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Just Ask Julie – April 2015

Apr 17, 2015

Dear Julie, How much negotiation room is there in properties listed for sale?

ANSWER:

Good question! The answer is. ..it depends There is no average or statistic that can tell you how much that negotiation room will be in an individual property.

Let me explain. The market value of a property is the price at which a willing seller will accept and the price a ready, willing and able buyer will pay. Some sellers overprice their properties leaving negotiation room while others price their property right where it should sell to encourage as many offers as they can.

The best way to judge how much to negotiate is to look at the real value of the house as well as the motivation and urgency of the seller (or buyer). You can determine the real value by:

1. Looking at the similar properties that have sold and closed. This will give you the last measure of success in closing while remembering that these properties are no longer available for purchase.
2. Considering the properties that are currently under contract – but not yet closed. These properties will show you what current prices and features real buyers are looking for and have actually purchased.
3. Reviewing the current available inventory to see competing properties.
4. Examining properties that are no longer on the market – those that have expired or have been withdrawn. Expired and withdrawn listings show us what has been rejected by the market and usually indicates prices that are too high or conditions that are unacceptable to buyers in the market place.

On a side note, dollar per square foot is not a good way to determine value unless the properties are exactly alike, located in the same place, and have similar features. The value of a home site or villa location can vary widely. A smaller house costs more to build than a larger house because rooms like kitchens and bathrooms cost much more than regular living space. Further, the features in each home (granite countertops, crown moldings, high ceilings, upgraded appliances, cabinets and equipment) also can vary to extremes.

Once you have determined what you feel is the true value of a property, it is important to determine the motivation of the seller or buyer. Are they anxious to move or are they just seeing if the property will sell at their price? Have they been transferred or have they sold their house and need a place to live. Motivation and urgency are huge factors beyond market conditions that would affect the price that someone will buy or sell a property.

Lastly, can a buyer afford the price or can the seller afford to sell at the price the buyer wants to pay? If a buyer is only qualified to pay a certain amount, a seller’s want (or need) for a higher price will not change the outcome with that buyer. On the other hand, if a seller has to bring cash to the table in order to settle debts on their property and to pay the closing costs, they probably will not accept a lower price.

Keeping emotions at bay is important during negotiations. It is not the “game” of negotiation, someone’s unwillingness to negotiate, or what someone wants or needs that will determine the market price, it is the value of the property. I have seen so many people lose the house they love on the principal that the seller wouldn’t negotiate like the buyer expected them to negotiate. The buyer walked away only to realize they couldn’t find a better property for the money and then came back to the original property to find that the property was purchased by another buyer who realized the value of the property and acted accordingly.

Everyone will always want a good deal. It’s human nature.

At the end of the day, in most cases, it will be the value of the property that will determine the price. While we can leverage great negotiation strategies to get you the best price, at the end of the day the price is most dependent on its market value.