When it comes down to the last 2% to 4% on price negotiation, why is there so much trouble putting a deal together?
It because the participants had no strategy going in – they just start making offers or counter-offers without regard to where it will lead.
Without a specific strategy, it’s too easy for either party to throw their hands up and say, “I don’t know how I got here, and I don’t like it!”.
This is another reason why we should adopt the auction format to home-selling. The auctioneer has a very specific strategy on price, and the increments of change – all the buyers have to do is say yes or no.
Until the auction format takes over, what can we do?
My ideas on offer/counter-offer strategy:
- Keep It Simple – Negotiate in 25-50-75-99 increments, they are easier for the receiver to compute the differences. It also helps to give the other party a strategy for their response – if they are paying attention.
- More Simple – If you can’t get on a 25-50-75-99 track, then sellers’ counter-prices end with a nine ($879,000), and buyers end with a zero ($850,000 or $860,000).
- Buyers – Have your initial offer reflect the days on market. If you offer 5% under the list price on a house that has been listed for 3 days, you won’t get a response. Make the same offer 3 months later and the seller should be happy to engage.
- Velocity – Make a big price move with your first counter-offer to encourage the other party (heck, they might be so happy they just sign it), but then pull back on the second round.
- Don’t Go Longer Than Two Rounds of Counters – Parties get tired of playing, and burnout sets in quickly.
- Expect to Split the Difference at Some Point – it’s a win-win solution.
- Know the Other Agent’s Level of Competence – If the other agent sells less than one house per month, they are likely to willy-nilly the process. Your agent needs to help them along.
If you are the buyer, it would be nice to pick up some signs along the way to assist with setting a price strategy, and lay out your expectations mentally.
Signs of seller motivations, and what a buyer can expect:
- How difficult it is to see the home. If the listing agent blows you off for a day or two, or wants to show the house at their convenience, not yours – then you can expect tough sledding ahead.
- How quickly they responds to your offer/counter. If the sellers doesn’t respond within 24 hours, it means they don’t understand buyer’s remorse – and don’t care.
- How close they stick to list price. The closer they stick, the more (over)confident they are.
- Who the seller picked for a listing agent will tell you just about everything you need to know about your chances of success. If they select a reputable, experienced agent, then you will know because the house looks sharp, it’s easy to see, and the price is attractive. If they picked a loser, then the photos are terrible, the house looks like crap, it’s hard to see, and the price is 10% higher than comps, or on a goofy range.
Remember that it takes four things to make a deal – the right house, the right list price, the right seller, and the right listing agent. If any of those four are out of whack, then a deal is unlikely.
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