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.


How To Sell A Home Cost-Efficiently

June 1, 2008

I recently answered an online question regarding methods to sell a house cost-efficiently. I thought I’d share those thoughts here.

First, a lot of the discussion revolved around whether a seller should opt for “For Sale By Owner” (FSBO) or should list with a Realtor. Both sides quote statistics: Realtors will argue that on average they can sell a house for x% (usually around 15%) more than a FSBO can. And they’ll point out that around 85% of houses that start off as FSBOs end up getting listed with a Realtor. On the other hand, proponents of FSBOs argue that most of the services offered by Realtors can be purchased a la carte, with the total adding up to far less than the commission some agents might charge.

A final note on the point of Realtor commission: Commissions are negotiable. An agent might choose not to lower his/her commission. That’s part of the negotiating process. But commission rates are not “set” — they’re not set by any group of Realtors, or by the state, or by federal law.

So it’s not just adding up the Realtor commission on one side, then adding up your a la carte costs on the other. Further, some people just don’t have the organizational structure to sell a home on their own. Some people are left-brained, some right-brained. Some thrive in structured environments; some are free spirits. So, even when all other factors may be equal, the seller’s personality, organization, and mind-set are important elements.

Further, even if you do it all yourself, what’s your time worth? You’ve got to factor that in.

So, I don’t think there’s a blanket answer as to whether a Realtor or going FSBO is a better choice from a cost-efficiency standpoint.

However, setting aside for a moment the debate about Realtor vs. FSBO, keep the following points in mind:

Price it right. It can be priced right even as a FSBO, and it can be priced wrong even using a Realtor. Now, while there’s no one “right” price, you probably want a balance between price and anticipated time on market. That’s especially true if the house is sitting there empty. Price it too low, and you’re leaving money on the table. Price it too high, and it probably will take longer to sell, if it ever does sell. So look for maximum efficiency regarding your price.

Second, regardless of FSBO or Realtor, it needs to be marketed. Most marketing costs some money–web sites, direct mail, signage, listing on the MLS (even if you’re a FSBO)–but it’s necessary. And that makes it cost-effective. It doesn’t help to “save” a couple thousand dollars on marketing if that marketing budget would have sold your house.

Third, consider home staging, either using a professional (highly recommended) or doing it yourself, but being absolutely ruthless. As with marketing, home staging can cost several thousand dollars or more (or as few as a few hundred, for a walk-through and report from a home stager on things you can do yourself). In today’s market, home staging may not bring you much more in the way of an offer. But it can be the difference in getting offers and not getting offers. And speaking of cost effective, home stagers like to point out (correctly) that even a full home staging is going to cost far less than the first listing price markdown you do.

There’s no point in spending more money than you have to in selling a home. But sometimes you may have to spend a bit more in order to sell more quickly, or for the best price.