Sure, a home is an investment and it gets all exciting when it’s located in a market where real estate prices are rising and property value is increasing. But the thing is, as much as it feels good to know that our net worth is getting a boost, first and foremost, our home is a sanctuary.
Home is a refuge with deep emotional meaning; a place of comfort, waiting to greet us with a warm cozy bed, a spouse, loveable munchkins, and a furry four-legged friend; a place where we don’t have to put on a face to the outside world, where we can let it all hang out. Home is our soft landing.
We fall in love with our home, maybe at first sight, maybe sometime later. Either way, we ultimately develop an attachment for our home that simply is not formed with any other investment, no matter how much money it is worth. And that attachment, dear readers, is a problem.
Emotions Monkey Wrench Negotiations
Any sort of successful negotiation involves emotional detachment. This doesn’t mean you have to dial down the delight at having found your dream home. But to get the best price possible, it would help to bring a cool reserve to the bargaining table, an objective perspective focused not on the picture perfect property but on striking an advantageous deal.
Advantageous to you and the seller, that is. Because both buyer and seller need to feel that they’re benefitting from the transaction. Otherwise, the deal won’t get done.
And typically, the most effective way to ensure that the deal is fair to you, the buyer, is to stop your self from blurting out during a tour of the home,
‘I don’t care what it costs! I love it! I want it! Money be damned!’
And the best way to do this is to hire a real estate agent. A realtor places distance between you and the negotiation process. They take emotions off the table. Because for the realtor, this is all about business. And their business is to advise you, to guide you, and to negotiate on your behalf and in your best interest. They have zero emotional attachment to the house. Rather, they’re just doing their job. Oh … and the bonus? Seller pays the realtors commission; you don’t pay a dime.
Market Conditions Dictate
The local market will determine your offer and how much wiggle room, if any, there is in negotiations. That said, real estate is a local game, meaning prices will vary not only in different cities but also in different neighborhoods.
Your realtor will provide you with up to date information (i.e., comparable sale prices for similar homes in the same area during the past few weeks and months) and tell you whether it’s a buyers market, sellers market, or somewhat balanced. This matters because the kind of market will go a long ways to determining your bargaining power.
This kind of market is reflective of too much housing supply among limited demand. A market where properties sit for months. Where price reductions and other purchase incentives are common. And where buyers can strike their best deal. For buyers, this is nirvana!
Here, you definitely do not pay the asking price. As for determining how much to offer, this can be tricky. Make an offer too low and the seller may be insulted and close the door on you.
That said, you never know what a seller will accept if you don’t ask. That’s your role as a buyer, to ask. The seller’s role is to push back. And the offer is your way of asking. If a seller responds with a “no” to your offer, and does not extend a counter-offer, well, then you have two options.
First, walk away. This being a buyers market, there will be other homes for you to choose from.
Second, submit a revised, higher offer that is within your limit and respectful to the seller. Because how the buyer presents them self is important for a lot of sellers. In this regard, no one wants to feel like they’re being burned on a deal.
If you do submit a higher offer, be sure you know your upper limit and that limit is within your budget. Otherwise, you may end up overpaying and digging your self a big, deep, financial hole.
As for timing, you may submit a revised offer immediately or wait. If there are no other buyers on the horizon, then wait a week or two as this will add pressure to the seller. Seeing no other potential buyers, seller is more likely to accept a bid under the list price.
This is a major headache of the migraine variety for buyers (Hello San Francisco! Vancouver! Both examples of steaming hot markets where prices seem to climb and climb and climb and …).
For the most part, buyers have no leverage. Whatever the asking price is, buyers offer that price if they are to have any chance of completing a deal. Still, with demand high and supply low, sellers can be picky and wait for the best offer. Often, this means multiple offers over the asking price.
When competition is intense like this, and buyers are in a tizzy, fearful they will miss out on a once in a lifetime opportunity, some offers exclude the usual conditions (i.e., subject to financing and/or inspection) in an attempt to woo the seller.
To put it mildly, this is not a wise approach, one I certainly would not recommend. If financing falls through, tough luck for the buyer because the contract is enforceable and they’ll have to find the money somehow if they don’t want to be subject to a lawsuit for breach of contract. Or if the inspection turns up asbestos, a leaky roof, or cracked foundation, that is at buyers cost as well, further adding to an already inflated purchase price.
If you can be patient, wait for the market to cool, this will serve you well in the long run. But if you’re intent on buying in a sellers market, know that you’ll most likely be holding the short end of the stick when it comes to price to be paid.
With the forces of supply and demand about equal, neither buyer nor seller has a distinct advantage. As a buyer, you would want to offer a fair price that is less than the list price. But know that the seller may not be in hurry to accept the first decent offer that comes along, believing that other offers will soon follow. Still, if your offer is reasonable to the seller, expect them to at least provide a counter-offer. And if both sides want to get the deal done, then both sides compromise on price.
Chewy Bit. Buyer and Seller had come to terms on a property listed for $1.5 million. One contentious issue remained: a built in cappuccino machine, cost $500. Buyer wanted it included in the purchase price. Seller refused. The deal fell apart, and the seller waited another two months to sell the property for $100,000 less than what the initial buyer offered. A $1.5m deal implodes because of a $500 difference of opinion? That’s ego talking, and the seller paid a huge price for not being able to see the big picture.
Hold The Love
That whole ‘falling in love with your home being a problem’ bit that I mentioned near the beginning of this post? It’s only a problem when you’re wearing the residential real estate buyer or seller hat. At all other times, well, bring it on!