Negotiating the Sale or Purchase of Your Home in a Buyer’s Market
categories: Alpharetta Real Estate, Negotiating
I write a lot here about various properties for sale in Alpharetta, general real estate conditions and items of interest to those looking to live here. It is easy to fall into the trap that evaluating homes is our chief purpose and value add. Afterall, homes are what people want to talk about and there is an endless supply to discuss.
While I think identifying homes and neighborhoods is important because it fills the need for analysis and insight of all those house pictures that anyone can go online and see, focusing so much on just the homes overlooks an entirely other area of value add to our clients: negotiation for the purchase or sale of the home.
Many clients find looking for a home to be fun but negotiating its purchase to be nerve racking. That is one reason to have a dispassionate professional (that would be me ;->) in your corner. I dare say that I have "saved" my clients in total tens of thousands and tens of thousands of dollars over the past year. Successful negotiation requires strategy, guile, good bluffing skills and sometimes luck.
Take one of many negotiations we recently completed. I point this out because I am sometimes amazed at the strategies, or lack there of. Read this and tell me how you would have negotiated.
Negotiation Scenario
We represented the buyer on a the purchase of a $300,000 house in Alpharetta that had been on the market for about a year. Originally the house had been listed at $325,000. Believe it or not, after a year on the market, we unexpectedly got into a multiple offer situation and we were not the first to the table.
Move 1
The listing agent knew that we wanted to make an offer, but the seller went ahead and counter-offered the offer by the other prospective buyer before they saw ours. They did this because the first offer had a time deadline on it, but it was a (mis)calculated risk. I might have waited to see what the other offer - our offer - was going to be before countering the first. Yes, the first offer technically expires, but who cares? You weren’t going to accept it as is; you were going to counter it so it still needed the acceptance of the first buyer. Having countered, the seller now had to wait for the first buyer to respond and couldn’t entertain any other offers.
Move 2
We went ahead submitted a backup offer, not really expecting to get under contract. We offered full price for the house; maybe we should have offered less. We offered full price because the house had already been reduced $25,000 and we thought the house was worth it, but we also didn’t totally expect the seller to counter the first offer without seeing ours first and we wanted to have a strong offer. We were trying to buy the house after all.
Move 3
The first buyer did not accept the seller’s counter, which was a strategic mistake on their part. They had to know at this point that there were multiple offers. They were in control: If they accepted the counter they had the house under contract. Countering back like they did gave the seller the chance to re-evaluate his options. At this point, he thought that our offer was better. But then he made, in my opinion, a strategic mistake. He countered us on two very minor items…things that could have been discussed verbally between agents and amended to the contract later, like possession date.
Move 4
This passed control from the seller back to my client, the second buyer. We had to assume that the first offer was not as good as ours, otherwise the seller would not have changed ships midcourse. My client also felt like they had rushed into the negotiation a little quickly because of the multiple offer situation. Given time to think about it, they decided to counter back at $295,000. They wanted to have a "small win" in the negotiations.
Checkmate!
The seller was not stuck. He had burned his bridge with the first buyer so he had to swallow hard and concede the $5,000. We got the house even though we weren’t the first to the table and we got a small price concession.
What would you have done if you were the seller or either buyer in this case? Hopefully, you’d say: "Hire a good realtor to negotiate if for me!"
Negotiation is a challenging, sometimes stressful, but usually very rewarding part of the services we provide our clients. I actually enjoy it and find it one of the most rewarding aspects of the job. Yes, we want to help our clients achieve their goal of buying or selling the house, but we want to do it on the best possible terms for our client. We spend our client’s money as if it were our own.
Great Post Kevin! Question? On Move 1, if the Seller received a 2nd offer, and wanted to respond to it immediately, could they have sent notice to the Buyer with the first offer that they were withdrawing their counter offer? Would fax confirmation of that notice be enough to enable the Seller to immediately negotiate the 2nd offer without waiting for any response on the 1st? What are your feelings on this? Would it be an acceptable thing to do in that negotiation? We had a similar situation and did that. I just wanted to get others opinions.
Deryk
The fact that you were in a bidding war in this market makes me shake my head. Isn’t there 10-12 months inventory in the pipeline right now? And the fact the house has been on the market for a year, even with a price reduction,tells me that the house was still priced to high. So to make a full price offer puzzled me. Did you ever find out what the other offer was?
My most recent example of realtor “negotiation”-offered 195k on a 215k house. Got a counter of 205k, and my realtor advised me to take it. I disagreed and countered at 200k. My realtor thought my offer was still to low and that my “wheeling and dealing” would never buy me a house. We went under contract @200 and guess what? The house only appraised for 182k! Deal fell through and I negotiated my next house at a 20k discount without any comments from my realtor.
@Deryk: yes, either buyer or seller can withdraw their current offer at any time during the negotiation provided they give legal notice to the other party. That notice is usually fax but email is increasingly acceptable if stipulated in the original contact as such.
@Anne, sounds like you are a “natural” negotiator…it is definitely an art more than a science and you have to go with a gut feel sometimes. Believe it or not, many realtors who I speak with don’t actually like to negotiate. It makes them uncomfortable; they are “in” real estate because they like looking at houses, not because they are necessarily a good business person ;->
On the house that we made a full price offer, we did that after carefully considering the neighborhood comparables, the other homes in the market at that price point and some specific characteristics of this particular house that our client really liked. The house had already been discounted so it was close to “priced right” as evidence by the increased buyer activity. In the end, our client did win a small price concession, too.
Good post Kevin, however I do have to take exception to something you state in Move 3;
“He countered us on two very minor items…things that could have been discussed verbally between agents and amended to the contract later, like possession date.”
I don’t think it is wise to leave anything out of a real estate contract to be discussed and possibly added later. There are far too many problems such a situation can cause.
Just my opinion.
Hey Kevin, thanks for the props, but I think it’s really a case of being as informed a consumer as you can be. That’s where I think realtors can be really valuable since they have ready access to all the homesale info. Sometimes, though, I think realtors are apt to use their "gut" feeling a bit too much - i.e., if they’re asking 210, then 205 is good. But when I ran the numbers in that scenario-price/square foot has been a pretty good mark-it just didn’t work out. Like you said, it’s good business to be as knowledgable about your situation as you can. It is a huge purchase after all. Do you have any scoop on the foreclosure on Lum Crowe Road in Roswell? Now that looks like a nice house, too. Thanks, Anne
Anne, you get around town — that’s great. The home on Lum Crowe Road that i believe you are referring to is near the very end of the road. It is a foreclosure: 4 sides brick, 3 fireplaces, full finished basement.
It was originally listed at $799,900. It has been reduced to $769,900. All the new construction in that area (Litchfield Overlook and Litchfield Hundred) is way over $1,000,000.
Charles: I agree entirely: The terms of the transaction should be clearly outlined in the contract. That is the only legally binding document.
However, in this case, the issue was just taking possession one day after closing. This is the sort of thing that I would approach the other agent on, just to “take his/her temperature” on whether it was going to be a big deal or not, and then decide whether to counter with this stipulation or handle it after binding contract. Handling it after binding could have saved him $5,000.
Of course, this is a gray areas. That’s why you have a good agent, to help you navigate the gray! ;->
The one I’m looking at is 629k-385 Lum Crowe. I think there are 2 foreclosures there (at least, looks like there may be another corporate owned). I think they tried to auction this one off a while back. Did the house on Francis end up selling at auction?
Actually, there are two foreclosures and one “Corporate Owned”, which is typically a relocation.
The corporate-owned house was originally listed at $869,900 and is down to $709,000.
The foreclosure you are mentioning at 385 Lum Crowe is now at $629,900 and was originally at $641,900. It has a smaller lot and I’m not sure about the basement being full/finished/partial or what. Agents working foreclosures and relos are lazy (in my humble opinion) and don’t always post the most complete information of supply the full complement of pictures.
How about the foreclosures in Six Hills? The one on Owens Way is listed as a bank owned and the one on Six Hills road is a preforeclosure. I’ve heard 500k forclosures going for 300k plus-could you guess what a 1M one would go for? There look like a ton of foreclosures in Ellard, too, what is going on in that neighborhood?
Your comment makes it make a lot more sense. It is unfortunate that some real estate agents don’t think negotiating a contract should be a win-win for all parties.
Now back to navigating the gray areas in here in Dothan.
I have a kind of related question.
We have an agent we’re not real happy with but have signed a buyers contract for 6 months. The contract says we can cancel for any reason. Is that truly the case? i guess the caveat is that we can’t buy a house she has already shown us?
Actually, Carl, you can cancel the Buyer-Broker Agreement that you signed simply by providing written notice. Your buyer agent is legally entitled to any commission that would have been earned up to the termination date, but assuming that you did not make any offers that were accepted while working with this agent, that is, all you did was look at property, there hasn’t been a “commissionable event” if that is a term.
You are free to cancel and find another agent who works better for you. You could even decide to go back to one of the properties you’ve seen in the past and decide to make an offer with the new agent. Is this a great industry or what! ;->
Kevin- is it true that the REAL deals in Alpharetta are in new construction? We had friends tell us that their friends bought a home listed by the builder @ $768,000 for only 550,000. How in the world is that possible? Do deals like that really exsist on inventory of new construction? If that’s the case, I’m going to begin looking ASAP! I would love to know your thoughts. Thanks.
Hey Kevin! Ditto on Monica’s comment. On Jan.24th I wrote, “…Secondly, my husband and I are entertaining the thought of purchasing a lot/home in a new costruction neighborhood. The lot is right next to the future neighborhood pool. I say it’s not that big of a deal, but my husband says not a good idea-for while we live in it or for resale. Can you help the debate?
Also, do you think these “deep discounts” with suffering builders are a good investment, or is a resale a better buy?
There seems to be a plethora of “motivated sellers” right now, including builders sitting on empty lots. I’d love to see a blog on the pros and cons of buying now (resale vs. new construction, etc.) in a slow environment and decreasing rates.” I would love to see a post on this subject with the supposed upcoming spring/summer season of buying that some builders have been waiting for, most likely in vain. What’s the SITCH?
Hey Kevin! Ditto on Monica’s comment. On Jan.24th I wrote, “…Secondly, my husband and I are entertaining the thought of purchasing a lot/home in a new costruction neighborhood. The lot is right next to the future neighborhood pool. I say it’s not that big of a deal, but my husband says not a good idea-for while we live in it or for resale. Can you help the debate?
Also, do you think these “deep discounts” with suffering builders are a good investment, or is a resale a better buy?
There seems to be a plethora of “motivated sellers” right now, including builders sitting on empty lots. I’d love to see a blog on the pros and cons of buying now (resale vs. new construction, etc.) in a slow environment and decreasing rates.”
I would love to see a post on this subject with the supposed upcoming spring/summer season of buying that some builders have been waiting for, most likely in vain. What’s the SITCH?