With the sluggish real estate market making home sellers increasingly desperate, the table is set for buyers to negotiate their way to hefty savings. But what are the do's and don'ts of negotiating home prices? Daniel Shapiro, associate director of the Harvard Negotiation Project and coauthor of Beyond Reason: Using Emotions as You Negotiate, spoke with U.S. News about his advice to consumers. Excerpts:
How can consumers put themselves in a better position to negotiate down the price of a home?
Know what the comparative analysis is; how long a house has been on the market is a great indicator of its attractiveness and how much you might be able to get off of the price. It's an important thing to know because in some areas prices are declining 10 to 20 percent. At the same time, in the locations such as where I am living, in Arlington, Mass., [the market has] held pretty steady. Whatever area you are considering moving to, get their stats.
What should consumers know about making a low offer?
Don't try to steal the home. If you give an offer that is insultingly low, the buyer may not think you are trustworthy or maybe for emotional reasons not want to give it to you. [A seller might think], "I like this house. I'm not going to give it to you for $1. It's worth much more than $1." In today's market, you can negotiate, in many cases, the price down. My advice would be to find a price that within the market is a fair price. This is the price that is going to be most persuasive to everyone: to the agents on both sides, to the buyer, and to the seller.
How important are emotions in the home-buying process?
I do believe that emotions are such a critical element in dealing with real estate. People think it's just about numbers, when this is actually very much a human transaction. At the end of the day, I have lived in my house for 30 years, and I don't want just anyone to buy it. I'd rather sacrifice a substantial amount of money to have that really nice family move in and appreciate this house where I have raised my kids. And I don't think that's uncommon. I think it's crucial to recognize that. Money is a piece of it—it's an important piece—but it's not the only thing. They want their emotions addressed [as well].
What should home buyers using an agent know about the process?
It's important, when you are working with an agent, to understand that an agent does have an interest in the house being bought for more money because they will make a higher commission. And you, as the buyer, have an interest in buying the house for the best possible price.
Are consumers more likely to get a better deal through an agent or on their own?
There are pros and cons in terms of negotiating [directly] with the seller. On the one hand, it can be helpful to build that rapport with the seller. You can ask questions that are sometimes hard to ask through intermediaries. If you do meet directly with the owner, remember that most of the time, people are very attached to their homes. So if you walk in and think that your negotiation strategy is going to be to criticize elements of the home and show all of the problems so that you can get a reduced price, you might just have lost the rapport with the seller. Emotions are very tangible when you're face to face, and I think that's often a benefit of an agent. I think it's very helpful to actually get your agent on your side because this agent is dealing in the market; they know what the market values are much better than almost anyone. And so to get their advice on what they think an appropriate range for the house might be and even on negotiation strategy could be useful.
What's a potential pitfall homebuyers face in negotiating?
People often get so enmeshed in the negotiation game that they lose the house they like and could afford because they didn't get the negotiation price they thought they could get. That's a big problem, and I could see that being particularly sensitive given today's market.