How can you negotiate with buyer or seller?
BY KAY SEVERINSEN Editor, SearchChicago-Homes
It’s not easy playing low ball. Dreams can deflate, egos can bruise, and frequently, the players pick up their ball and go home.
Just ask Nikki Wood, who last year found a little house in Chesterton, Ind., that she and her agent decided to make an offer on.
She liked the house, but it was small and dated, and she and her agent both felt it was overpriced at $136,000. Surveying the market, they agreed it was worth no more than $118,000, and made an initial offer of $115,000, a little more than 15 percent less than the asking price.
The sellers were not impressed, and Wood felt the seller’s agent was condescending when she countered the offer at $135,000, only $1,000 less. A small price counter may be a signal that the seller is not interested in a lower offer, and after trying another counter, Wood walked away.
Her agent thought the sellers would come back later with a better price, but they never did. Wood watched the house, and it didn’t sell for another six months, when she says it closed for $119,000.
“So, my Realtor’s pricing comparisons were very accurate, and the seller’s obstinateness apparently hurt them in the long run,” she said in an e-mail. “Moral of the story: Do your price comparisons, believe them, and stop inflating the market!”
Low ball offers, typically defined as 10 percent to 20 percent lower than asking price, become more common when the market is going through a period of what economists optimistically call “a correction.” Home prices that bounced along through the first half of the decade, happily inflating 5 percent or 10 percent a year, or more, have hit the wall of affordability and – let’s face it – common sense. That’s when buyers will test the market with lower offers.
“It’s frustrating for everybody,” says Barbara O’Connor, a Realtor with Baird & Warner City North. “Sellers are expecting unrealistic values that could have been there one or two years ago. Buyers are making one-shot offers and then walking away.”
This will happen even if the property is priced right, she says. It makes sense for a buyer to offer a lower price if the “comps” (comparable properties) don’t justify the asking price; but sometimes buyers just decide to give it a shot.
“Buyers do think they are still correcting the market, but in most cases, the correction has taken place,” she said. “They are also just very conscious about not wanting to pay anything more than what they think they can recoup when they sell.”
She was recently part of a deal in which a home listed at $1.24 million took a contract at $850,000. The seller had paid $1.1 million in 2004.
“The buyer said, ‘this is what the price is,’ ” she said. “Buyers think sellers are desperate and that they can throw out any number, and the seller should arrive at the (closing) with a check for $300,000” to cover the shortfall.
Sellers with lots of equity are the ones most likely to be able to make a deal, says Bill Brucks, with Remax Suburban in Arlington Heights.
For example, he is the third agent to list one particular home, which has sat unsold for nearly two years. After he and the seller dropped the price nearly $40,000, it recently had a third showing to a prospective buyer. A day later, Brucks heard the buyer was going to make an offer on a different house that was priced slightly lower.
He asked the buyer’s agent why, and she said, “We didn’t want to insult you” with a lower offer.
When Brucks relayed this to his seller, the seller’s response was, “Please, insult me!” Because the seller had owned the home for several decades, it was paid off and the seller could afford to let the market price settle lower than anticipated.
Brucks has been on both sides of a low offer. He helped buyers negotiate a killer deal on a brand new home that originally listed for nearly $900,000, and closed for $771,000. And he has represented sellers who are willing to negotiate, especially when they have lots of equity.
However, he thinks the season of “corrections” is about over. “Since the beginning of this year,” he said, “I have seen a lot of people who have been sitting on the sidelines, realizing that prices won’t go much lower.”
He recently listed one home, priced at about $300,000, which closed in four weeks.
“Our office was twice as busy in January ’08 as in January ’07,” he said. “Things that are priced right will sell now. In 2007, I think people were inundated with bad news nationally all the time. It got the buyers spooked and had sellers spooked.”
Sellers who purchased their properties a couple of years ago will get stung if they sell now, he admitted. “Three years ago, people could ask whatever and people would buy the house. I don’t think they were all fairly priced.”
Those buyers who have owned only a couple of years could find themselves backwards on their mortgage – owing more than the home is worth. Some cannot sell at today’s corrected prices without taking a loss.
“I tell them, unless you have to move, just sit on it. Rent it,” he said.
To keep insults to a minimum and successfully negotiate a lower deal, several things have to be done right, Realtors say.
For one, both buyer and seller should be working with an agent who is very familiar with the area. Those who decide to use a relative or friend of a friend can find themselves represented by someone who does not know the micro-economy of that particular village or neighborhood.
For buyers, check the last sale date on the property you like. If it’s only been owned a few years, you are more likely to be working with a stubborn seller who cannot budge on price without losing money. If it’s been owned for 10, 20 years or more, you could have a seller who may deal, though some homeowners have tapped too heavily into their home equity and find themselves in the same financial spot as new homeowners.
Sellers should not expect to turn a two-year ownership into a profit this year. Prices were too high in 2005 and 2006 to recoup your investment. Consider delaying your move or renting it out if at all possible.
Like buyers, sellers should work with an agent specializing in their type of property and location. Review comps and set a realistic goal, both for price and length of time on the market. It’s not unusual for homes to take six months or more to sell right now. You will need to reconcile yourself to the fact that your dream price of two years ago is gone.
Sellers should discuss with their Realtor how low you can realistically go. Some sellers think they should inflate their price if they are going to have to negotiate down 20 percent, but O’Connor says that tactic is just likely to eliminate showings.
A common scenario is one where the sellers have their eye on another property that will cost more. They hope to put profit from their sale into the down payment on the next house and believe that e if they lose that profit, they’ll be unable to purchase what they want.
Get your ego out of the way, says O’Connor, and don’t let low offers insult you. If you think your property is priced right, counter with a price just a little lower than asking, and see if the buyer will wise up. However, many times, there will be no counteroffer and the buyer walks away.
And, don’t expect buyers to fall in love with your house. O’Connor just isn’t seeing that “falling in love” look on the faces of buyers right now. “They are stone-faced,” she said. “They have looked at a lot of properties and they have no emotion.”
Brucks, however, has some reassurances. The higher the home price on your next house, the more bargaining is taking place, and the more likely you as a buyer will get a better deal, too.
If the sellers of your next house knock off the same percentage that you did on your sale, you will still see a savings in real dollars. As for Nikki Wood, she is still looking for a house in Indiana. She recently made another low offer, this one 13 percent less than the asking price on a for sale by owner for which Wood did her own price comparisons.
The sellers met Wood halfway, but, she says, “I still thought that was too high.”
And she walked away again.