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Now it is time to prepare the offer. Your buyer will have a lot of questions and an anxious feeling. “How long has this home been on the market,” he asks? If a home has been on the market for more than three or four months, it might indicate that the seller is weary, or to the contrary, does not have a strong desire to sell. File this question in your memory; the answer will appear in due course. Another very important question is, “How long has the home been marketed at the current price?” If there has been a significant reduction recently, this could indicate that the seller is getting desperate. However, the seller might be very hesitant to give another large concession so soon. If the home has had a significant reduction and this has brought the price into an attractive range, do not hesitate: Suggest that your buyer offer now, and do not let negotiations become protracted. But if the home has been on the market too long at the current price, it is by definition, priced too high. You will need to answer the following questions in light of the other pertinent details of your buyer’s offer such as the closing date and concessions requested: ¨ What is the lowest price the seller will accept? How can you attain this? How long will it take? The more you need to adjust the seller’s mind, the longer it will take. The longer it takes, the greater the risk of a second offer appearing on the scene. ¨ What is an acceptable price, a price at which your buyer will feel he has done well? ¨ What is the absolute maximum that your buyer would pay for this home? What are the options in the event this price is still unacceptable to the seller? Is the second choice home still available? ¨ How much time is available for negotiations? You might have plenty of time in a buyers’ market, or no time at all in a sellers’ market. Reflect on the months supply (Market Index) you calculated for this home during your buyer’s home selection process. Compare that number with a recent calculation for the market in general that can be generated from your MLS database. This comparison will indicate your negotiating strength relative to the seller. Then adjust the timing of your negotiations to your local market conditions. Your buyer’s negotiating power will usually be at its seasonal maximum in November and December, at its minimum in March or April. Also calculate an average selling-price-to-asking-price ratio for the area you are considering. How much have other buyers been negotiating off the asking prices of nearby homes? Are there any sales for which the ratios were exceptionally high or low? Can you find out why? What month is it? It’s a savvy agent who even has a clue. (Just kidding.) If it is June, or July there are probably a peak number of homes on the market: Buyers have the best selection of homes; sellers have the most competition. Will these facts worry a seller into accepting your buyer’s offer? Yes, but only if you convincingly make your case. In April or May you will be able to point out to a seller that the number of home sales is all downhill from here. Remember that most sellers believe the peak selling months are May to July. Dispel this myth if you can, by providing this valuable information to the seller. If you are negotiating during September to December, don’t you have a responsibility to advise the poor seller how few buyers will be visiting his home? Be alert and adjust your negotiating strategy to the type of market you are dealing with. During a buyers’ market in December, you will be able to take a hard line and obtain an attractive low price, but in a spring sellers’ market the name of the game is buying the home of your buyer’s choice before someone else does. Be quick to make your best case and come to an agreement without delay. Don’t be shy: This is an adversarial proceeding. Even in a win/win situation, don’t you want to win more? View each piece of information in two ways. First, what does it indicate about this transaction in the context of the market? Second, how can this information be utilized best to support your buyer’s position? You will be amazed at the results you can achieve through your effective use of available information. If you happen to uncover some information that supports the seller’s objectives, it is not your responsibility to point it out. Some buyers will even stoop so low as to review the tax records and use this information if it suits their purpose. As you know, tax assessments have no consistent relationship to market values. But most sellers and even some agents do not know this. There is also a good deal of confusion between assessment and appraisal, which is due, no doubt, to the fact that they both begin with the letter “a.” The tax assessment argument is used more often and more successfully than anyone would suspect. It is a graphic demonstration of the assumed legitimacy of the printed word, or number in this case. Indeed, the printed word needs to be challenged a bit more often. While you are reviewing the tax records, advise your buyer that the fact the sellers paid $8,600 for the home in the year 1931 is irrelevant. You might, however, find information detailing the present loans on the home. If the seller owes an amount close to or even more than the asking price, he might have very little cash as well. In this case, he will not be able to accept a very low offer, even to escape foreclosure. (One interesting option, negotiating with the current lender to accept less than the outstanding loan balance is a specialized process, which is beyond the scope of this discussion.) Note that back taxes and mortgage balances often take priority over real estate commissions. If there is nothing left, that is what you will get. On the other hand, if the seller has a good deal of equity in the home, he probably has the ability to sell for a lower price. All you need is to gain his willingness. January
2002 Issue |
