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. 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 which parts contract can be changed, and to have a voice in the matter when they're spending hundreds of thousands of dollars. By the same token, 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 that details a number aspects of the deal. It may contain a range of items, such as what's included in the sale, and when the buyer can take possession. It also addresses who pays for what at each stage in the progress of the sale.

Most states use their own version of the residential purchase agreement. For example, in Texas these contracts are called "One to Four Family Residential Contracts," and they're published by the Texas Real Estate Commission. In California they're called the "Residential Purchase Agreement and Joint Escrow Instructions," and the local Association of Realtors updates them almost every year.

Residential purchase agreements can consist of 10 pages or more, and there are always other documents and forms which can come along with the main contract.

Review the Agreement

All parties should thoroughly read the contract, ask questions, and keep asking questions if there are any points or confusion, or if any of the answers they get are lacking. You have a right to know the details of your home sale or purchase. Be sure to exercise that right. Keep in mind how much money (and time and effort) is at stake, and don't settle for "initial here" and "sign there," which is often the rhythm of closing.

Look for Points to Negotiate

There are some points in a purchase agreement that are left open to allow the parties to work out their own terms. These include:

Are Closing Costs Set in Stone?

Many people who are buying a home don't know how massive closing costs can be. Ask your real estate agent if your closing costs are negotiable because they add up to a lot. For houses sold in the first half of 2021, closing costs averaged $6,837 for a single-family home, and that figure doesn't include taxes. They were much higher than this in the District of Columbia, New York, Delaware, Washington, and Maryland.

Some sellers say they prefer to simply reduce the sales price and have the buyer 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. Buyers are often tight on funds, so this option is not very common.

Still, it's not unheard of for sellers to give "credits" against closing costs to their buyers. The trade-off is in exchange for a higher sales price. It could be an option worth thinking about when buyers find themselves very tight on liquid cash.

Who pays what amount of these costs is a negotiable item as well. It's not rare for a seller to absorb a larger portion of these fees because the seller receives the money in a sale and the buyer has to spend 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 deal. It could hurt your chances that a seller will accept your offer.

Which Items and Fees Are Negotiable?

Some of these fees and costs have more leeway 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 frame for the seller to submit disclosures
  • Period to complete all buyer inspections
  • The amount of time for the buyer to obtain an appraisal
  • The amount of time 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 contract)
  • Dispute resolution
  • The amount of time to accept an offer

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

Article Sources

  1. American Bar Association. "Residential Real Estate FAQs." Accessed Feb. 9. 2022.

  2. Texas Real Estate Commission. "One to Four Family Residential Contract (Resale)." Accessed Feb. 9, 2022.

  3. California Association of Realtors. "California Residential Purchase Agreement and Joint Escrow Instructions." Accessed Feb. 9, 2022.

  4. ClosingCorp. "ClosingCorp Reports Average Closing Cost Data For Purchase Mortgages In The First Half Of 2021." Accessed Feb. 9, 2022.

  5. Consumer Financial Protection Bureau. "What Fees or Charges Are Paid When Closing on a Mortgage and Who Pays Them?" Accessed Feb. 9, 2022.

  6. Washington State Legislature. "Liquidated damages—Earnest money deposit—Exclusive remedy—Definition." Accessed Feb. 9, 2022.

  7. HUD.gov. "Common Questions for First-Time Homebuyers." Accessed Feb. 9, 2022.