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Do You Want to Negotiate or Buy a House?

(BETHESDA REAL ESTATE)

Bethesda Real Estate Some folks are just great negotiators. That's a good thing, right? We all want to get the best deal possible and feel like we won. Depending on the circumstances, you can negotiate yourself right out of a home with this strategy though. I know. I've been through it often enough lately...

Here's how the conversation goes:

Client: I am going to want to really negotiate for this and get the best deal.

Me: That's great. What area are you looking in and what kind of price range?

Client: I'd like something in new construction in Cabin John for under $950K

Me: You realize there are about 10 sales per year in that location and much of those are for new construction well over $1M? There is not that much property that fits your specific needs. This particular home is not likely to come up again anytime soon and it's under priced right now.

Client: But this is a depressed market and I want to get the very best deal possible. If we can offer $750K do you think they'll take it?

Me: :(

I wish I were making this up. The folks lost this house to another buyer who listened and made the right offer. Those buyers are now living in a beautiful newly constructed home that was a screamin' deal!

The national press would have everyone believe that all homes are in foreclosure, all sellers are desperate and you'll pay pennies on the dollar for a house. Now, I grant you that there are many opportunities for good buys out there. I've gotten them for my clients - even when I was shocked the seller would take the deal - but the reality is that when buyers start to narrowly define their wants they can find that there is really not that much inventory from which to choose.

As soon as that happens the shift in strategy needs to be taking place from wanna deal to wanna house! The goal is a home, not a contract writing exercise. If there are fifty properties that suit your needs, let's write! But if there is one home, you have more at stake and should be working towards a winning strategy not just trying to prove that you're a better negotiator.

He who has the house wins. Not the one who writes the most contracts...

Posted by Bethesda Real Estate Sales ~ Josette Skilling on 01/26/2008 11:42 AM

Comments (35)

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35 Comments on Do You Want to Negotiate or Buy a House?

JAN

2008

I agree, great blog.

Josette. You are so right. Some buyers don't know the difference between a good deal and a deal killer.

I had a new home buyer who priced a home out at $1,100,000 and, because there was a foreclosure in the community for $750,000, he offered the builder $750,000.

I got rid of him quickly. They just waste your time. I'm comfortable offering builders 80% and negotiating, from there, but there is a limit.

Melissa, thanks for stopping by!

Lenn, sigh. I moved on from them as well for that and other reasons. What I don't understand is when they lose one and still don't get that I was right????

It's all fun and games until you lose the house of your dreams is my current saying. I do believe our REO market turned into a seller's market since my last weekly report. People are sometimes crazy thinking that they will get something that doesn't exist! THANK YOU NATIONAL MEDIA AND ALL THE POLITICIANS!!

JAN

2008

Hi Josette: Your words are very wise. It is too bad that all the negative publicity leads buyers to make such foolish and short-sighted decisions. Thanks for sharing.

Renee, your market is so interesting to watch. And look at it turning on a dime! I'd like to stuff the national media...

Karen Anne, it is a shame because those folks lost out on a good bargain by believing in the hype. As Renee says above, this was a house of their dreams and they lost it. And still didn't learn.

JAN

2008

Hi Josette,

Great Post! I've have clients like this all the time. They want a "deal" or they think they can get a specific kind of home for well below market value. "Because everything is just doom and gloom." I always tell my clients that I will always educate them on what our local market is doing and give them good comparables to make a decision, but that a seller is not going to accept lower than what the market will bear (what the comparables show).

I blame the media. They tell how easy it is to get a screaming deal, so of course everyone thinks that they too should get a screaming deal. Aaaaarrrggghhh!

Jessica, local is the key!

Dawn, when I show some of them where the screamin' deals are they of course don't want to live there!

FEB

2008

I agree that the media is primarily to blame for these situations. Many buyers don't realize that, just because the market is slow, that doesn't mean we're in such a downward spiral that sellers just want to "get out" instead of get what they can for their property. It makes for uneducated buyers who would rather listen to the media than their more informed realtor. So sad.

~Renae - Market 4 Real!

Oh so true. I have many friends who feel the same was your buyer does. We talk about it, but I still don't think they get it. My best friend falls in love with houses that are priced at 450 to her budget of 350. But, she is convinced they'll take her low offer due to the market. I can talk until I'm blue in the face, but she is still flying high in the clouds:)

FEB

2008

Renae, we have so much counter with a media that is all encompassing. It makes the buyers forget that real estate is local and sometimes local to just that street!

Jennifer, I'm just as blue in the face. I feel bad when they lose on homes they love because they aren't realistic. What's worse is your friend setting her own self up for failure. She'll never love anything in her price range after looking so far above it.

I agree, great blog.

MAR

2008

I agree with most of the comments here but I don't think sellers are entirely to blame here. Since the early 2000s our market has been going up 10-20% every year. Even given the demographics in the area, I don't know of anyone whose income has gone up by that much every year for the last 8 years! Sooner or later inflated prices are going to affect buyers and that is what is happening now. I have noticed that lately in 20815 and 20816 very few sellers are getting asking price. The only homes that are sold within a week and at asking price are houses that are priced at around 2005 levels. Of course there are buyers who might overestimate the decline but our housing market is inflated by 10-15% and we are in the middle of a correction. Part of the reason for the attitude of buyers I think is because some listings are simply overpriced by about 10%. The houses that remain on the market without contracts are houses that are priced at 10% over last year's prices.

Josette, you are sooooooo right! Not everything is REALLY negotiable right now. It depends on price and location. That's very true here in the Charlotte market; it depends on location and if it's priced competitively. And I gotta tell you, a lot of buyers aren't seeing that and they think they can negotiate a lot and they loose out. Thanks for a great blog!

Debbie, that's the point exactly! Those of us to work in the areas consistently know what is happening on a daily basis and can help a buyer make better choices.

Anonymous, you seem hung up on 10% but in fact 20816 was able to command 97% of its list price on average last year. And the 2008 single family home sales show a 95% list/sale ratio. Of the 14 sales in the zip code for Jan/Feb, 9 of them are over $1.2M and included some of the oversupply of new construction in the area. Even that averaged out to about 94% of list price. A $6.750M home commanded 98% of its list price! While your comments about an overvalued market might apply to other parts of the county, it's harder to simply overlay that into areas that are holding value better.

Many of the neighborhoods in 20816 show increases year over year in pricing and further breakdowns by housing type and over/under $1M also show increases. So it's a disservice to buyers to simply tell them the area is correcting and overvalued by 10-15%. You will simply put them into the same position as this buyer I wrote about in the blog. They will be unaware that they can't compete for homes if their offers are that far below asking. They will have negotiated themselves out of a home.

If a buyer wants a home, then it's best to come see those of us who know the area well enough to command the stats and give good advice about homes. Sure, let's negotiate where possible and get the best terms and price we can. Realistically.

I maintain a spreadsheet that has home sales from 2000 to today's date, with subsidies, list/sale ratios, price improvements, neighborhoods, price by style, and price by range. With this micro view I have a very good handle on where there might be bargains and where buyers are going to be in multiple offer situations.

Josette, I have a lot of respect for you and your blog but if you look at the recent listings/solds in 20816 you will see that in just a couple of months, the market in our area has COMPLETELY changed. In 20816 look at the listings on Allan and Jamestown. You might be surprised how much off of the asking price these properties eventually settled (Allan should be off the market shortly). The house on Crescent is now listed at basically how much the property was bought in early 2005. If you factor in the agent's commission, that property would have cost the owners a net loss of about $40K for two years of ownership. This is not such a unique scenario for some of the other houses that are on the market. There is already evidence that house prices are settling down to where they were in 2004 and 2005. This still affords quite a bit of appreciation for anyone who has owned their home for at least 4-5 years. As much as I appreciate the strength of the market in our area, the decline in the real-estate market that started in the outer regions has now caught up with us. I'm starting to see homes offered in AU Park/Spring Valley at prices that seemed unimaginable just 6 months ago. I firmly believe that homes in our area are over valued by 10-15% and we are in the middle of a correction. As you can see by how long overpriced houses stay on the market, buyers are no longer willing to pay inflated prices for houses. If you look at every house that has sold within 10 days of the listing date, you will see that they were appropriately priced. Those who have overpriced their houses will get the message sooner or later. I also does not hurt to offer the buyer's agent at least 3%.

MAR

2008

Josette - Strong Blog , the bottom line in this market is:

The Agents want everyone to BUY a House

The Buyers & Sellers want to negotiate

It doesn't matter what part of the country your are in or what the media is saying, "The worm always turns".

As agents we need to turn like the worm and adjust our business. Before everyone bought , no matter who was sitting in front of us at the Buyer Interview. Now as agents we need to go back to basics and really learn HOW to interview the buyers. I have no problem telling a Buyer that I can not work with them , because they are not ready. If I'm honest and they have been run around for 6 months or so by a less experienced agent, they will call me back up and be alot more agreeable and ready to Buy.

Laura

Laura, very true. And there is a double sided messsage here.... agents need to learn to be more profitable in the business they take on and buyers need to how and when they can negotiate. It really comes back to understanding the micro markets and trends well enough to get a good read. But basically in the case of this post, when there is one home that fits your needs don't negotiate it away!

I'm finding I'm much pickier about the business I do take. I've never minded working long term and still don't but it has to be with someone who is realistic about the market. That means we'll take advantage where we can and recognize a good bargain. I love a buyer who has seen enough to go for value!

MAR

2008

I love your blog! I have a client who wants to list her house on Jamestown Rd and is concerned about the market. What are your thoughts about listing now or waiting a few months?

Marci, Thanks! It's a poor neglected blog at this point and I intend to be more active. I'd tell any clients I have right now that if they have a need to sell then better the devil they know than the one they don't know. If that client was ready to make her home a "product" and get it completely ready for market, price it agressively, get rid of the ridiculous "by appt only" mentality and cooperate fully in a sale, then she should do it. If she's testing out the market to get her price it's probably not the greatest time.

Just my two cents...

I tell my client if there is a steal out there on a home some agent is going to grab it well before they can even take a look. Botton fishing on homes is a waste of time for all of us>

Bill, so true! I wish they could truly see the folly but everyone thinks they can get something for nothing.

MAR

2008

Josette, thanks for your input! I had an interesting discussion with my client. I showed her comparables and then updated her on what has been happening in our neighborhood the last couple of months. Taking everything into consideration, I presented her a reasonable range for her house. Unfortunately she would not hear of it! She had looked up the value of her house on Zillow and thinks that her house is worth at least the estimated value on Zillow! When I tried to educate her with facts about recent contracts in the area she accused me of wanting to give her house away. Honestly the valuation I gave her is quite reasonable and if it were my own house, that's what I would list it at. At the end of the discussion, she said that she feels that she'd be better off selling the house on her own so that she can "get her price." I would love to work with this client but I know I am going to have a hard time working with a client in this market who just can't look at prevailing facts and deal with realty. Throughout the discussion I just sensed this feeling of entitlement where "this is my house" and "this is how much I should be paid." Honestly, what's the point in engaging the services of a professional with this kind of an attitude. I calmly explained to the client how she can sell the house on her own. I provided her all the information she would need so she can list the house on her own at the price she wants and then we agreed to follow up with each other later. Something tells me that she would be a lot more amenable to work with once she gets a dose a realty. I don't want to waste my time and resources unless the seller actually wants to work with me and eventually the seller's agent in a reasonable way.

Marci, if her name is Nancy you are just practicing! Not a bad thing to do but she's not realistic about her property, whether it's that one or another she owns. And if it's not Nancy then it's someone else who is unwilling yet to recognize the true picture of the market. If folks want to do our job, which is harder than it's ever been, then they should be prepared to put their regular employment on hold while they learn to market, counsel, read contracts, run true and accurate comps, recognize trends and deal with agents who do this for a living. I wish her good luck in getting her home sold.

Josette, my sentiments exactly! In this market I don't want to waste time and resources with a client who doesn't want to believe me when I present accurate and relevant facts. It costs me over $600 to prepare and list a house. It's a waste of time for everyone involved including buyer's agents who will write contracts grounded in what is happening now only to have them rejected by a seller who is unreasonable. In this market there are buyers who are willing to pay fair market value but no one is silly enough to pay more than recent comps.

*sigh* This is why I want her to try and sell the house on her own. And then when she contacts a professional when her house has languished for months without offers, she'll be easier to work with. It is possible that if she waits too long she might not even get what she can get now. This is the best time to sell with the spring season starting. I have a feeling she's going to blow it by being unreasonable and get less later than what she could get now. If prices go down further, late summer/early fall will not be as a good time to sell.

APR

2008

Josette, what do you think about what has been happening lately? I have a listing that has generated SO MUCH interest but I have yet to see even a low offer. From the lock-box records I know it has interested so many potential buyers but no one wants to make an offer. This is a beautiful house but it's like they are all waiting for something. I have a meeting with my client to discuss reducing the price. What's your take? I'm thinking about asking them to consider an aggressive price-cut. The two houses on Crescent sold within a week! What gives?

Josette, I too am running into the same kinds of problems. People are listening to the media telling them it's a buyers market, and they are being absolutely crazy with the offers. They seem to think everyone is going into foreclosure.

Josette - Thanks for a very timely post. I wish our prices were similar to yours, but the buyer behavior is the same. Many realistic sellers have been put through the ringer just trying to get something close to a reasonable offer. The media is certainly adding to the buyer mentality that they'll only buy something if they can get it for a "bargain" and only on their terms. I know it'll change again - I hope sooner rather than later.

Matt, they are simply hovering around waiting to see what happens and generally end up losing out to another buyer. I've had tons of interest on a listing I have as well and one offer with another hovering. I'm watching all the price reductions and frankly I think they are playing into the lack of buyer movement because they know if they wait we'll just reduce. Finding that right price point it just really hard right now!

Bob, it's funny that no matter where we are the buyer behavior is the same.

Lynn, humans don't seem to change their behaviors in any price range! I love how you see that sellers have been put through the ringer for this process only to have buyers still want something for nothing. Don't get me wrong.... I do think prices need to come down, but in many cases even where they've done so buyers still don't see the value and can miss out.

I wrote a full price offer immediately upon a listing coming on recently. Why? Because it was priced superbly and my buyer recognized that fact and moved immediately! What a pleasure...

JUN

2008

Well stated, Josette! I like your thought, "the shift in strategy needs to be taking place from wanna deal to wanna house! The goal is a home, not a contract writing exercise." To purchase is to commit. At times, buyers are hesitant to commit because of all of the choices out there. Scratching out the least desired homes first is a good idea, so they can see what they have left.

JUL

2008

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FEB

I accidentally came across this blog and I found the comments of the agents quite insightful. For a full disclosure: I am a potential buyer myself (in Potomac, not in Bethesda). I've learnt that working with buyers or sellers can be difficult in these times and I agree tthat each agent has the right to refuse to work with someone with unrealistic expectations.

However, with the benefit of perfect hindsight, I agree with the one comment that pointed out that price increases far exceeded income growth in the recent past. (This might explain some of the very different expectations of some buyers and sellers.) And also with perfect hindsight, it seems to me that home-buying was a media headline back when house prices shot up and now when the house prices are coming down.

As a potential buyer, I'm wondering what the expectations currently are- one year after the original post. Is ithe divide between buyers and sellers still so large? Do sellers still expect their house to sell at 2006/7 prices? Are buyers still low-balling? And, my apologies for this question: are they any more successful?

Ian,

There will always be a divide between buyer and seller as their goals are usually at odds with each other. I don't think it's so much that sellers want a price from any year so much as buyers are still treating the market as a one place, not as a micromarkets within each city and neighborhood. Taking the Case Schiller reports and just applying their pronouncements across the board means that you'll miss the trends that exist in the very local area you are considering. Or for that matter any pronouncements that are made globally.

A year later I wouldn't say this is any different than it was. I had a recent sale in Bethesda where the folks were working with an agent originally who was a family friend. They were looking for a very specific price range, in a very specific area that fed a school and wanted enough room to make no more moves until they downsized. They were told they had all the time in world and could make decisions in their own time. Two contracts later as they were outbid they realized that wasn't working for them and we began to work in earnest on getting them a home. Did they pay full price? No, but they did have to work yet again with a multiple offer situation and structure their contract to be the one the seller took. It's basically the same scenario as I described a year ago... Once you have decided where you want to be and find there are very few homes that meet your criteria you need to be focused on getting to your goal, which I assume will be a home.

By understanding the trends in the marketplace you are considering you'll be very well informed as to whether or not a low offer will work for that particular home. With good advice and a very sound understanding of what homes are going for (or not) in any area, you can make a reasonable offer which one could expect to get through. I have no crystal ball so I'm unable to say what sellers will and won't take so I always say write something! But if you just continue to write very, very low offers and get no where with them, then it's time to change your strategy to one of writing contracts to get a home not just use the time as a contract writing excercise.

I wish you luck with your purchase. I'm happy to help you decipher the market should you find you need that help.

Josette

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