The old adage says that everything is negotiable. While that may be true, we’re only going to cover the 5 main points of negotiation in Texas Contracts. Those are the sales price, earnest money deposit, closing date, seller concessions, and the option period. If any, or all, of those are unfamiliar, don’t worry—you’ll understand them a little bit better in just a minute.

The Sales Price

First we’re going to talk about the sales price, typically the point on which most negotiations are spent. The objectives are clear—the Seller wants to get the highest price for their home, and the Buyer wants to pay the lowest price. This is a classic scenario. So a typical negotiation will go something like this:

The Seller has a list price, the Buyer wants to offer some arbitrary number lower than that, usually about 5 to 10 percent less. The Seller responds with a counteroffer, and eventually we meet somewhere in the middle. Is there anything wrong with that? No. Is that the best way to negotiate? Not really.

There will be circumstances where the Buyer can get a home at a substantially lower price than what is listed. There will also be times when the Buyer has to pay the asking value, or higher. Every negotiation is different, but people want to approach them all the same way. I’ve had people say “I have to offer 10% less” on a home that was already correctly priced. By doing this, you run the risk of making the Seller mad, and I know of situations where the Seller refuses to negotiate further with the Buyer after that happens.

The sales price cannot be the only negotiation point because if it is, then neither party will be happy. If you only negotiation on price, then, at best, one person will get the price that they want. That means that the best case scenario is that there is one unhappy party. The worst case scenario is that both parties are unhappy. The sales price is a big deal, but there are often other issues that can be negotiated, and the sales price should be approached in context of those other issues.

The Earnest Money

Earnest Money is your way of showing the Seller that you’re committed to buying their home. You provide the earnest money at the time of the offer’s acceptance, and it is held in escrow at the Title Company. Though you’re not required to provide any set amount, 1% of the sales price is common. Earnest money is a good negotiation point because you can use it to accomplish goals that you might not be able to do without it.

For example, if a home is $300,000, then a $3,000 earnest money deposit would not be unreasonable. However, if you know that you really want the house, and, barring anything out of your control, you will definitely buy this home, then providing a higher earnest money deposit can make your offer seem more sincere. In this example, an earnest money deposit of $10,000 would make your offer seem very serious because you’re committing more of your money up-front. In situations where there are multiple offers, or where there will be competition for a home, a higher earnest money deposit can make you stand out from the crowd. There are several powerful ways to structure this, but I can explain those to you on a case-by-case basis.

The Closing Date

The Closing Date is fairly straight-forward: it is the date where the property officially exchanges hands from the Seller to the Buyer. The Closing Date can be used as a negotiation point when it is of more importance to the Seller than to the Buyer. For instance, if you know the Seller has already purchased another home, then accelerating the Closing Date in order to avoid paying two-mortgages might be in their best interests. Alternately, if the Seller wants to prolong the Closing Date for some reason, then catering to that desired closing date might make it easier for you to get what you want from other negotiation points. This often happens when the Seller has children in school, or when they have to wait to leave their job, go on vacation, etc. As a general rule, I recommend catering to the Closing Date needs of the Seller because that can often give you more leverage in the other negotiation aspects.

The Option Period

The Option Period is my favorite part of the Texas Contract. It is a contingency that protects both the buyer and the seller, although the buyer gets the lion’s share of the benefit. What happens is that the Buyer pays a non-refundable amount to the Seller. When the offer is accepted, the Option Period begins. A typical option period for a single-family home is 10 days, although that can change. It can be leveraged because, once you have a home under contract, you have the unrestricted option to terminate that contract for ANY reason at all. That means that if you find another house you like better, you can cancel it. If the inspector finds lots of problems, you can cancel it.

What I often advise my Clients is to not ask for any repairs with the initial offer. Later, during the Option Period, we’ll have inspectors professionally inspect the home. At that time, we can ask for repairs. You have a lot of leverage at this point because the Seller has already taken the property off the market, and they have an unbiased professional outlining problems with their home. Sensible people often realize that they’ll have to fix everything now, or risk losing their buyer, only to have to find another one, and then go through it again—they’ll usually concede to reasonable requests. That’s a great advantage to you as a homebuyer, and it’s just an example of one way to use the Option Period to your advantage.

Seller Contributions

Finally, we have Seller Expenses/Contributions. This is a point which is often not given enough thought. Seller expenses are a great place to negotiate financial points. For example, if a home is $415,000 and you are willing to pay $390,000, you have several ways to structure your offer. One way would be to offer $390,000. At this point, you have done a few different things which are not really favorable to you. For example, you’ve crossed the $400,000 mental threshold, which can might affect the Seller’s pride. You’ve also created a losing proposition to one-party because there is only point that is being negotiated, the price, and it’s not likely that both parties will be happy with the final price.

Another way to do this would be to offer something like $405,000. In addition to this price-point, you could ask for $15,000 in closing costs in the form of seller expenses. This accomplishes several things, including: keeping the offer price over $400,000, which is a psychological threshold; reducing the amount you need to bring to the table for Closing by up to $15,000; and it creates 2 points of negotiation, the price and the seller’s expenses. When you have 2 points to negotiate, you increase the chance that each party feels satisifed because both sides can “win” a point, so neither feels like it is being marginalized.

The same goes for first-time homebuyers. If you find a home that you like which is $100,000, you have multiple options. I typically recommend that you offer them the full price, or a little more, but ask for them to pay the closing costs. If you were using a VA Loan to buy a home that is $100,000, your closing costs, which is the money that you need to transfer the home from the Seller to the Buyer, might be around $4500. In this case, you might be able to offer $102,000, and ask for $4,500 in Seller Contributions. If the Seller accepts, you may end up buying this home with no money out of your pocket. The seller would get $97,500, and you could both be happy! Please remember, these are just examples, your actual situation could be different.

Conclusions

So in summary, there are 5 major points of negotiation in your typical Texas resale contract. This is by no means an exhaustive list of negotiation points, but it covers some of the major ones. I hope that you’ve seen that you can de-emphasize negotiating on price, but still get great results. Hopefully you’ve learned that you have to know your underlying interests in your real estate negotiation in order to get the best deal. By knowing your specific interests, you’ll know what really matters to you, and you’ll be better prepared to make intelligent concessions. By conceding on points that are not important to you, you can help assure that you get favorable results for the things that actually matter to you. Negotiations are strategic endeavors, and you need to understand the psychology of the situation, and the psychological state of the other party. By knowing this information, and negotiating on the points which really matter to you, you can get a better outcome than by taking the simple and common approach of negotiating solely on price. If you have any questions please don’t hesitate to ask.