Sellers Myth: “Negotiating Room”
We hear this statement very often, “I need to price my home higher for negotiating room.” On first thought, this logic may make sense, but for real estate sales, it doesn’t really work that way. In real estate, the very first step to negotiating, is getting people to come see your home. The second step is getting your home on the top of their list. An overpriced home does just the opposite, unlike to other types of negotiations.
When I bought 3 silk scarves in a Turkish bazaar, or when Chris bought our last used car, the negotiating principals followed that logic. Both parties know that the item is priced at the high end, and both parties know and expect the back-and-forth negotiation to take place. In real estate, “negotiation room” doesn’t work that way.
There are so many more moving parts to a negotiation. Buyer and seller must come to a “meeting of the minds” about many things:
- Time Frames – Buyers need to settle and move in within a time frame, sellers need to make sure the settlement coincides with their next move.
- Loan Approval Contingencies – Buyers need time to get their loan approval; time varies with the type of loan.
- Appraisal Contingency – Appraisals can come in high or low, adding a new layer of negotiations.
- Inspection Contingencies – Inspections often reveal items that must be negotiated.
- Closing Cost – Buyers may ask for closing cost help.
- There are more moving parts.
Real Estate Negotiation Basics
Negotiation over price is often a misunderstood notion when it comes to real estate, and maybe television is to blame. Pricing a home higher to have negotiating room usually backfires. In 22 years of real estate, we’ve never known this tactic to work. Never. I feel confident making such a bold statement. Here are my reasons:
1. In our present market, well-priced homes in great condition are selling in days. (our listing at in New Market Md sold in 3 days). When a home is listed at market value, as determined by a Comparative Market Analysis, buyers will come to see it. Their buyer’s agent, also doing a buyer’s version of
a market analysis, will tell them, “If you want this home, this is a price that is right with the market.” In the case of competing offers, which happens when the inventory is low, it’s even more important to understand current market values.
If a home is overpriced, the buyer’s agent will tell their buyer. I would. We all would.
After more than 100 years of the licensing of real estate agents, the industry has become proficient at keeping meaningful statistics about home sales.
Real estate agents who study their industry and have local knowledge of neighborhood trends will give the best advice to their buyers.
Here is a meaningful stat:
If a home is priced at market value and in great condition concerning other comparative homes, every 10 to 11 showings will net one offer.
If this is not the case, the home is overpriced, or in need of improvement in it’s condition. Yes, I definitively said that.
2. If you list your home at a higher price, you will eliminate buyers before they ever get a chance to see it. If a buyer doesn’t qualify for the higher price, or if it is out of their desired budget, you won’t get them through the door. [see first step in above paragraph ↑ ] You will, however, succeed in getting buyers into the home who are looking for more because they are in that higher price range. You’ll at best get disappointment. At worst, you’ll make the competition look better and help them get their home sold.
3. You run the serious risk of staying on the market longer. The longer your home stays on the market, compared to the average selling time for your neighborhood and comparative homes, the worse it gets for you. Remember, buyers have agents who have access to the same statistics.
If the average selling time is 60 days, and your home has been sitting on the market for 180 days, the buyer thinks two things: a) What’s wrong with the house? and b) The seller must be desperate. Get ready for lowball offers in this case.
4. Unlike so many other types of sales, the real estate purchase has what we like to call “the second sale” – the Appraisal. There is a strong likelihood that the buyer who wants your home will be buying it with lender financing. The bank will never knowingly lend more money to the buyer than the home is worth. The agreed-upon purchase price MUST be proven through a bank appraisal before the loan is approved.
So you see, it doesn’t matter what a seller thinks their home is worth. The worth is determined by a) what a buyer is willing to pay, according to the present market, AND, most importantly, b) what the lender is willing to lend, according to the present market.
Real estate negotiation is an art all to itself.
Related Articles for Sellers regarding Home Selling:
- Pricing Your Home Right from the Start
- Five Keys to Getting Your Home Sold
- How to Determine List Price
Contact Chris Highland for our High Tech/Real Touch Sellers Marketing Plan: 301-401-5119