Macrealty July 2011 Market Update
A few months ago, we focused on Sellers, and strategies for pricing your home. This month, we’ll be turning our attention to Buyers and offer certain strategies for how you should approach the negotiation process. Remember, these are just general guidelines. Every situation is unique and you should talk to a professional Realtor about your specific circumstances.
1) Make Offers on Reasonably Priced Properties
Pricing is an art that some Realtors understand better than others. A reasonably-priced property will maximize your chance of success at a fair price.
Properties that are priced too high likely have unreasonable and/or unmotivated sellers. These properties will likely sit on the market for a good period of time before the seller’s expectations lower or their motivations increase. In the interim, it is unlikely that you will convince the seller to accept a market-priced offer.
Properties that are priced too low will likely solicit multiple offers: an unpleasant situation for most buyers. A very general rule-of-thumb is that, in a multiple offer situation, 2 offers will solicit full price, 3 offers will achieve a 5% premium, while 4 or more will see 10%+.
2) Don’t Low-Ball
As a Buyer, your goal should be to get the property you want at a reasonable price. Unless you are lucking into exceptional circumstances, low-balling decreases your chances of achieving this goal.
You will routinely see Sellers being ‘insulted’ with the low offer and simply not counter, either out of spite or out of a belief that a deal is unreachable. In this scenario, if you really like the property, your only response would be to tender a completely new offer. In this case, you’ve tipped your hand that you really like the property and your negotiating position has been compromised.
Conversely, very low offers are often countered with very little movement on the Seller’s side. Like in the first case, your only option at that point is to move even further on your next counter. Once again, you’ve compromised your negotiating position while also making the Seller an adversary rather than a partner.
3) Pay to the Point of Indifference
If you do happen to get into a multiple offer situation, your bargaining position is limited to your best offer. In this case, your realtor should provide you a Comparative Market Analysis (CMA) for you to make an informed decision and you should come in with your best offer. In this case, your offer should be to the point of indifference, which means that you’re paying up to the point you believe the property is worth to you, and if you lose to a competing bid that is $100 higher than your offer, you will not regret your bid.