How to Negotiate a Purchase and Sale Agreement

When a buyer finds a home they want to buy, they enter into negotiations with the seller, and the purchase price will be the primary focus of negotiations. Effective negotiation requires preparation. Both buyers and sellers should go into negotiation understanding the market value of the home, and they should price their bids accordingly. Of course, the purchase price is only one part of a purchase and sale agreement. The other parts—such as who will pay taxes on the property and who will pay for closing costs—can also be negotiated.

Method 1

Method 1 of 2:

Negotiating as the Seller

1
Fix up your home. Often, buyers will point to flaws in your home as a reason to negotiate the price down. You can try to prevent this by fixing your home up as best as you can before showing it to anybody.^{[1]XResearch source}
- Look at the appliances that you are leaving with the home, such as refrigerators, stoves, etc. Are they old? Do they need to be replaced? The buyer might reduce the amount offered to account for having to replace these items.
- If possible, you could replace them yourself. You might be able to get a good deal on new appliances. You should shop around and look for special offers.
2
Have your home appraised. You want to be confident in the amount that you are asking for your home. You should get an appraisal done. You can find an appraiser by looking in your phone book or by using the “Find an Appraiser” search at the Appraisal Institute website.^{[2]XResearch source}
- If your housing market is hot right now, then you should feel comfortable pricing a little above the appraisal amount.
- However, if your market is cooler, then you can price a little under the appraisal.^{[3]XResearch source}
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3
Don’t disclose your motivations to buyers. A motivated seller is more likely to lower their price in order to sell the home. If you let buyers know that you are motivated, then you are giving them important information. They know that they can be more aggressive trying to get the price lowered because you are anxious to sell.
- Try to play it cool. If a buyer or agent asks why you are selling, come up with something neutral, like “We’re looking to buy a bigger home.”^{[4]XResearch source}
- Don’t say, “My husband has a new job across the country and we leave in three weeks.” That type of explanation signals that you are anxious to sell.
At the same time that you hide your real motivations, you should try to discover the buyer’s.^{[5]XResearch source} If they are eager to move, then you can be more aggressive with your price.
5
Negotiate only with all parties present. One technique buyers use to negotiate is to make an offer and then claim a third party needs to review the house or the deal before signing the agreement. This third party then tries to negotiate down the price.^{[6]XResearch source}
- This tactic works because the seller is excited at the prospect of making a sale. When the third party starts complaining about the price, the seller is so emotionally invested in making the sale come off that they start lowering the price so that the buyer doesn’t walk away.
- You can avoid this tactic by making sure that all relevant parties are present before you begin negotiating.
- Before you begin throwing numbers around, ask if there is anyone else who needs to see the house or needs to be involved in the negotiation. Wait until they are present to negotiate.
6
Stay on your guard. Some buyers might throw out a number just to catch you off guard.^{[7]XResearch source} This technique is used to try and figure out how motivated you are to sell your home. If this happens, then don’t show any emotion.
- You could say, “I’ll consider any offer in writing” and leave it at that.
7
Start with a fair price. The best way to make negotiations go smoothly is to have a fair starting price.^{[8]XResearch source} Look at your appraisal or market research and price accordingly.
- A fair price should warrant a fair counter-offer. If the counter-offer is ridiculously low, then look to see what reasoning is offered for such a low price.
- It is usually better to walk away from someone who makes a very low initial offer than to argue with them that your home is worth more than they are offering.
8
Use silence strategically. After stating your price, sit back and wait for a response. Fight the instinct to fill the silence by immediately justifying your price or immediately lowering it.^{[9]XResearch source}
- The longer you are silent, the more uncomfortable the buyer and his or her agent will be. They will probably try to fill the void by immediately justifying their counteroffer.
9
Focus on the main issues before the details. As you negotiate, try not to get sidetracked on minor issues such as how old the refrigerator is. You might not think the refrigerator is old because you replaced it last year. Remember that there is no reason to get into an argument about the refrigerator when big issues (like price) remain to be negotiated.
- Once you focus on the main issues, then the details can be resolved much easier.^{[10]XResearch source} Always try to maintain a “big picture” focus. Don’t get sidetracked.
10
Remember to negotiate the other parts of the agreement. The purchase price is only one part of a purchase and sale agreement. Remember to negotiate the rest of the transaction. Keep track of who agrees to pay for what, because it impacts how much you will make on the sale. For example, someone will have to pay for the following:
- title insurance
- title search
- survey
- inspection
- taxes
- recording fees and other closing costs
11
Compromise a little. You might hold the upper-hand in negotiations. For example, you might uncover that the buyer is very motivated to buy. You use this information to your advantage to get the highest price possible. However, it is important to make sure that each side leaves the bargaining a little bit happy. This means compromising even if you don’t have to.
- Nobody wants to feel that they have been taken advantage of. If you try to win every little point with the buyer, then he or she might get turned off and walk away from the deal.^{[11]XResearch source}
- Make concessions on things that are relatively cheap but important to the buyer. For example, the buyer probably wants a home inspection done. You could volunteer to pay for the inspection.
12
Hire a lawyer to look over your agreement. You might end up using a standard, printed purchase and sale agreement. However, you should have a lawyer look it over before signing so that you can make sure that the agreement is in your best interest.^{[12]XResearch source}
- A real estate lawyer can also help you understand the tax consequences of your sale.
- To find a real estate lawyer, see Select a Real Estate Attorney for a Closing.
13
Document the sale thoroughly. Some people don’t stop negotiating, even after you think you have reached a deal. They constantly raise issues and try to nibble the price down a little lower. You can avoid this situation by thoroughly documenting the sale.^{[13]XResearch source}
- In particular, be sure to spell out in your purchase and sale agreement what fixtures are coming with the property and what repairs (if any) you are making. If you aren’t making repairs, then state that explicitly.
- Tell the buyer to put their complaints in writing. Any written request to alter the purchaser and sale agreement can be treated as a counteroffer, which you don’t have to accept.
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Method 2

Method 2 of 2:

Negotiating as a Buyer

1
Research sales of comparable homes. You should expect the seller to know how much comparable homes have sold for in the neighborhood. Likewise, you need to be prepared with this information as well.^{[14]XResearch source}
- You can do this research on the Internet. Visit a website such as Trulia to research sales in your zip code. You can find out how much the home sold for. Remember not to go too far back in time since the market changes quickly. Only look at sales within the past three months.^{[15]XResearch source}
- It may be difficult to define a “comparable” home since no two homes are exactly alike. However, you should compare square footage, the number of bedrooms and baths, as well as age.
2
Know what you can afford. You can’t negotiate effectively if you don’t know the maximum amount you can afford to pay.^{[16]XResearch source} Before going into negotiations, you should sit down and calculate how much you can spend on a new house.
- Remember to calculate all of your monthly living expenses, such as car loans, credit card balances, student loans, and other non-negotiable obligations.^{[17]XResearch source}
- Also try to calculate commuting costs. The farther away from work you are, the more you will spend on gas and maintenance for your car.
- You should use one of the many mortgage calculators on the Internet to calculate how much you can spend.^{[18]XResearch source}
3
Try to uncover the seller’s motivation. Successful negotiation will depend on each side’s willingness to bargain. Accordingly, you should try to figure out how motivated the seller is to sell.^{[19]XResearch source} If the seller is anxious to sell, then you could get the home for a cheaper price.
- Try to ask innocent questions. You could say, “I don’t know why anyone would leave this neighborhood” and wait for the seller to tell you why they are moving.
- Another strategy is to ask bluntly whether they are anxious to sell and then gauge their reaction. Not everyone is a good actor and some people might signal by nervous laughter that they are anxious to sell.
4
Make a realistic first offer. You want to show the seller that you are serious about the property. This means making a serious first offer. Don’t offer something ridiculously low, which will only insult the seller.^{[20]XResearch source}
- As a baseline for your offer, use your market research to set an initial price you think is fair for the property. Then deduct from this price anything functional that needs to be replaced or repaired.
- Remember that “functional” doesn’t mean “taste.” If you don’t like the color of the carpet, then you shouldn’t deduct for replacing the carpet because color is an individual preference. However, if the carpet is torn or stained with pet urine, then replacing it would be necessary.
- A “functional” problem would be a refrigerator that is old and in need of being replaced. You can deduct $2,000 or so from the price. When you submit your offer, you can include an addendum in which you explain your reasoning.^{[21]XResearch source}
If you appear too enthusiastic, then the seller will know that they can try to hold out to increase the amount you will pay. You want to come across as professional and driven by facts and data.^{[22]XResearch source}
If you make an offer, then give the seller a short time limit for acceptance—24 hours or less. If you give a longer period of time, then you are inviting other competing offers. You don’t want the seller’s agent to find someone else to make a competing offer.^{[23]XResearch source}
7
Ask for concessions to close the deal. It might be difficult to get a seller to come down off their price because they are emotionally invested in it. A seller who believes their home is worth $250,000 might be unwilling to go down to $240,000 to close the deal. If this is the case, get creative. You can try to sweeten the deal by asking for concessions which will lower the overall price you pay.
- For example, ask that certain repairs be made to the home. Getting the seller to pay for the repairs will ultimately reduce the amount you have to spend on the home.
- Alternately, you could ask that the seller cover some of the closing costs.^{[24]XResearch source} This also would reduce the total amount you spend on the house.
8
Be prepared to walk. Before going into negotiations, you should have a walkaway point. This is the maximum you would be willing to pay for the property. To negotiate successfully, you need to be prepared to walk away if the seller can’t meet your walkaway point.
- There are plenty of homes on the market, even when the market is tight. It is very common to find a home one week later.^{[25]XResearch source}
9
Negotiate everything before drafting the agreement. A purchase and sale agreement contains more than just the purchase price and down payment. You also should settle on a closing date that works for you. As a buyer, you can also negotiate the following:
- Whether the sale is contingent on an inspection. You want to understand the condition of the home and surrounding land before closing on the sale. For this reason, you should probably make the sale contingent on having an inspection done. You can negotiate as to who should pay for the inspection.
- What happens if the inspection is negative. The home will probably have flaws. You should understand what your options are. For example, you can get a provision included in the purchase and sale agreement giving you the right to walk away from the purchase. Alternately, you could negotiate with the seller to fix the problem.
- Whether the sale is contingent on you selling your home or getting financing.
- Who pays taxes. You probably don’t want to pay all of the tax bill, unless you bought the property on January 1. Accordingly, you can negotiate to prorate the taxes with the seller. Explain in your purchase and sale agreement how taxes will be prorated.
10
Get a lawyer to coach you. A qualified lawyer can guide you through the negotiation and closing process. You don’t need to hire the lawyer to actually handle the negotiations for you. Instead, you can find a lawyer who will offer advice and who can look over the purchase and sale agreement to make sure that it protects your interests.
- To find a qualified attorney, contact your state or local bar association and ask for a referral.
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