Achieving Balance in Buyer/Seller Negotiations

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Market Value
In order to offer a price that is in line with the fair market value of the home, you must know what the home is worth according to the current economic climate and the neighborhood in which the home is located. Your realtor is one of the best resources for getting the information needed to assess a property’s market value. He or she can provide you with what is known as a competitive market analysis, or CMA.

A CMA provides information based on actual home transaction statistics and what homes are selling for in the exact area where you want to buy. The information is not based on opinion. CMAs provide a list not only of the homes that have sold, but also of those currently being offered for sale, including their listing prices and listing dates. This information will give you a very good method by which you can judge whether the asking price is fair in light of recent sales history.

If you plan to seek a CMA report before making an offer, do so before you even begin looking for a home. The reason for this is that if you are working with a listing agent and not a buyer’s agent, there is a chance that providing you with a CMA later would result in a conflict of interest for the agent.

The Home’s Condition
Part of the education process is becoming intimately familiar with the home that you intend to purchase. You cannot afford to skip a home inspection. Before finalizing the purchase, you need to know whether any major improvements must be made prior to occupancy. Furthermore, the CMA report will allow you to assess the home you are buying with the knowledge of its condition and that of the other homes that are listed on the report. This is great knowledge to have and it will help you to formulate a fair offer for the home.

Amenities
In some areas, amenities are what drive the selling price of homes, but in other areas amenities matter little. For example, in warmer climates a swimming pool is an amenity that most people desire. In areas with more seasonal climates, pools are generally considered to be luxury items and will increase the home’s value when they are attractive and well-maintained.

Remember that amenities are nice, but most of the time you will not need to consider them in determining the offer price.

Seller Motivation
When you looked at the home for the first time, did you see any signs of why the owner might be selling? Is the home simply too large or small for the current owner’s needs? Does the house need too many repairs? Or has the area simply appreciated in value? The seller’s motivation, when you can identify it, is a great way to gauge your ability to offer less than the asking price.

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Achieving Balance in Buyer/Seller Negotiations
During the home sale process, both the buyer and seller need to protect their interests. In most cases, offers are fair and equitable. Sometimes, however, the offers are less than fair and careful negotiation can bring both parties to a point of satisfaction with the buyer’s offer. The counter-offer is extremely important in this negotiation process.

But how can the buyer and seller manage to strike a harmonious agreement that protects both sets of opposing interests? The answer is that it depends.

Negotiation is not a strong skill for most people, specifically when it applies to haggling over purchase prices and terms for… well, anything. However, it is possible for both buyers and sellers to learn to negotiate effectively and to compromise on some of their less-important requirements in order to finalize the home sale transaction.

There are three parts to any successful negotiation: education, preparation and honesty. Here we will consider them one at a time.

Education
Education refers not to what you read about prior to looking for a home, but rather the specific details of the home that you plan to purchase. You need to do your research and gather information as you would for any major investment. Some of the things that you will need to evaluate through education include:

...if you determine that the seller’s asking price far exceeds the true value of the home according to the research you have done, then you might need to walk away...

So, how do you get information about the seller? One approach is to ask your agent what he or she knows. As long as you are not working with dual agency (meaning that you and the seller are using the same agent), the agent will probably disclose whatever he or she knows.

Friendly chats with the neighbors can also yield information about the seller. You may learn that the home is involved in divorce proceedings and needs to sell quickly. Or you may learn that the seller is not in a hurry to move. Either way, you will have gained insight about what types of offer prices might be considered. Doing your research will definitely serve you well.

Preparation
Being prepared means that you have made a logical decision to make an offer on a home that you would like to purchase because it meets your needs and at least some of your wants. It means making a sound decision, rather than an emotionally driven decision.

As I mentioned earlier, being prepared also means making financial preparations. This could mean getting pre-qualified for a loan or getting a letter of credit from your mortgage lender. Being prepared means having access to enough liquid cash to cover the down payment and any associated expenses, such as closing costs.

Honesty
Honesty comes into play when you are making an offer, because you need to be honest with yourself. If you have found a home that you want to purchase and all signs point to that home being worth $150,000, you would be insulting the seller if you offered $60,000 when the home is listed for only $100,000. You need to make an honest offer that is fair and equitable.

On the other hand, if you determine that the seller’s asking price far exceeds the true value of the home according to the research you have done, then you might need to walk away from the home if the seller seems unwilling to negotiate equitably. Sometimes the seller NEEDS to get a certain price for the home in order to satisfy his or her own mortgage, but that doesn’t mean that you should be paying the difference.

Occasionally, when you strongly want a particular home no matter what, you may be willing to pay more than the market value. As long as you are honest with yourself about your motivation, there is no reason not to make what the seller considers a fair offer on the home.

Conclusion
By taking the time to become educated, prepared, and honest with yourself, you are well on your way to making an offer that no seller can refuse. Certainly, the process takes time and effort, but the rewards will be ten-fold when you receive the keys to your new front door.