Home Buying Step 5: Offers, Counteroffers and Negotiation
When you are ready to buy, you will need to make a written offer. REALTORS® have standard purchase agreements and will help you put together a written, legally binding offer that reflects the price as well as terms and conditions that are right for you. Your REALTOR® will guide you through the offer, counteroffer, negotiating and closing processes.
How Much Should You Offer?
You sometimes hear that the amount of your offer should be x percent below the seller's asking price or y percent less than you're really willing to pay. In practice, a successful offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order. Your REALTOR® will help you determine a suitable offer price and terms.
Terms and Conditions
While much attention is given to offering prices, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value for buyers - or additional costs. Terms are extremely important and should be carefully reviewed; they may include an escrow deposit, contingency deadlines for inspection and/or mortgage approval, payment of closing costs, etc.
Contingencies and “Subject to” Clauses
Buyer offers often contain contingencies or “subject to” clauses that must be met before the contract is considered binding. This gives you time to take care of final details. Contingencies can include the following:
- Approved financing
- Buyer selling an existing home
- Satisfactory home inspection report
- Test results for environmental factors including radon, mold and water quality
- Termite inspections
Work with your REALTOR® to determine which contingencies you should include for your home buying situation. You will likely be required to include a time clause, also called a kick-out clause, which limits the contingency to a short time period (say 12, 24 or 48 hours) should the seller receive another acceptable offer.
How Do You Make an Offer?
When a home is made available for sale the owner is essentially making an offer to buyers: for a given number of dollars and other terms you can acquire this home. Buyers, in turn, can respond with several options:
- Accept the offer
- Decline the offer
- Make a counteroffer
The process of making offers varies around the country. Typically, you complete a written offer that the REALTOR® will present to the owner and the owner's representative. The owner, in turn, may accept the offer, reject it or make a counteroffer.
What is a Counteroffer?
A counteroffer is nothing more than a new offer with different terms. Offers and counteroffers reflect the back-and-forth activity of the marketplace. It's a common, efficient and practical process, but also one that may contain tricky clauses and hidden costs. Because of this, and because counteroffers are common, it's important for buyers to remain in close contact with their REALTOR® during the negotiation process so that any proposed changes can be quickly reviewed.
How Do You Negotiate?
No aspect of the home buying process is more complex, personal or variable than bargaining between buyers and sellers. This is the point where the value of an experienced REALTOR® is clearly evident because he or she knows the community, has seen numerous homes for sale, knows local values and has spent years negotiating realty transactions.
Real estate bargaining typically involves compromises by both sides. It's not war; it's not winner-take-all. Instead, negotiating should be seen as a natural business process: buyers should be treated with respect, and owners should never lose sight of either their best interests or their baseline transaction requirements, which must be met before the home can be sold.
There are a lot of considerations, not just price, in making and negotiating offers. This is where the working with an experienced REALTOR® can guide you to a win-win negotiation.