Tips on How to Negotiate a Residential Purchase Agreement

Couple talking to broker in new house

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Busy listing agents who receive many purchase offers can often figure out in a residential purchase agreement how eager the buyer's agent might be to get the offer accepted by the way certain negotiable items are presented. The way certain items read tells us whether the agent has written many offers or is an inexperienced agent. Some types of negotiable items disclose a lot about the buyer, too, especially if those things tend to buck the norm.

These observations have led to the belief that some buyer's agents, not all of them by any stretch, rarely discuss the negotiable items in a purchase agreement with the buyer. Many agents just check the boxes according to local custom, and there is really nothing wrong with that approach except that it doesn't really give the buyer or seller a choice or a say in the matter, much less a thorough understanding about the purchase offer.

Residential Purchase Agreements Are Not All the Same 

Bear in mind that every state in America pretty much utilizes its own residential purchase agreement. There is no One-Size-Fits-All. In Texas, the contracts are called a One to Four Family Residential Contract, developed by the Texas Real Estate Commission.

In California, the contract to buy a home is a California Residential Purchase Agreement and Joint Escrow Instructions, painstakingly updated almost annually by the California Association of Realtors. It appears that in Florida, agents use several different types of residential purchase contracts that have been approved by the Florida Bar and the Florida Association of Realtors, depending on whether a buyer is purchasing the home as-is.

Possible Negotiation Points

The following points could be up for negotiations:

Closing Costs

If a buyer is spending hundreds of thousands of dollars to buy a home, those buyers deserve to know the negotiable points and have a voice in the situation. Likewise, a seller should know which things can be negotiated and whether there is any room in some of the costs of sale, which affect the seller's net proceeds.

For example, although it is uncommon, some sellers say they prefer instead to significantly reduce the sales price and allow the buyer to pay all of the costs of sale, except for the commission. There are reasons to do it that way and reasons not to. Probably the most significant is in a financed transaction, if the buyer were to pay the seller's portion of the closing costs, it would mean bringing in a lot more money upfront to close. That's the boomerang. Buyers are often tight on liquid funds.

Still, closing costs can be negotiated between the parties. Who pays what portion of the closing costs is a negotiable item in a residential purchase agreement, even though it may be customary for the seller to absorb a larger percentage of those fees. Why the seller? Because the seller generally is receiving the money in a transaction and a buyer is spending it out of pocket.

Yet, even with all the differences and the various ways in which real estate is practiced around the country, certain aspects of the purchase agreements are similar. Closing costs are fees you might want to consider before signing a purchase agreement and ask your real estate agent if they are negotiable. Realize you might not want to try to change the way local custom dictates, for example, especially if you are involved in a multiple-offer situation because it could hurt your chances of offer acceptance.

Negotiable Fees

  • Transfer taxes
  • Escrow fees
  • Owner's title insurance policy
  • Mandated state disclosures
  • HOA transfer fees and documentation fees
  • Inspections and reports

Negotiation Items

  • Amount of earnest money deposit
  • The 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
  • Dispute resolution
  • The period for offer acceptance

Review the Agreement Before You Sign

Many buyers find it is helpful to receive a copy of the residential purchase agreement prior to writing an offer, but given our fast-paced environment and how many documents are signed online, this might not be possible. Many residential purchase agreements consist of 10 pages or more, and there are always other documents which typically can accompany the contract.

Generally, lawyers want to read the entire residential purchase agreement. Of course, most home sellers and buyers are not lawyers. All parties should thoroughly read the contract, to ask questions, and to continue to ask questions if the answers are unsatisfactory. You have a right to know the details of your home purchase. Exercise that right. Don't settle for "initial here" and "sign there."