Negotiating a Good Deal Before the Market Turns

Is that a hair fracture in the buyer’s market?

Sellers for months have been slashing prices, making gratis home improvements and absorbing closing costs to get prospective buyers to bite. But a recent report by Zillow, the Seattle-based online real estate service, suggests negotiating power among buyers is starting to weaken — if only slightly.

According to the report, home buyers nationwide negotiated a median 2.9% off the final listing price in September, down a bit from 3% the previous month. Buyers’ negotiating power peaked in January when they were paying 4.5% less than the home's last listing price, Zillow says.

Yet, even as housing inventory shrinks, buyers clearly retain the upper hand: In September, there were 3.63 million homes listed for sale, according to the National Association of Realtors. That’s down 15% from the previous year but enough to last almost eight months at the current rate of sales. About six months is considered a normal level, says Tom Kunz, president and CEO of Century 21 Real Estate. When inventory is above that figure, buyers generally have the upper hand.

In some markets – most notably parts of Florida – buyers are negotiating stunning discounts. According to Zillow, buyers in Vero Beach, Fla. paid a median 8.1% (or nearly $19,000) less than the listing price; the discount for Miami buyers translated to 6.9% (or around $17,000) less than the listing price. “There’s still much more supply than demand in Florida; it hasn’t reached bottom yet. And buyers should try to negotiate there,” says Amy Bohutinsky, a Zillow spokeswoman.

In a handful of California markets, however, buyers are having the opposite experience. In Stockton, Merced and Modesto – regions that were ground zero of the housing downturn – homes are going for more than the sellers’ asking price.

These regions have been so hard hit that they’re finally taking a little bit of a turn. “In many areas of California, buyers no longer have the power,” says Claire Clark, senior vice president of relocation and business development at Prudential California Realty. Broader affordability combined with lower inventory levels means there are a lot of buyers. “So many properties have multiple offers,” Clark says.

So how can prospective home buyers maximize their leverage with sellers? Here are a few tips.

Make sure you’re fully preapproved for a mortgage. This means your lender verified your income, checked your credit report and approved you for a mortgage of a certain amount over a fixed timeframe. When a buyer has that preapproval letter in hand, “they become a more attractive buyer than others who don’t have that [and] they have a lot more weight,” says JP Endres-Fein, a realtor with Homes of Westchester in New York.

For more tips on getting preapproved, read our story here.

Get the home’s total history. You want to know how long the home you’re interested in has been on the block. Often times, a seller will work with one real estate agent or company that will list the home on its local Multiple Listing Service. If the home doesn’t sell, the homeowner will go with another company and lists the home separately.

Ask your realtor to pull the home’s total history – how many times the house has been on the market, for how long, if there was a price adjustment and what the starting price was, says Endres-Fein. The information should factor into your negotiation approach. “The longer the house has been on the market, the more that says to me it started out overpriced,” she says. “If the home is on the market for just a week or two, the seller will stay firm. They’re less likely to negotiate down.”

Ask about the seller’s timeline. Try to find out if the seller has a specific deadline. If they already bought a new house, are close to closing or have to move for a job transfer, they might be more amenable to negotiations. Just keep in mind that if you ask the seller or seller’s agent, you may not get a straight answer. They don’t want to necessarily give away a weakness. Endres-Fein suggests having your agent ask the person representing the seller a general question, like “Is there anything we need to know about the timing of the sale?”

Time the tax credit. If you’re hoping to take advantage of the newly extended home buyer tax credit, you’ll have more negotiating power now than later, says Jay Papasan, the vice president of publishing at Keller Williams Realty. Papasan expects many buyers will procrastinate and wait until the spring to get serious about buying in time for the credit. (The new law covers home purchases that are under contract by April 30, 2010 and closed by June 30, 2010. Read our story for more on the extended credit.)

Buyers will find the best deals with the least competition in December and January, traditionally the slowest months in real estate – and before a lot of other buyers have made the decision to jump in, Papasan says.

(Read our story about 10 common mistakes first-time home buyers make.)