Important Things to Consider When Negotiating

The negotiation phase of the transaction process is different than any other part of the transaction. Here are a few things to keep in mind when negotiating:
Know Who Is on Your Side It might seem unbelievable, but more than a few buyers have torpedoed their own transactions by revealing crucial facts to the seller or seller's agent, such as how desperate they are to buy the home, or how much they would be willing to pay for the home. Discuss strategy and pricing only with your immediate family and your paid representation (me).

Likable people save more money Years of experience (and a large body of research) have proved that likable people enjoy lower closing prices, have easier transactions, and secure more favorable terms than people who are unpleasant during negotiations. Sellers are more likely to give in on important sticking points if they like the person on the other side. Be friendly and positive whenever you are talking with the sellers, the neighbors, the seller's agent, or anyone else directly or indirectly related to the transaction.

Responding vs. reacting When a counteroffer comes in, it's natural to have an immediate emotional reaction--positive or negative. For instance, you may be so overjoyed by the price of a counteroffer, that you immediately decide to accept it--failing to realize that there are terms that make the deal completely unworkable. Take the time to collect all of the facts before we craft our response to any offer or counteroffer.

Stay focused on the end goal Ultimately, everyone involved in the negotiation wants the same thing--for you to buy this home. Obviously, we should still insist on a fair price and favorable terms, but we need to be careful not to get so bogged down in the details that we forget the big picture.

Making an Offer

After you find that special home, it is time to make an offer. While it is important to find the right home, it is also important not to pay over market value.
To determine approximate market value, we look at recent sales in the same neighborhood and, if possible, the same model. We compare condition, location, and amenities with the subject property (the home whose value you are trying to determine). This system of determining approximate value is known as the market comparison approach. This will give us an estimate of value.

Other things that we can do to assist in determining approximate value include reviewing current listings in the same tract and researching the tax rate, what the seller paid for the property, and the assessor's current assessment of the property.

Once we have an estimated value, we will call the seller's agent and ask for as much information as (s)he can give us regarding the seller's situation and expectations, current interest from other potential buyers, past offers, and his/her opinion of value.

Now it is time to strategize the offer. There are many theories on presenting offers. Each situation is different; hence, a custom strategy is required for each client.
Although each offer has its own set of circumstances, here are a few helpful guidelines that apply to most offers:

1) To be successful, we must create a "win-win" situation. Both parties must have their minimum requirements met for an offer to be acceptable.

2) Presenting a "low-ball" offer will usually offend and alienate the seller. If this happens, it is unlikely that we will be able to negotiate an offer acceptable to us.

3) Most sellers feel that it is necessary to counter the first offer. By making our first offer our best offer, we may give the seller unrealistic expectations. Generally speaking, we want our first offer to be slightly below the maximum price that you are willing to pay.

4) Try to accommodate the seller by writing an offer that includes as many issues as possible that are favorable to the seller, with the exception of price. Don't be a buyer that majors in minors. For example, let the seller keep the chandelier that was a gift and the valances that match the bedspread and concentrate on obtaining a better price for the home.

5) Act quickly, before another offer comes in, as good homes often sell quickly, even in slow markets. The home that you saw yesterday and wrote an offer on today may be the same home that another buyer saw today and may write an offer on tomorrow.

Before the offer is presented, it is important that it is packaged properly.

The lender pre-qualification letter and a buyer profile should accompany the offer. We will prepare your buyer profile, which includes information that will acquaint the seller with you.

The purpose of these items is to give the seller a comfort level with your ability to qualify for the necessary loan, and to help the seller to feel secure with the person(s) who is going to buy the home. It thereby allows us to focus on the details of the offer.
After the offer is presented, the seller has three options:

1) Accept the offer. If the offer is accepted, escrow is opened.

2) Reject the offer. If the seller rejects your offer, the seller does not wish to negotiate any further. In this case, it is usually time to look for another home.

3) Counter the offer. If the seller counters the offer, your options are the same as the seller's options were--to accept the counteroffer, to reject the counteroffer, or to counter the counteroffer.

Responding to a Counteroffer

After you make your offer, it is common for the seller to make a counteroffer. The counteroffer may be very close to your original offer, or it may vary wildly from your original terms. In either event, we should celebrate a counteroffer because it means that the seller is ready to negotiate.

At this point, you have three options:

1) Accept the offer. If the offer is accepted, escrow is opened.

2) Reject the offer. If we reject the offer, the negotiation ends and we will begin looking for another home.

3) Counter the offer. If we counter the counteroffer, the seller is faced with the same three-pronged decision--accept, reject, or counter.

Here are some answers to frequently asked questions about counteroffers:

How many times can an offer be countered? Technically, there is no limit. Practically, preparing offers and counteroffers is time consuming and emotionally taxing, so an offer is rarely countered more than two or three times before the deal falls apart.

How long do we have to respond to a counteroffer? Most offers and counteroffers have expiration dates within a few days of the offer. However, there is rarely any tactical advantage to waiting, so we will try to respond as quickly as possible (within 24 hours).

How does the process change when we are dealing with a bank? Banks are notoriously slow at responding to offers and counteroffers. If we are making an offer on a bank-owned property, we may end up waiting several days or even weeks between offers and counteroffers.

The Residential Purchase Agreement

Today's Residential Purchase Agreement with addendums is more than ten pages. The purpose of the Residential Purchase Agreement is to detail the terms of the sale.
With the complexity of today's Residential Purchase Agreement, most of the details are covered in the preprinted matter. The following is a list of some of the basic issues covered in the Residential Purchase Agreement:

  • Deposit amount
  • Offering price
  • Financing details
  • Length of escrow
  • Itemization of costs paid by seller
  • Itemization of costs paid by buyer
  • Time periods for all aspects of the transaction
  • Defines fixtures and personal property
  • Effective time period for the offer

Above are just a few of the areas covered in the Residential Purchase Agreement. After we receive an offer, we will detail all areas of the agreement.