. Seller concessions can be used to pay the buyer's VA funding fee, discount points, taxes, insurance and more. However, it’s important to note that seller concessions on a VA loan cannot be more than 4 percent of the total loan amount.

Make an Offer with Contingencies

Contract contingencies are another bargaining chip that homebuyers can use to their advantage. If you’re set on a home, but it seems that the seller is unwilling to negotiate on price, show your interest by making an offer contingent upon a home inspection.

Families living in a home for a number of years have a tendency to exaggerate the value and become stubborn on asking price. Making a realistic offer, as well as scheduling a home inspection, can expose the problems to both the seller and the buyer so they are more aware of the merchandise and can negotiate more sensibly.

If the seller is still unwilling to budge on the price, having a contract contingency in place gives you an opportunity to walk away from the property without losing any earnest money.

Ask the Seller to Make Repairs

Home inspections shine a light on any issues with the home, and are a great opening to ask sellers to pay for repairs needed. No home is perfect and there are always repairs that could be done, but finding something important like faulty wiring, moisture in the basement, or roofing problems pose an expensive threat to the future homeowner.

Whether it’s fixing the foundation or simply updating the flooring, let these repairs serve as bargaining chips in your offer. If the owner is unwilling to fix a wiring problem that a contractor estimates to cost $7,000, ask that the price be reduced by that much instead. Obvious and documented repairs can help you get the best price on a home that is fully up to code.

Work with a Real Estate Agent

Buying a home comes with a lot of real estate jargon that may become overwhelming. Working with a real estate agent is one of the best things you can do to ensure you’re getting the best home deal. Having your agent communicate with the seller will ensure nothing is getting lost in translation.

Paying Full Price

Another common mistake first-time homebuyers make is skipping the negotiation phase completely. If the home is priced competitively and you’re very interested there is nothing wrong with paying full price or even offering slightly above asking, but take advantage of the buyer’s market and at least try to negotiate yourself a deal.

The best advice for anyone going into the negotiation process on a new home is to expect the unexpected and be flexible. Don’t expect the seller to settle at half price, just like you wouldn’t expect the seller to want you to pay $50,000 over asking. At the end of the day, buying your first home is a huge financial milestone. Negotiating with a seller can be difficult, but knowing what can and cannot be negotiated is a solid first step to getting the best price on your new home.