Negotiating In a Shifting Market
Some experts say that we have been in a shifting Real Estate market for approximately two years; the reality is the Real Estate market is constantly shifting; and the market is either shifting up or shifting down. The one variable that does change is the pace or velocity of the shift.
There are different negotiation techniques and strategies for negotiating as a seller or as a buyer. There are also specific negotiating strategies for down or up markets, and within that there are different techniques for the pace of the shift. We are going to focus on negotiating a purchase in a down shifting market.
After you identify the subject property that you want to purchase it is time to make an initial offer. The success of closing a transaction on this property largely depends on your initial offer. Remember that purchasing real estate is a business transaction and take the faces, names and personal situations of the seller out of the matrix.
Do your homework and your research. Learn as much as you can about the other side. Instincts are no match for information or preparation. Know the market and what the average sale price is compared to list price. Do not be afraid of insulting someone because your offer is to low but also don’t throw a number out to see if it sticks if you don’t have a specific strategy and reasoning. I had a customer offer a price that I thought was a “low ball” offer once and I challenged them on how they came up with the figure. After he shared with me his research, strategy and thought process I was very comfortable in submitting the offer and defending it if need be. If you offer 40 percent of the list price the seller can reject your offer, counter your offer or accept your offer. In most cases they are going to counter your offer.
The key points in making an initial offer is be prepared, do your research, have a strategy, take out the “personal” element, and stick to your plan. Remember that a home owner selling their home has a perceived value of that home because of the amount that they have paid for it, the memories that have in it and the “sweat” equity they put into it. I actually had a phone call from a home owner that wanted to sell her home for about 40 percent of the market because her friends from Ohio gave her what they would pay for the property. I told her that she should sell them the house then because it was really only worth $429,000 based on the comparables that that if she could get $600,000 from her Buckeye friends to grab it and run.
As a part of doing your research comparison shop properties to determine value factors and determine what else is out there. For example if you are looking at a bedroom condo on the beach that needs serious updating you may want to check out some newly renovated comparison properties. Find out what they did to update and what that comparable property is selling for. How much in renovations were done compared to how much more the property is listed for. If you are buying a property that you are going to have to renovate a kitchen, bathrooms, floors, etc. you should take with you a General Contractor to get some estimates prior to making your offer.
You need to determine your “final offer” at the time you put in the initial offer. Having a firm amount that you will pay for the home will assist you in navigating through the offer process. Use this firm number to establish your initial offering. I typically use a mathematical formula that usually puts the initial offer at about 92 percent of my firm offer price. Here is what that looks like with some clean numbers. If the property is listed for $800,000 and my hard stop number is $745,000 my opening initial offering is $680,800. I am not budging off the $745,000 number and will end the negotiating process if I can not get to that amount. Notice though that my opening initial offer is 84 percent of the asking price and we are not concerned if we offend the sellers because this is a business transaction.
Determining what your final offer number will be is determined by the buyer. Put together a list of qualifying questions like: What is the property worth to me, how much money in renovations would I need to do, what is the primary use of the property, what is the monthly payment and HOA dues and what can I afford. The most important question I ask to every single client when they make an initial offer on the property is “How would you feel if I called you in the morning and told you the property was sold to another party.” This normally tells me how much they like the property and how confident they are in their offer. Even if you find your absolute dream property you still need to have a final figure in mind. Now you may be closer to asking price than my examples, but you still need that final figure.
The key thing in any negotiations is to get it in writing from both parties. This is where using a Real Estate professional can save you frustration, money and potential liability and exposure.
The key to any solid negotiation is compromise. If you put together a strategy with your Real Estate professional of what you are looking to accomplish you will be successful in negotiating that transaction.
Jason M. Jakus is a licensed realtor for Leisure American Realty, a full service Real Estate and Property Management company serving the beaches and surrounding areas of Lee County. Their office is located at 2450 Estero Blvd., Fort Myers Beach FL 33931. For more information on this or any other real estate or property management subject contact Jason at 239.463.3178 or email RealtyInfo@LeisureAmerican.com.