As A Home Buyer, When Does Your Negotiation Go Too Far?
Today I received an offer on a property that is fully renovated and in spectacular shape from an immigrant family that culturally may have different negotiating tactics than what we are used to here. Having dealt with people from all parts of the United States as well as investors and home buyers from many parts of the world, I understand the importance of understanding cultures and not being offended during the offer process if someone sees the transaction in a different way.
On the first call their agent acknowledges that they have already tried to call me without them, having not told me that they were working with an agent. When she started describing her client I immediately remembered the call, and was so glad that she was working with them (and that they weren't my client). During their call they immediately asked, "How low can I buy this property for." They mentioned that they knew what we had bought the property for ($17,000) and that they knew there had been sales for $25,000 in the community. They had not even been through the property.
In response, I asked them if they had an agent, which they said they did, and I asked that they have their agent call me to work out details. I further explained that my client had done $20,000 in renovation and that the properties they mentioned were foreclosures with one less bedroom and were in rough shape.
When their agent called me, in an apologetic tone, she quickly relayed a bunch of negotiating points for a property that was in excellent condition and far nicer than any of the other homes that had sold for close to our price or more. Her client was in the background coaching her on what to say and I could feel her frustration coming through the phone. HOW FAR IS TOO FAR WHEN YOU ARE THE BUYER?
- First, never call the listing agent if you have entered into an exclusive buyer brokerage agreement with another agent. The listing agent represents the seller, and they really don't want to talk to you. Any strong arm tactics you try to take without your agent being on the phone may rub the agent wrong and may lead to a portrayal to the seller that is less favorable and hurts your negotiation position.
- Always walk through the property and be prepared to have your agent present why you feel the property is overpriced due to condition or comparable sales.
- Make sure the comparable sales are, well....COMPARABLE, don't use foreclosed properties in rough shape that have less square footage and less bedrooms to try and beef up your contention that the property you want should be cheaper.
- Have your agent ask about sellers motivations and what type of offers they have received, because if the seller has authorized the listing agent to share some of this information, you may be able to get some value, but at least it makes you look much more reasonable.
- Find out what renovations have been done, and walk through the other properties on the market so you can explain why other options may be better, and know the condition of past sales, even if it is from pictures. NEVER USE OTHER SALES THAT WERE WAY INFERIOR AND SMALLER TO NEGOTIATE ON PROPERTIES THAT ARE FAR SUPERIOR.
- Try to figure out how much renovation you will have to make to the foreclosed properties to get them into the same condition as the property you are offering on.
- Explain your budget, or your desired rate of return and why the sellers offered price won't meet your needs or desired return, but never attack the property or it's condition.
- If lowballing due to condition, share rehab estimates and comps that were in comparable condition to justify why you are offering where you are, and have your agent attatch a letter from you explaining that you know your offer may be disappointing and that you hope they will understand your objectives and why your offer is where it is, due to the following reasons, but that you understand that if they have better offers that yours might not work.
Sometimes a sellers motivation may encourage them to look past negotiation tactics that have gone too far, but many times you may end up losing a great property and regret your tactics later, especially in a sellers market where there may be multiple offers, and the seller may choose to deal with someone who is more pleasant and less difficult to deal with.
If you are a potential buyer and are not winning properties in a competitive sellers market, I hope that as a home buyer that this will help your negotiations to not go too far, but actually win the home you want! In either case, if this advice is followed it will make the world a better place for the listing agent, buyers agent and home seller you are seeking to deal with, and your likelihood of winning the deal will go up!
If you are a seller, buyer or investor in the Atlanta, Georgia or Birmingham, Alabama markets, we would love to help you!