Not only is it taking longer to sell homes in the current real estate market, but it’s also taking more time to negotiate most purchase contracts. Factor this into your game plan as you forge ahead in the new home-sale market.
Some people have an adverse reaction to negotiation. They would rather state their price upfront, along with a message to the other party to either take it or leave it. Last year, that approach worked fine. In fact, it was the only option for some buyers in multiple-offer situations; their first offer had to be their best offer or they were out of luck.
There are still pockets of the market where there are more buyers than sellers. But, in most areas, the supply-and-demand equation has shifted from a low-inventory seller’s market to a balanced or buyers’ market with growing inventories of homes of sale.
A common theme of today’s market is that sellers’ expectations are still based on last year’s prices. It’s common to find new listings that are priced too high for the market. If you’re interested in one of these listings, be prepared for a protracted negotiation.
Let’s say you’ve found a home you really like; it’s new on the market and listed at $600,000. You’ve been looking for months and are up on current market values. By your calculations, the house is worth $550,000.
If you offer $550,000, the sellers are not likely to accept it; the listing is too new on the market. One option would be to wait a few weeks before making an offer. The seller might then be more receptive to a lower price.
HOUSE HUNTING TIP: The take it or leave it approach is unlikely to be productive. Most sellers in this market are compelled to counter a low offer in the hopes of selling for more. You could always counter back at the price you offered. But, a more promising approach is to offer less than your top price at the outset. This gives the sellers the opportunity to counter your offer, making them an active participant in the dialogue.
You might start with a very low initial offer of $495,000. But be careful: a seller may flat out reject your low offer unless your offer is otherwise acceptable. Make sure you are pre-approved for financing and understand what other things the sellers are looking for, other than a good price, before you start the negotiation.
Be prepared for the seller to yield little during the first round of negotiation. This sends a message that he’s willing to negotiate, but you’ll have to come up significantly if you want to buy his house. The seller might come back with a counter price of $580,000.
Now you are $85,000 apart-a huge chasm. If you are serious about the house, you should telegraph this to the seller by making a big jump up in price, say to $530,000. The seller came down $20,000. You come up $35,000.
If the seller comes down another $20,000, you’re within $10,000 of your top price. A motivated seller would have a hard time walking away from the transaction if you then offer $550,000. At this point you should let the seller know that this is your top price.
THE CLOSING: Sometimes it pays to take a break from the negotiations. If you feel you’re getting nowhere, step back until the dust settles. With a little time, the sellers may realign their expectations if they realize you are a sincere, qualified buyer and they aren’t likely to do better.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
