How
to win the offer/counteroffer game By Julie
Sturgeon • Bankrate.com
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.
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.
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