It is rare in today’s market that you will find a truly motivated seller that will give it away (discount more than 10%). Of the NSDCC sales closed over $1,000,000 in the last 30 days, the average sales price has been within 5% of the average list price.
Does it hurt to try?
Lightweight agents will warn you not to ‘offend’ anybody with a lowball offer. But let’s assume that sellers have a thicker skin. There is a tactical problem that makes it very difficult to come to terms when a buyer presents a low offer.
My rule-of-thumb is that we have two days or two counter-offers, whichever comes first, to make the deal. If the initial offer is 15% or more below the list price, there is too much ground to cover. You’re more likely to run out of time or counters, than to reach an agreement.
The biggest problem is that both sides become attached to their price once they put it on paper, and feel the need to defend it no matter how that price was determined.
Buyer offers 85% of list price.
Seller thinks it is low, and counters 98% of list to send a message to the buyer that this house isn’t going to be stolen.
But the buyer becomes attached to his 85% offer, and he’s not going to be pushed around! The fight is on – and the buyer counters at 88% of list.
Seller thinks we’re going nowhere fast, and drops the negotiations.
Example that has a Better Chance:
The buyer offers 85% with low expectations, knowing the seller won’t be pleased. The seller counters at his 98% number.
The buyer’s response to the seller’s counter needs to be at least 90% of list, for two reasons: A) to impress the seller that a deal could be made here, and B) beat the clock.
Typically, the seller will then counter at 95% of list, and hope the buyer just signs it. But the buyer splits the difference instead at 92.5%, and hopes the difference is small enough that the seller shrugs it off and signs.
The key is the buyer’s counter to the seller’s first counter – it has to be high enough that the seller stays in the fight. If the buyer doesn’t come up much, it’s too easy for the seller to give up.
- If you want to buy at 85% of list, then have the agents discuss it on the phone. You have to convince both the seller and the listing agent, so you might as well start with the agent first – if they blow you off, just wait and see if they lower the price later.
- Determine a price strategy in advance, and respond promptly. The egos on both sides will run out of gas within two days.
- Make a clean, crisp offer – include a solid prequal letter and proof of funds.
- Provide convincing data why your price is right, especially if there have been new comps since the listing began.
- Don’t justify your price by dogging the house, and all the repairs needed.
- Include other sweeteners like free rent after closing.
- Keep in mind that you are only fighting for the last 2% or 3%.
Having a strategy is important. Too often a buyer will just throw a price out there, without having a path to follow – and the path is predictable!
The prevailing market theory employed by nearly every realtor is to wait until someone comes along to pay their price. Your negotiations have to go perfectly to disrupt that belief!
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