You listed your home for sale, and now you have an offer on it. Things now have gotten real. What should you do next?
Counter any reasonable or even unreasonable offer, it is the first step to getting to the buyers bottom line.
Negotiating with the buyer and their agent or broker is perhaps the most important — and challenging — element of successfully getting a signed contract and, eventually, getting to the closing table. The first rule in any buyers market is you should try to counter any offer withing 12% or so of the asking price. Remember it is not where the negotiation starts that matters but where it ends. Countering an offer is the only way to see how much a buyer will ultimately increase their bid.
The Outcome of a Successful Negotiation?
It is essential to understand what your goals are when entering into a negotiation process. Remember, goals are complex and can vary in a number of ways. For some people, the most important aspect of a home sale is getting the right (highest) price for the home. For some people, a quick sale is more important, and they’ll need to close by a particular date. For other homeowners, selling the home without having to do repairs or updates is essential.
Once you understand your goals, you can also start to evaluate the goals of the buyer. Ideally, you may find that your goals overlap. For example, if you need to relocate for work and your potential buyer needs to relocate within a similar timeframe, there may be a powerful incentive to make the negotiation work on both sides. This type of win-win situation can greatly simplify the negotiation process.
While trying to find common ground, never communicate your personal information, and do not allow your broker or agent to do so. Whether your reasons for selling are personal — pregnancy, divorce, marriage — or practical — job loss, job relocation, retirement — it is essential that you keep those reasons to yourself. A well-prepared buyer’s broker will use all such information against you when negotiating a deal.
Negotiating on Price
If the primary goal of your negotiation is to get to your ideal asking price, it is important to take into account a variety of factors. These can range from the strategic to the emotional.
- Make sure that you are solid on price from the beginning of your listing process. If you have pushed your broker to list at a higher price in order to “test the waters,” don’t be surprised if you are getting a number of offers that seem like “lowball” offers but are really an accurate reflection of the market-assigned value of your property. A counteroffer around 1-3% usually shows that you are right on target with your pricing and that the buyer is negotiating in good faith.
If the first offer is a number that works for you, great. Otherwise, don’t accept it and keep looking for more suitable buyers. Always counter any offer within 12% or more of the asking price – depending on the price point you are in.
The fact that someone took the first step and put an offer in should always be looked at with an open mind. The goal of a seller should be to see how high the buyer can go up to. Some buyers are just “testing the waters” and may immediately come up after you counter, even if your counter is just below your original asking price. And most important to understand is that everyone has a different style of negotiating.
- Remember the old line, “It’s not personal, it’s business.” A lowball offer can feel like an insult, especially if you love your home and have put a lot of time and effort into it. Similarly, hard-nosed negotiations can feel personal, as if the buyer is being stubborn or petty.
Try to avoid attributing emotions or motivations to the buyer. Remember, he or she has a budget and financial goals just like you do. He or she has a negotiating strategy, just like you do. He or she has a broker with a negotiating strategy, just like you do. Personalizing these aspects of negotiation and becoming emotional — angry, wounded, or insulted — can lead to bad decisions and ineffective negotiations.
Always take a step back and put the transaction in perspective. Try relying on the two-year rule: ask yourself if the point being negotiated will matter to you in two years. If the answer is no, it probably makes sense to give in or compromise on it.
- If you are lucky enough to be in a multiple offer situation, don’t focus exclusively on price. If you’re deadlocked, consider whether to bring other issues into play like closing costs, the purchasing timeline, and contingencies. If you receive multiple bids, compare the offers closely, looking at all of the possible factors. Are all of the buyers relying on financing or is one planning to pay cash? An all-cash offer is king in any market. Do they already have their financing lined up? Are they at or near their maximum loan amount?
Remember, the goal is not just to go under contract at the highest price. The goal is to also bring the sale to a close. Good financing trumps a few thousand extra on the purchase price. Always insist that the prospective buyer provide a mortgage pre-approval, or proof of funds if they intend to pay cash and REBNY financial statement. This should be done at the time the first offer is submitted.
We always tell our clients that time is a successful element of any negotiating. Allowing a buyer the opportunity to think about your counteroffer for several days before responding is never a bad idea when negotiations reach a stalemate.
Finally, it’s important to “live in the moment” when you are negotiating. Resist the temptation to think ahead to “when” you go under contract or “when” they accept your counter. Remember, it’s not over until you get to the closing, so stay calm and take things as they come. It’s real estate and anything can happen.
Negotiation #2: The Home Inspection (Townhouse Sales)
Once you’ve agreed on a purchase price and gone under contract, you may think that your negotiation is over. In fact, however, for most homeowners the home inspection begins a new round of negotiations. Here are some things to keep in mind.
- Just as with the initial negotiation, you’ll need to keep your emotions in check. This can be even more difficult when buyers are critiquing specific elements in your home, based on the home inspection. Remember, they are not trying to do anything TO you — they are just trying to get the best deal and ensure that they are buying a home in good repair.
- Don’t be overwhelmed by a lengthy repair list. Some buyer agents may “stuff” the home inspection response by asking for repairs of every single thing identified in the inspection report. In many cases, this is a negotiating tactic in order to provide some wiggle room during the process.
- If there are particular repairs you absolutely don’t want to make, consider offering a cash-at-closing option to allow the buyers to make necessary changes without disrupting your final days in the home.
- Ultimately, it is vital for you to keep your focus on the end-goal: closing day. Don’t let your pride, frustration, or the desire to “win” the negotiation tempt you to let the deal fall apart. Remember, putting the house back on the market puts you in a negative negotiating position with the next buyer and may end up costing you far more than that repair list ever could.
- If you’re selling a co-op you will also need to scrutinize the prospective purchasers to determine which is most likely to pass the board. In any co-op purchase, a standard two-page REBNY financial statement must accompany any offer.
- If you are selling a home that you’ve inherited, think beyond the purchase price. Carrying costs will add up month after month while the home is sitting on the market, and you may need to spend thousands on updates in order to obtain your top price. Run the numbers and see if a lower price with a quicker closing is more cost-effective.
- Remember that negotiation is about more than price. Artwork or custom furniture specifically designed for your home, upscale appliances, and many other elements can convey and are negotiable. These may help you to justify a higher purchase price or counter offer.
- If you are working with a cash buyer, remember that they may expect a premium for the speed, security, and convenience of their cash offer. In a less competitive market be prepared to consider a lower purchase price in exchange for the benefits of a cash transaction.
Selling your home is an emotional and complex process, but having a great agent on your side makes all the difference as you navigate the negotiation. Email firstname.lastname@example.org to discuss your home sale goals and to define a negotiation process that works for you.