Every buyer wants to negotiate the best possible deal, yet for so many, this might be the first time they’re negotiating a deal on a home. There’s a lot to learn! While many homebuyers, especially first-time homebuyers, think the best way to save money is with a price reduction on the home, this is not always the wisest approach. It may come as a surprise, but seeking credit for closing costs or a down payment is often more advantageous than an overall price drop. Find out more about why buyers should always negotiate closing costs.

Falling For the Price Reduction Fallacy

Cheaper is better, right? When it comes to the grocery store, tickets to the big game, and a nice meal, yes. For homebuyers, the instinctive approach to securing savings is straightforward: home price negotiation for a lower overall price. 

This seems like the most logical way to save money upfront, it be careful. It’s probably not the most financially sound strategy in the long run. Here's why:

A price reduction, while enticing, might not result in substantial savings unless the buyer plans on being in the home long-term. Let's break it down. Suppose you manage to negotiate a $20,000 price reduction on a home. While $20k is a significant amount of cash “saved”, it's essential to consider the bigger picture. Yes, that $20k reduction will lower your mortgage, which could mean about $100 saved per month over the life of your loan.

However, the savings achieved through a price reduction are spread out over the entire loan term, often 15 to 30 years. So the monthly savings are modest and it will take a long time to recoup that $20k by making the minimum payment. Approximately 16 years, and most home buyers today aren’t staying in their homes for 16 years. Unless a buyer plans on staying in their home for the full duration of their mortgage, an overall price reduction isn’t strategic, as buyers seldom make all of that money back.

Estimate possible costs with a reliable mortgage calculator.

What Home Buyers Should Negotiate For:

Credit for Closing Costs or Down Payment Advantage

Never doubt buyer bargaining power. There are two alternative strategies that provide more immediate financial relief: negotiating for a credit to cover closing costs or a down payment. Unlike a price reduction, these credits offer tangible and oftentimes immediate savings.

When negotiating for a credit, buyers potentially save thousands of dollars right away. If a buyer negotiates a $20k credit, it could cover the closing costs or the entire down payment immediately, potentially making a much larger impact. By having these expenses covered, buyers will need less cash on hand when they close the deal, making homeownership more affordable.

Plus, securing credit for closing costs or a down payment doesn't impact a buyer’s monthly mortgage payments. This means that buyers can enjoy the full benefits of their savings from day one. Remember, these strategies are especially great for buyers who may not intend to stay in their new home for an extended period.

Your Best Bet? Consult with a Real Estate Professional Before You Buy

Navigating a tumultuous real estate market is hard enough, let alone the negotiation process. Buyers are likely to have some experience negotiating things like salary, but when it comes to homeownership, it’s hard to have any practice to build experience. Buying a home shouldn’t be daunting, it should be exciting. That’s why talking to a real estate professional before making any big decisions can be a lifesaver and help buyers save time and money. 

Some of the Benefits of Working with a Real Estate Agent or Professional Include…

Market Insights: They know the local market better than anyone because they’re working with it constantly. Insights aid buyers in determining whether a price reduction or a credit is more advantageous at a given time.

Negotiation Expertise: Leave it to the professionals to explain how to negotiate a home offer. Experienced real estate agents are skilled negotiators who know how to secure the best deals for their clients. They help buyers craft a compelling offer and negotiate to maximize savings.

Local Connections: With time and experience comes an extensive network of contacts. These contacts are invaluable when it comes to finding lenders, inspectors, and other professionals needed throughout the home-buying process.

Legal and Contractual Expertise: This part is dry but very necessary. Buying a home comes with many legal documents and contracts. A real estate agent guides buyers through these complex agreements, ensuring their interests are protected.

Emotional Support: A good real estate professional is comfortable with the highs and lows of buying a home. It’s an emotionally charged experience. Agents and professionals provide emotional support and help buyers stay focused and make rational decisions during the home buying process.

Buyers should always consider the long-term implications of their decisions. Negotiating for a credit to cover closing costs or a down payment provides more immediate and tangible benefits, depending on the buyer’s long-term goals. 

Yes, it’s a complicated process, but no, it doesn’t have to be difficult or lonely. We provide top strategies and answer questions like “Should I negotiate closing costs” quickly. Get in touch with one of our experienced real estate agents to learn more about real estate in Space Coast, Florida. Or take a look at some of our favorite Melbourne, FL properties.