Just Offering a Lower Price Doesn’t Mean You’re Negotiating

May 18, 2009

I’ve run into a number of situations lately in which potential (or prospective, or would-be, or maybe just wannabe) buyers have confused the act of offering a lower price with negotiating. In fact, there’s very little connection between the two.

For example, in my role as a Realtor I was showing some clients  some properties. They had pretty strict limits as to maximum price, condition of house, location, and so on. We’d looked at half a dozen the weekend before, and none fit the bill. Some were too old (mid-1970s). Some were too small. Some weren’t in good-enough condition. Still, we’d started with a list of perhaps 20 foreclosures and a few short sales. And most had been snapped up within 3-5 days of listing.

A couple weeks later, we went out again. This time we saw 3 properties–an REO in a bad neighborhood that’d been on the market for 4 months ($160,000), an REO that’d been totally gutted before the rehab money ran out ($150,000), and a great home, nearly perfect condition, granite countertops/stainless steel appliances, for $180,000. The comps (for other REOs) in the same neighborhood, probably for homes in not-so-good condition, were about $230,000. It was a great buy. And the buyers had been prequalified up to $250,000.

They liked the house . . . enough to want to offer $160,000. Huh? I cautioned them that it’d sell fast, and was clearly underpriced. They said they really wanted the house. So, back at the office, they agreed to raise their offer to $165,000. I said that while I’d be glad to submit any offer, that the comps were well above $200,000 and the market for those properties had gotten hot lately. Still, they figured $165,000 was a good negotiating strategy.

Offers were cut off at 3 pm on Monday, after just 4 days on the market. Our offer was 1 of 8 submitted. Of the 8–I found out–ours was by far the lowest. The accepted offer was for $185,000, all cash, no contingencies. A much cleaner offer for $20,000 more. And the would-be buyers were “shocked” that they hadn’t gotten the hosue.

Second example: This past weekend, I was showing a property–a manufactured home. The comps are around $40,000. This one was priced at $25,000, and was in good condition. The owner was at home, and the potential buyers started talking to her. The owner was willing to come down to about $21,000–her real bottom line, since she needed the cash to buy another property. Remember: Comps are about $40,000. So the most they’re interested in offering is about $14,000. As they say in the South, “That dog won’t hunt.”

Look, negotiating’s great. And there’s nothing wrong in offering a low (or lower) price. But the two (offering a lower price and negotiating) are two entirely different things. Sometimes, as with the REO, there isn’t much room to negotiate. You just figure out what the best deal is . . . what your bottom line is . . . and make an offer. Those buyers could have offered $225,000 . . . been well within their affordability range . . . and had a good shot at getting the property. They chose not to.

In the case of the manufactured home, there were other areas that the seller indicated flexibility on. Plus, the home was priced (after the initial negotiations) at about half the comps. Offering 33% less, after getting a reasonable idea of the seller’s bottom line, isn’t negotiating. It’s just playing a losing game.