With the national real estate market in a deep slump—and homeowners scrambling to unload properties—consumers are in a great position to save some cash by bidding down asking prices. "It's a feeding frenzy," says Glenn Kelman, the CEO of online brokerage firm Redfin. But in the often-complex process of buying a home, negotiations can be tricky, and people considering doing so should make sure they understand what they are getting into. U.S. News spoke with five negotiation experts and came up with a list of the seven biggest mistakes you can make in negotiating to buy a house.
1. Not understanding the seller. In a home price negotiation, it's essential to look at the deal from the opposite side of the table. "You want to make best use of the seller's fears," says Ed Brodow, a negotiation expert and the author of Negotiation Boot Camp. "So the question is: What are the pressures on the seller of this house?" Sellers today could be facing any number of anxieties. Perhaps the local housing market is even weaker than the sluggish national one. Maybe the seller has landed a job in another city and already bought a home there. He or she could even be facing bankruptcy. Any information you can obtain about the local real estate market or the seller will strengthen your negotiating position. When Steven Cohen, president of the Negotiation Skills Co., first visited a home that was for sale in 1981, he noticed that the property had no furniture or heat. "That gave us a little bit of a sense of the degree to which the people wanted out and gave us a heck of a lot more bargaining power," Cohen says. "We offered tons less than what they were asking." The sellers eventually accepted the offer.
2. Forgetting your homework. Some of this needed information is readily available. You can get the sale prices of comparable homes and discover how long certain listings have been on the market from a real estate professional, a multiple listing service, or an online resource, says Joshua Dorkin, the founder and CEO of real estate networking and information site BiggerPockets.com. To take the temperature of a local market, identify a couple of good real estate blogs and click through them daily. To find out the seller's motivations, try getting in touch with him or her directly. Some will refer you to an agent, but others will chat candidly. In addition, "researching who lives in and around the home you're [considering] buying is of the utmost importance," Dorkin says. By speaking with neighbors, you'll gain a sense of what life is like in the community and perhaps even pick up some insight into why the sellers are moving. "You can never have enough information," says Jim Camp, the author of No: The Only Negotiating System You Need for Work and Home.
3. Showing your cards. While looking for information on the seller, it's important to divulge as little about yourself as possible. Any knowledge you provide could be used by the seller as leverage. "For example, you may want to pay cash for the house, but the sellers don't have to know that," Camp says. If you are capable of paying cash, the sellers may hold firm to their asking price, he adds, "because it means that you are a person of means."
4. Not having options. When you begin negotiating on a specific property, make sure you have identified several other homes you'd be happy with as well. "Never negotiate without options," Brodow says. "If you find a perfect house, find another house so you are not so desperate to buy [the first] house that you wind up giving in to whatever the seller wants." Furthermore, it's to your advantage to tactfully—either directly or through your agent—let the sellers know that theirs is not the only property you are considering.
5. Skipping the face time. Instead of handling the negotiation process by phone and fax, it's important to meet the seller in person. "The most effective way to influence or persuade—which is what negotiation is all about—is to do it face to face," says Tom Hayman, the president of Negotiation Expertise, which trains people in negotiation techniques. "Because then you get your words, you get your voice, and you get body language—or nonverbals—all into the equation." If the transaction is being handled by real estate agents, the sellers should request that their agent get together with the buyer's agent in person to discuss the prices. If your agent is unwilling to do so, he might not be the right agent for you. "A buyer should be looking for an agent who is going to do that kind of effort for them, because it always pays off better when it's face to face," Hayman says. (Buyers using agents should be aware that their agent gets a bigger commission on a higher sale price and therefore may have less of an incentive to push for a lower price tag.)
6. Offering a specific number. When extending an initial offer, present a range of figures—say, from $420,000 to $450,000—rather than a hard number. An offer of a specific number that is considered too low could upset the seller enough to derail the negotiations altogether, says Cohen. A price range, however, affords you more flexibility. "In negotiating, you don't want to adopt a position where you paint yourself into a corner," Cohen says. "Because the only way you can get out of the corner is to lose face and perhaps lose a few bucks."
7. Getting caught up in the game. Remember, your goal is to purchase a home—not beat the seller. "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," says Daniel Shapiro, associate director of the Harvard Negotiation Project and coauthor of Beyond Reason: Using Emotions as You Negotiate. So what if the seller doesn't bring the price down as much as you had hoped? If you really like the house, the price has been reduced enough to fit your budget, and you've given the negotiation process your best shot, consider declaring victory. "I hear a lot of situations where real estate deals fail because one side or the other refuses to come down another $5,000," Brodow says. "They don't want to give in, and then it becomes an ego thing."