May 192006
 

Negotiating an offer in a cooling market.

Okay, so there is a general consensus that the market is cooling off. Houses are sitting a bit longer on the market; some prices have been reduced, but not all. New houses come on the market, still priced at zany “summer of 2005” prices.

What’s a Buyer to do?

Let’s assume you are past the whole “housing-head” “bubblehead” thing. Let’s assume you believe the investment in a home involves much more than just some silly investment pricing strategy. You understand the intangible benefits of owning a home, you’re tired of paying rent, and you want your own “piece of the rock.”

Right, so you are heading out there in this “cool” market and you’re shopping for your first home.

I have some negotiating strategies for you that may help you “shake the trees” and “turnover some rocks.”

1. Know your market. You must create a personal pricing sense; you must do an appraisal in your mind of the home you wish to buy. For that, there is no substitute for going to see as many houses as you can in your chosen neighborhood.

You have to learn the prices of the homes so you know almost instinctively what a house is worth by comparing it to the 23 similar houses you’ve seen over the past six weeks.

When you walk into the home you want to buy, you will know the right price to offer. You will know the maximum price you’re willing to pay for that home.

2. Your Prequalification Letter is a Negotiating TOOL. You should not be walking around with a blanket prequalification letter stating the maximum loan you are qualified for. Rather, your letter should be customized for each offer you make.

This way the Seller never knows your maximum price. If you have made an offer and the Seller counter offers, and you wish to increase your next offer, have your letter updated to reflect the higher amount.

And when you make your offer be sure your prequalification letter is faxed over immediately. I can’t tell you how many times I have heard from Realtors the reason they accepted one of my client’s offers is due to the alacrity with which we submitted our letter. Realtors relate stories of offers that come in on a Sunday afternoon, and the Buyer is still trying to get a prequalification letter the following Tuesday or Wednesday from their Loan Officer!

I send out my letters the same day you make your offer, even on weekends. I followup with a phone call to the Realtor to support your qualifications verbally.

If you want to buy a home for the price you are willing to pay—-not what the Seller wants to receive—you must show the Seller how serious you are. Sending over the prequalification letter right away is an important part of that.

3. Offer less, Offer more. When you make your offer, it doesn’t have to be for full price anymore. Summer of 2005 is long gone. The market has changed. While many Sellers may still be asking outrageous prices, that doesn’t mean they are getting it.

Since you are an educated Buyer who has researched your market, set a maximum price you are willing to pay for a particular house and create a pricing strategy. You should have an opening bid, then one or two counter offer positions ready. These counter offers raise your price, but do not exceed your maximum price. Start with your opening bid and your prequalification letter for that amount.

The Seller will do one of three things. First, the Seller may accept your offer. Bully for you! Second, the Seller may not respond, or refuse. Third, the Seller may counter.

If your offer isn’t accepted, or countered, the next step is up to you. If you like the house enough to move up your price, then step in with your next position and a new prequalification letter.

If your offer is still not accepted, it may be time to move on. If you decide to increase your price, that’s fine. Just don’t go over the maximum price you decided originally you would pay for this house. The heat of the moment of a negotiation quickly becomes emotional and you may lose all sense of reason.

Remember: you want to buy the house at the price you’re willing to pay for it, not the price the Seller wants. Don’t go over the maximum price you set before making your first offer.

4. Serious Sellers. Oh boy there are a lot of houses on the market. Don’t let that fool you into thinking they are all ready for the taking by smart Buyers like you.

Assume there is a percentage of Sellers out there who are not serious about selling their homes. They still think it’s last year and the prices are still mega-millions. Note to Sellers: the market has changed!

You want to discern who is serious about Selling and who is standing there thinking their homes are cash cows waiting to be milked by an unsuspecting Buyer. Note to Buyer: that’s not YOU!

Some folks don’t need to move. The job is not relocating to Arizona; it’s not time to retire; they don’t need to buy a bigger house to accommodate the elderly Mom who is moving in with them. Some folks just have this idea they can sell their home and make tons of money. That’s not “serious about selling” in my book.

You can ask a lot of questions to get at the “truth” behind a Seller’s motivations to sell. You may not get answers to your questions, or the answers may reveal nothing of the Seller’s intentions, or, worse, you may be lied to.

In my long experience I have found the best way to get at the secret of whether or not a Seller really wants to/needs to sell a home is to make an offer.

The person who doesn’t respond to an offer probably thinks he’ll just sit tight to get his price. That’s fine, but if the house isn’t worth that price anymore, then you, educated Buyer, will be moving on to greener pastures.

If your original offer is seriously low, and there is no response, try raising it. If still there is no reaction—a counter offer from the Seller is what I consider a reaction—then this Seller probably isn’t serious.

Time for you to move on. There are plenty of houses out there. Keep going until you find a Seller who really is serious about selling their home.

These are just basic suggestions to help you chart the mysterious waters of a cooling market.

You really must be out there looking, looking, and looking some more, making offers, and making more offers in order to develop a good sense of where the market is going and how you can achieve your goal of homeownership.

  3 Responses to “Negotiating an offer in a changing market”

  1. […] In today’s uncertain and changing market, a Buyer has only two fundamental advantages when bargaining with Sellers. Remember, Sellers are still holding all the cards on price and timing of a sale. Those Sellers who aren’t “real” Sellers, will just sit it out until they can get their price or they finally give up, take the sign down, and head for the backyard barbecue grill. […]

  2. […] Buyer who worries while shopping about asking price and list price is missing the bigger picture of how to negotiate the purchase of a […]

  3. […] you do this, you set yourself above the crowd. You also set a tone of seriousness in the negotiations. You get the high ground. That makes it easier for you to set the price you want to pay (not what […]

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