Tips on What to Negotiate in a Residential Purchase Agreement

Broker explaining paperwork to a couple talking in kitchen of a new house
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Some buyer's agents rarely discuss the negotiable items in a residential purchase agreement with their clients. They just check the boxes according to local custom, and there's really nothing wrong with that except it doesn't give the buyer or seller a choice or a say in the matter.

Negotiation can lead to a better deal all the way around. Buyers deserve to know the negotiable points and have a voice in the situation when they're spending hundreds of thousands of dollars. Likewise, sellers should know which things can be negotiated and whether there's any room in the costs of sale because this can affect their net proceeds.

What Is a Purchase Agreement?

By definition, a purchase agreement is an offer made by the buyer and detailing numerous aspects of the transaction, from what's included in the sale to when the buyer can take possession. It also addresses who pays for what as the transaction progresses.

Pretty much ever state uses its own residential purchase agreement. These contracts are called "One to Four Family Residential Contracts" in Texas, and they're developed by the Texas Real Estate Commission. They're the "Residential Purchase Agreement and Joint Escrow Instructions in California," and they're painstakingly updated almost annually by the California Association of Realtors.

Residential purchase agreements can consist of 10 pages or more, and there are always other documents which can accompany the contract.

Review the Agreement

All parties should thoroughly read the contract, ask questions, and continue to ask questions if the answers they get are unsatisfactory. You have a right to know the details of your home sale or purchase. Exercise that right. Don't settle for "initial here" and "sign there," which is often the rhythm of closing.

Possible Negotiation Points

Some points in a purchase agreement are regularly open to negotiation:

Closing Costs

Definitely ask your real estate agent if your closing costs are negotiable because they add up to a lot. They averaged $5,779 in 2018 for a single-family home, and that figure doesn't include taxes. They were considerably higher than this in the District of Columbia, New York, Delaware, Washington State, and Maryland.

Some sellers say they prefer to simply significantly reduce the sales price and have the buyer to pay all of the costs of sale except for the commission, but this is rare. It would mean bringing a lot more cash upfront to close if the buyer were to pay the seller's portion of the closing costs, and buyers are often tight on liquid funds.

Nonetheless, it's not uncommon for sellers to give "credits" against closing costs to their buyers, although this is usually in exchange for a higher sales price. It could be an alternative worth considering when buyers find themselves very tight on available cash.

Who pays what portion of these costs is a negotiable item in a residential purchase agreement as well. It's not uncommon for a seller to absorb a larger percentage of these fees because the seller is receiving the money in a transaction and the buyer is spending it out of pocket.

You might not want to try to stray too far from what local custom dictates for closing costs if you're involved in a multiple-offer situation. It could hurt your chances of offer acceptance.

Negotiable Fees and Items

Some of these fees and costs are more negotiable than others:

  • Transfer taxes
  • Escrow fees
  • Owner's title insurance policy
  • Mandated state disclosures
  • HOA transfer fees and documentation fees
  • Inspections and reports
  • The time period for the seller to submit disclosures
  • Period to complete all buyer inspections
  • The period for the buyer to obtain an appraisal
  • The period for the buyer to obtain loan approval
  • Personal property items that remain with the home
  • Fixtures that might be excluded from the sale
  • The period for closing escrow
  • The period for releasing contingencies such as selling an existing home
  • The period for final walk-through
  • The period for possession
  • Liquidated damages—the amount to be paid by either party to the other to be paid for breaching the agreement
  • Dispute resolution
  • The period for offer acceptance

The amount of earnest money—the deposit you put down on the property at the time you submit your offer—can be negotiated, but this is a luring point for the seller to bite at the buyer's offer, so there isn't always a lot of wiggle room here.

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Article Sources

  1. American Bar Association. "Residential Real Estate FAQs." Accessed March 27, 2020.

  2. American Land Title Association. "ClosingCorp Reports 2018 Average Closing Costs." Accessed March 27, 2020.

  3. Consumer Financial Protection Bureau. "What Fees or Charges Are Paid When Closing on a Mortgage and Who Pays Them?" Accessed March 27, 2020.

  4. Washington State Legislature. "Liquidated damages—Earnest money deposit—Exclusive remedy—Definition." Accessed March 27, 2020.

  5. HUD.gov. "Common Questions for First-Time Homebuyers." Accessed March 27, 2020.