Most home buyers expect to be able to negotiate the purchase price. What many prospective buyers don’t realize, however, is that they can negotiate which party is responsible to pay closing costs that equal, in some cases, thousands of dollars. The same is true on the other side of the transaction, as sellers can also benefit from negotiating the terms of the purchase contract. Moreover, sellers can save thousands by negotiating certain aspects of the listing contract with their realtor, including the amount of commission the seller must pay at closing.
Whether or not a particular element of a real estate transaction can be successfully negotiated will depend on a number of items, including whether it is a buyer’s market or seller’s market, whether the home is in a highly desirable neighborhood, how motivated the seller is, and how much the buyer wants the property. While real estate agents can negotiate on your behalf, they cannot draft legal documents or provide legal advice. Hiring an experienced real estate attorney will maximize your ability to get the best deal and protect your interests throughout the process.
As anyone who has already bought or sold a house can tell you, the fees charged by mortgage companies and title insurance agencies to finalize a home sale can be steep. They can run from 2-5% of the loan amount, e.g., up to $15,000 for a $300,000 house. It is important to negotiate who will be responsible for these fees at closing so that you don’t leave any money on the table.
When using a listing agent, a seller will pay a large chunk of the proceeds from the sale to the agent as a commission. According to the National Association of Realtors, however, the agent’s commission is negotiable. Most agents ask for 5-7% of the home’s sale price, but this is not written in stone. If you tell the agent that you will only agree to a lower commission, the agent may be willing to lower their commission.
This is where most of the contract negotiation takes place in a transaction. A buyer’s offer is much stronger if the buyer can show that they are already pre-approved by their lender for a loan. For sellers, pointing out the prices of recently sold similar homes will help show that their house is well within an acceptable price range.
Earnest money is what the buyer pays up front as a show of good faith. If the deal falls apart later because the buyer breached the contract the seller may keep the earnest money. While the average amount of earnest money is 1-2 percent of the home’s value, the seller may want to negotiate more. Depending on how badly the buyer wants the house, they may be willing to offer more earnest money to demonstrate a serious level of commitment.
The mortgage rate is the amount of interest a lender charges on a home loan. Today’s rate for a 30-year fixed rate mortgage is approximately 2.8%, although it can vary depending on the lender. Importantly, buyers may be able to negotiate the mortgage rate, by asking their bank or lender to match the lower rate of a competitor. Getting the rate reduced by as little as ¼ of 1 percent can save tens of thousands of dollars over the life of a mortgage.
Inspections and Repairs
Often sellers will make necessary repairs prior to listing their home, but there may be hidden problems or defects that don’t come up until the inspection is underway. If this happens and costly repairs are required, the parties can negotiate who will cover the cost.
The buyer generally pays for the inspection, which costs between $350 and $600. However, the buyer can always ask for the seller to pay for the inspection, particularly when specialized inspections (for mold, lead-based paint, or asbestos) are needed.
As the sale is negotiated, keep in mind that a real estate contract can include almost anything the parties want to agree on. For example, if the buyers see a particular piece of furniture in the home they like, they can always make an offer to the seller to include it. On the other hand, although real estate contracts usually specify that lighting fixtures will stay in the home, if the sellers have a fixture they wish to take with them, its removal prior to closing can be set forth in the sales contract.
An Ohio Real Estate Contract Attorney Can Help
If you need assistance negotiating a real estate transaction, we welcome you to contact us.