Save money with the art of home-price negotiation

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Ask a Lender
December 4, 2015 | Updated September 19, 2017


Key Points

Tips for home purchase negotiations

  • Before you make an offer, negotiate mortgage terms.
  • In a hot market, sellers may not need to negotiate with buyers.
  • Set up an escalator clause to raise an offer in a multiple-offer competition.
  • It's OK to negotiate even after an offer is accepted.

Haggling over prices often conjures up images of garage sales or used-car lots, but it also can be an effective technique when making the biggest purchase of your life: your home.

By knowing what you can negotiate and when, you could shave thousands of dollars off the price of a new house.

Before the offer

First off, before you even get to the point where you are negotiating over the price of a house, make sure you have done the same with your mortgage. The Consumer Financial Protection Bureau (CFPB) reminds potential borrowers that, until a contract is signed, mortgage terms are always negotiable — although there is no guarantee that lenders will agree to any changes so shop around from the beginning.

"It's usually easier to negotiate the fees charged by your lender than it is to negotiate third-party fees," the CFPB says.

Once you are ready to move on to the house itself, many costs are negotiable, from the price of the house to closing costs and other fees. But do your homework. Before you submit a low offer that you hope will kick off a round of negotiations, be sure you know what the local market is like, and the odds of multiple offers coming in on the house.

If there are several comparable houses on the market, and little competition, the odds are better for you to negotiate a deal that's favorable to you. If, however, you live in a market where houses are sold quickly, and most receive multiple offers, sellers aren't likely to give a second look to lower offers, even if the intent is just to kick off negotiations.

To counter against that possibility, some buyers choose to submit an offer with an escalation clause. When using a clause, buyers start their offer at a certain price, but agree to beat any other bidders' higher offer, up to a set price.

For the clause to kick in and the buyers' escalated offers to kick in, the seller must have proof of another offer. Traditionally, this approach works best in a situation where you know there will be multiple offers on a house, and where all offers will be considered at the same time.

Using such a clause could get buyers a house at or below their maximum offer. It also can be a risky strategy, however. Some sellers may not accept offers using an escalation clause. And even if sellers choose your offer, they may try to negotiate you up to a higher price, knowing from your escalator clause that you were willing to pay more for the house.

Also, the negotiation process is a time where you will want to be sure you have complete trust in your real estate agent, because that is the person who will likely do the negotiating on your behalf. If you can't imagine that person representing you during crucial negotiations, it may be time to find a new agent.

After the offer

Even after your offer has been accepted, your negotiations likely aren't over, depending on the structure of your agreement and the contingencies included.

Say, for example, you, as a buyer, have a full-inspection contingency built into the offer. If an inspection reveals problems with a house (and virtually every inspection will reveal some issues, even if minor), as a buyer you have a few options. You can stick with the originally agreed-upon offer, walk away from the deal or adjust the offer.

Typically, buyers will either ask the sellers to have certain problems fixed before the sale is finalized, or to take the cost of such repairs off of the sales price.

Don't expect a lengthy round of negotiations in this circumstance, however. If buyers do offer a changed deal, sellers can typically come back with one counteroffer, but then the negotiations are complete.

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