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How to win the offer/counteroffer game

Not everyone gets as lucky as Ron Kirchgessner. While wandering around the kitchen of a home he was thinking of buying, a stray piece of paper hastily shoved into a stack caught his eye. There in black and white was a previous offer the homeowners had accepted on the contingency the bidders sell two pieces of property. The dollar figure was nearly $20,000 under the asking price.

The average Joe sweats a bit more before taking that opening bid leap of faith. He also wastes emotional energy overthinking this step, says Paul Purcell, co-founder of braddock + purcell, a residential real estate referral firm in New York. "The most important thing to remember is that you're entering into a business proposition. If you make it personal, you lose sight of the ability to negotiate.

"Sometimes it's more how you prepare for something than how you actually do it," he adds. On one hand, that means you don't have to play a poker game, trying to hide the fact you like the property. Making an offer on something this costly tips off the other side you're interested, Purcell says.

 
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However, it does mean you need to replace emotion with facts.

Homework time
One of the strongest ways to determine your negotiability factor lies in those comparable home values you collect. The idea is to pinpoint the percentage difference between the asking price and the sale price in that given neighborhood to see what overall wiggle room exists.

The ideal situation, of course, is an easygoing buyer pursuing an anxious seller. Length of time on the market can give you a clue, but generally a friendly conversation with your real estate agent or the homeowners themselves reveals pertinent details, such as a job transfer, divorce, downsizing or other motivations.

Next, identify a few optional properties and let the seller know they're waiting in the wings if you intend to hold the power at the negotiating table, says Roger Dawson, who owns The Power Negotiating Institute in California and authored "The Weekend Millionaire's Secrets to Investing in Real Estate." "Negotiations deal with perception, which is far more important than reality to a negotiator," he notes.

Finally, prepare a list of perks to hoist on the bargaining block. This gives the seller incentive to give in to your price to keep the deal, but assuages his pride by playing hardball somewhere, advises Darlene Witter, CRB, the owner/broker of Vermilion River Realty and a former national vice president for Coldwell Banker. Consider:

  • Ask for a 10-day period to take occupancy after the title transfer
  • Pay the homeowner's warranty.
  • Offer an earlier or later closing date, whichever is more beneficial to the homeowner's tax situation.
  • Forego the property inspection, although Witter labels this a "very dangerous" move for the buyer's sake but one definitely designed to sway a seller.
  • Dangle a cash offer, which is what Kirchgessner did to beat his rivals at that same price point on the house he scarfed up.
  • Based on the seller's personality, throw in a comment designed to win their love. For example, trumpet how much you adore the home and don't intend to change a thing to an older couple who raised their children in that home.

Meanwhile, play it meaner with your broker. Dawson tells his go-betweens that if the seller doesn't accept the offer he extends, Dawson reserves the right to meet face-to-face with that homeowner to hash out the details. "Real estate agents hate that," he confides. "They'll do the very best job they can to get that offer through when you put it like that."

One warning: Do not give your agent a back-up plan, as in "offer $200,000, but if they don't bite, I'll go $210,000." Even if she represents you, the buyer, legally she is considered a sub-agent of the listing broker who stands squarely on the seller's side. According to Dawson, that makes your agent legally obligated to reveal the conversation to the homeowner. So that's for you to know and them to find out.

Playing the game
If you operate in a buyer's market, your opening bid should begin within 5 percent to 10 percent of the asking price, says Mike Deasy, president of Mossford, Deasy and Doe in Beverly Hills.

Real estate professionals say it's pointless to offer generalities because buying and selling houses is intensely local..

"You have to know your market," Purcell insists. "Right now in South Carolina, the market tolerates around a 3 percent margin. You can offer 10 to 20 percent under but no one will respond."

In Witter's market, you'd best not drop more than $5,000 under asking price as a rule.

Welcome to the crap shoot
Yes, it's true you can insult your way right out of further negotiations. "I've had a lot of sellers tell me, 'Don't even bother bringing me a counter-offer from that guy -- I don't want to work with him,'" Witter says.

Perhaps the safest strategy involves Dawson's bracketing formula. "We have a tremendous sense of fair play in the United States, so if both sides give equally we call that even," he notes. So in this game, the buyer uses the comparables to determine the price he believes fair, then throws down an opening number that puts his real price in the middle. Suppose the property lists for $200,000 and you want to pay $190,000 -- offer $180,000 saying, "based on all the research I've done, that seems closer to the right price."

"The homeowner is thinking 'That's ridiculous, no way am I taking that,' but you left the impression there's some flexibility here," he explains.

When the counter-offer arrives, instruct your agent to flinch, defined in Dawson's book as showing shock and surprise they'd have the nerve to ask you that. Psychologically, it keeps the other side from thinking their terms are doable, a dangerous hope to let grow when you're trying to bring the price still lower.

If you're in a buyer's market, don't shy away from waiting a day or two before responding with another counter-offer. Real estate agents talk about the seller's acceptance time -- that wait while the homeowners realize they won't get the emotional value from their abode. This can be particularly true with the for-sale-by-owner crowd, in Dawson's experience.

But don't piddle to the point you lose momentum, Purcell warns. If you've done your homework, you needn't fret whether the next step is within your scope. That's crucial in a seller's market.

If the seller comes down only $1,000 from the listed price in response to your bid, he's signaling there's not much room to play. A full 5 percent knock-off, however, indicates a wider field.

But in both cases, it's perfectly acceptable to cut to the chase with your final proposal. Although good negotiators always have the means to walk away from the deal, Deasy preaches, you also can't take yourself too seriously. If you want the house and you can afford the terms, it's not numbers you now wrestle. Only values and your tolerance for the game stand in your way -- and that's strictly your call.

The coup de gras
Don't undo your hard work by nickel and diming the last few handshakes. Again, depending on the market, dollars could be the big bone of contention. In Deasy's corner of the country, squabbling over a half a percentage point (that's $10,000 in Beverly Hills) will guarantee other potential buyers storm the field and crowd you out.

Witter once witnessed a deal for a $350,000 home fall through over a used side-by-side refrigerator worth no more than $500. Others have quarreled over cheap chandeliers. "It really offends sellers when you ask for personal things," she advises. So nix trying to get your mitts on the dining room table, the riding lawn mower or the comforter that matches the bedroom drapes.

"Sometimes one of the stupidest things is our desire to win," says Purcell. "Ask yourself 'Is this an appropriate counter, something I could live with? Or do I simply need to conquer?'


Julie Sturgeon is a freelance writer based in Indianapolis.

-- Updated: May 6, 2005
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