I have worked lots of real estate offers over the years, and I always wonder where some of my buyer clients get their ideas about negotiating. Two assumptions buyers make can not only get them an irate seller to deal with throughout the transaction, or even worse, an outright rejection of their offer.
Assumption 1: The seller has inflated the price for negotiation purposes – Chances are, if the seller has a good listing agent, she is well aware of her home’s value, and the current market trends. The skilled agent will explain to the seller that correct pricing will get more showings and generate offers more quickly. Some sellers still insist on building in a “negotiating buffer,” but many times, those are the properties that languish on the market while others in the neighborhood are selling quickly. Chances are that the more desirable houses are priced correctly and may even generate multiple offers in the first few days of listing. Buyers following their Dad’s advice to “offer them 20% below” asking price will surely be disappointed if they are trying to get a “deal” on high quality, correctly priced properties.
Assumption 2: The seller will happily pay buyer closing costs and throw in a lot of extras just to get the house sold – While there may be “desperate” sellers out there, good listing agents will prepare their sellers to consider paying some closing costs and crediting for some optional improvements, but only when necessary for the transaction. Mom’s advice, “make sure the seller pays your closing costs,” might work, but buyers and their agent should be prepared to be to be questioned as to whether they “need” those closing costs or just “want” them.
Bottom Line: The basis of a strong and successful negotiation is understanding the position of the other side. If you are a home buyer preparing an offer, keep the seller’s bottom line in mind. Negotiations should focus on all parties’ bottom line. Offering $200,000 cash on a house priced at $210, 000 might be considered a solid offer for a seller. Offering $200,000 for the same property, with a 96.5% FHA loan might not be as attractive, but would still gross the seller the same amount. Offering $200,000 and asking for 6% of that sales price in seller paid closing costs on behalf of the buyer, brings the seller’s gross down to $188,000, in effect, offering $22.000 less than original asking price. Asking for more – a $5000 fence for the back yard, and a warranty with bells and whistles for $1000, and new carpets, further erode the seller’s bottom line as she tries to make a decision.
I am not advising not to present such an offer to a seller. Not at all. There are plenty of times when that type of offer will work When my buyer clients sign an agency agreement it is my responsibility to obey their wishes and directions. I do always advise, though, to consider the seller’s bottom line throughout the negotiations.