How to Negotiate With a Seller: Tips for Bay Area Home Buyers

For many months now, we’ve heard how the San Francisco Bay Area is a seller’s market. And it’s true. Tight inventory conditions coupled with strong demand have made the Bay Area real estate market highly competitive. As a result of these conditions, home buyers have had a hard time negotiating with sellers.

But real estate conditions can change over time, for a number of reasons. During the second half of 2022, and into 2023, the Bay Area housing market could cool down a bit. We’re seeing a few signs of this already. This would give home buyers more room to negotiate with sellers.

So, how do you go about it? How can a home buyer negotiate with a seller in a competitive real estate market like the San Francisco Bay Area? Here are some tips, strategies and considerations.

How Do Sellers Determine the List Price?

How do sellers come up with their list prices (a.k.a., asking price)? This can vary from one seller to the next, but it usually comes down to one of the following scenarios:

1. Some homeowners set their list price by analyzing recent home sales in the area. These “comps,” as they are known, show how much people have paid for similar properties in the area. That’s a good place to start, when determining the list price for a Bay Area home.
2. Some sellers will base their asking prices on the amount they originally paid for the house. Sometimes they will increase the price based on real or perceived appreciation.
3. In other cases, the homeowner might price the house based on the amount needed to pay off their existing mortgage balance.

The point is, the seller’s asking price might be realistic (based on market conditions) or unrealistic. And that’s an important point to remember, when it comes to negotiating the price for a Bay Area home purchase. It also underscores the importance of doing your own price research. So let’s talk about that next.

Negotiating With Comparable Sales

As a buyer, you can benefit from the same kind of market research mentioned above. You would do this by reviewing recent sales data in the area where you plan to buy a house.

Specifically, you want to look at similar homes that have sold recently in the same local area where you are house hunting. Similar, recent and local — those are the three ingredients of a good comparable sale, or “comp.”

This kind of research will help you shape your offer and negotiate the sale price for a Bay Area home. If you’re working with a real estate agent, they’ll do much of this “heavy lifting” for you. But it helps to do your own homework as well, so you can understand what kind of real estate market you are entering.

Dealing With Offers and Counteroffers

When you make an offer to buy a home in the Bay Area, it can play out in different ways. Here are the three most common scenarios that buyers encounter:

1. The seller could accept your initial offer as-is, with no changes.
2. The seller could make a counter-offer by changing the sale price or other elements.
3. The seller could reject your offer, without even making a counter.

As a home buyer, you should realize that homeowners are not obligated to make a counter-offer. They can simply turn you down with no explanation, if they choose. This is common in the Bay Area real estate market, where homes listed for sale often receive multiple offers from competing.

In scenario #2, where the seller makes a counter-offer, it’s a signal that they want to move the deal forward. But they’re not satisfied with some element of your offer (sale price, closing date, contingencies, etc.).

When the Seller Is Unwilling to Negotiate

But what if you make an offer on a Bay Area home and the seller isn’t willing to negotiate? What if they just won’t “budge” on the sale price?

Your course of action in this scenario will depend on your budget and your home-buying strategy. If you’ve already put in your best and strongest offer, but it’s still not enough for the seller, it might be best to walk away. You don’t want to get into a situation where you end up stretching your budget, just to buy a home.

Also, remember that negotiating leverage is largely based on local real estate conditions. In the Bay Area, for-sale inventory can sometimes run low (as it is now, in early 2022). This gives sellers more negotiating leverage. At other times, the market might slow down and cause sellers to be more flexible.