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How to negotiate the price when buying a house (and tips to get started)

“Always pick your yard based on your Summer lifetstyle.”

~ KARL

October 29, 2017 - Karl Yeh

Wondering how to negotiate the purchase price of a home? In this episode, we discuss best ways to negotiate house prices, some negotiation tactics to get started and how to decide on what/how much to offer. 

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Transcription:

Karl Yeh:

Hello, and welcome to another edition of Homebuyer’s School.  This is Cory McDonald, Community Manager with Brookfield Residential. In this episode we’re going to answer the question:  

Can I actually negotiate a home purchase home, and what’s the best way to do it?

Cory McDonald:                

100%. I always tell people.

“It never hurts to ask.” You’re never going to get anything if you don’t ask for it.

With that being said, I can’t always guarantee that what you’re asking is going to be accepted or if whoever you’re buying from is going to be able to negotiate.

It does play into effect a lot of variables.

There’s a lot of variables that would go into.

Is that seller willing to take a little bit less in order to move the home quickly or are their margins to slim and they can’t sell it for that low of a cost.

I think the biggest one that would play into effect would be just the general state of the market.

Is the market dictating that there should be some leeway in the price? Or is it saying the opposite; is it saying that you’re getting the best possible value at this time.

That does play definitely into the ability to negotiate.

Specifically, on the resale as well; if your home isn’t selling for the price that you have it listed it means you’re priced ineffectively and you should be negotiating or looking at changing the price.

Again, variables that would differentiate this would be larger homes.

If you’re looking at a multi-million dollar estate home on average they’re going to take longer to sell just because there’s as many of those buyers.

As you get to more affordable priced home there’s more of a market for those. So as far as resale that’s typically what plays into your leverage for negotiating.

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Is there a difference negotiating purchase price between resale and a new home?

Cory McDonald:                

There would be.

The biggest thing would be what it costs the builder to build a home.

Again, it would really depend on the size of the home and the style of the purchase.

But a lot of the people that come in and look at a new builder they say, “Big corporations and they have so much money they’re making. Look how much money I’m spending on a home. They may have room. They can drop 50, 60 $100,000 on the price of the home and still make 3 to 700,000 on the home.”

That’s not the case.

Especially with labor costs and the costs of land that the house is being built on, the margins aren’t actually as big as one would initially think.

Especially as you get into say, the condos, the town homes, or even some of those single-family homes, builders have their margins, what they’re comfortable making on the home versus what they can sell it for.

If they have their ratio and it drops below what they’re comfortable making on that home, they can’t fiscally stay afloat if they’re not accepting at least a bare minimum on that price.

 

Hey, you know what, I can’t really go any lower, but are there any things that you would try to offer?

Cory McDonald:                

Sometimes, and a lot of that does depend on the market as well.

That has been a way that people have been able to work into, “Well, if you can’t work on the price is there anything else that can be added. Can I get X amount of months for no condo fees, or can that washer and dryer that I wanted to upgrade to, is there a way that that can be included as well.”

Sometimes that is a really smart way of working around it.

Though it still comes down to what’s fair in the marker and is that still affordable for the seller or the builder to be able to go forward with.

 

Do you have any advice or best ways to negotiate that purchase price?

Karl Yeh:

Because I’m hoping someone is going to come to you and you use the exact same advice of yours.

Cory McDonald:                

Here’s an interesting point is some of it is cultural.

That there are some cultures that like negotiating and they don’t feel they’re being respected if they don’t get a deal, or if they don’t at least present an opportunity to negotiate.

Sometimes you have to be as sensitive to those different cultural beliefs, but at the same time, sometimes as a seller as a builder your hands are tied as far as:

  • what margins you can make
  • the actual building cost of the homes and
  • what we’re saying is fair market value of the home.

Obviously we want to be respectful when accepting an offer or when presenting one too.

Everybody always has the ability to walk away.

And that’s what plays into this is that if it’s not the right fit, if it’s outside of your comfort level for financing, then you have the right to walk away.

It has to be good for both parties in order for it to be a successful sale.

Karl Yeh:                                  

Makes sense. Makes sense. Any other tips … When you go in and negotiate with a sales person, what are some of the things that you would try to-

Cory McDonald:                

It helps to be educated. Sometimes-

Karl Yeh:                                  

So watching these videos.

Cory McDonald:                

These videos would be a fantastic way to get yourself educated.

But whether that’s going on some website that have MLS listings, or using a realty professional to get some of that information.

So if you have some of the market equivalence in that area say, “Hey, here’s three of the homes that have sold in the last 60 days. Here’s what their fair market value was. This is why I think that we should be able to purchase that at X price versus what you’re advertising.”

Having that definitely can sway a little bit.

I can’t always guarantee that that’s going to work based on the times and what the economy is saying, but that definitely helps is if you are educated and instead of just picking a random number … As close to free as possible.

Let’s get there, instead of just throwing that number out there.

 

How do I decide what to offer for the home? 

Karl Yeh:

Like, yeah, I can try to meet you at your price. What are some of the things that I need to consider on when I’m making that offer.

Cory McDonald:                

This kind of ties into another point is before even looking for a home, it really helps if you know what’s important to you in your home.

I’m not thinking specific upgrades, I’m not thinking specific; oh it has to have three bedrooms, but what makes the most sense for your lifestyle.

Are you okay with two bedrooms because it’s just you and a roommate, or you and guest room?

You have a family; you would need space for the family or a yard space to play or something close by with parks.

So figuring out what needs in a home are going to fit your lifestyle, and that’s the most important thing.

If you need that in a home than that’s what you have to be able to present with the offer, that has to be something that you’re considering with the purchase of the home.

If you’ve got six kids and the rinky-dink washer and dryer that’s being presented you want to get that as well. That’s an item that makes more sense for your lifestyle.

So instead of just saying, “I want upgraded counter tops just for the sake of having counter tops.

Karl Yeh:                                  

Great counter tops.

Cory McDonald:                

Exactly.

If it’s something that meets your lifestyle, if it’s something that you need in the home based on what you’re looking for, then that’s maybe a better way to approach, okay this is something I need, this is why you need it in the home as opposed to just give me free. I just want free for the sake of free.

 

Any other tips from a negotiation perspective?

Cory McDonald:                

Never hurts to ask. I’m just going to repeat it. You’re not always going to get the answer you want, but it never hurts to ask, right?

Karl Yeh:                                  

For sure. Thank you very much. That was excellent today. Definite something that when I’m purchasing my home I’ll definitely think of … Especially the lifestyle and ensuring that home meets the lifestyle that I want.

Cody McDonald:                

Absolutely.

Karl Yeh:                                  

That’s it for today’s episode. We’ll catch you next time.

 

Your turn:

Let us know if you have additional home buying questions that we can answer by submitting them in the comment section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from home buying experts. 

 

About Cory McDonald:

Cory has been working for Brookfield Residential for over 5 years and has had the opportunity to sell  in several beautiful communities around Calgary and Cochrane. He has experience selling everything from starter town-homes to move-up homes within the company. Cory originally grew up in Calgary and after a short stint living in the greater Vancouver area, he returned home for a better quality of life to raise his family.

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