Edy Kizaki

Making an Offer that Opens Negotiations Well

November 15, 2010 in Seattle Buyer's Guide, Seattle Investor's Guide

These days anyone will tell you “It’s a buyer’s market.”  Well, almost anyone, as a marketing guy from Coldwell Banker Bain spent 45 minutes at a recent all-day seminar for realtors explaining why he thought it was a seller’s market, or at least neutral.  (The argument has to do with percentages of new homes coming on the market vs. sold homes, and how those numbers at present balance out to a pretty neutral market as there is not the large inventory vs. sales which would lead to a buyer’s market.  That is not in general our experience, but it depends what part of Seattle you are looking at, in the brand name neighborhoods most would-be sellers are waiting till things settle down so not a lot of new inventory is coming on.)

Marketing guys notwithstanding, there’s a lot of agreement out there that it’s a buyer’s market.  With the historically low interest rates and the bottom pretty much having been reached or values even bouncing back slightly in some places in the city, anyone who can qualify and has cash should think twice about waiting.  Whereas values may have stabilized there are still numerous very motivated sellers and some of those have finally started accepting that they need to deal with prices as they are now, not as they were or as they will be.  So if you shop well and if we negotiate well, your chances of getting a better-than-average price for your chosen home are high.  Dave and I are actually thinking of putting up a list of “listing price” vs. sales price for our buyers last year, it would be a great brag sheet, as long as none of our clients felt “too much information!!”. 

Which leads to my “point” that how we write up that first offer in the negotiating process will greatly affect how the negotiation goes.  Recently a seller’s agent in my office showed us an offer he’d received from a buyer’s agent.  The seller didn’t go back with a counter offer, so the buyer’s agent called up our friend to complain.  Looking at that offer we could see why.  The house was in good condition, showed well and was competitively priced.  However, the buyer submitted an offer $100,000 below asking price (about 1/5 of total asking price).  Looking at comps for sales the seller’s agent could see that the average sales vs. asking price for the last 3 months was about 96% of asking price, but there were a few homes at 95%, 92%, and one at 90% of asking price.  Even 90% of that list price would have been about $40,000 lower, so the offer was very low ball.  The seller had no intention of knocking 10% off the price of the house, so they didn’t think there was any point in responding.  Furthermore, the contract was written by hand and in some places hard to read.  It’s important to submit a clear clean contract, if they have to redo it when they send it back you never know, they might get tempted to start rewriting the terms, too!  (With Dave and I we take care of that since we will consult with our buyer on the details and then execute the contract on the computer, print it out and go over it with our buyer to check everything before signing.)  A huge mistake they made was that they did not submit a “preapproval letter” from their lender with the offer, showing that they had spoken with their lender and in his estimation they could execute on the purchase.  The seller’s broker also didn’t feel, partly based on the above, that he was dealing with a professional broker on the buyer’s side.  This will be very important going through the escrow process once mutaul acceptance is reached, as many purchases fall through at this point based on sloppy communication, execution, and procedures in the escrow process.  (Dave and I make sure we establish a positive atmosphere with the seller’s agent from day one, knowing this is most likely to get our buyer the home they want at the best price, with a smooth escrow process.  It doesn’t stop us from negotiating hard- in fact it can make it easier to negotiate hard – but it does help with the process in a myriad of ways.)

Let me just note this is always a case-by-case determination.  If the home had, for example, $50,000 of necessary repairs, it would be a whole different story…unless the property was marketed as “as is” which means they are expecting the buyer to assume the cost of repairs on top of their price.  Or even if the home was seriously out of date.  In that case you could assume perhaps $30,000 if you were careful but wanted a new kitchen, paint, some new cabinets in the bathrooms, and perhaps updated windows, doors, or outdoor treatments…these points would be worth mentioning in a letter from the buyer, submitted with the offer.  In the above case, the buyer’s agent didn’t even write a letter to submit with the offer!  Those little letters can go a long way to bringing the seller to some understanding of the buyer’s thought process and challenges, which can lead to more understanding  of the buyer’s position and needs.  Without that, they fixate on the price and just assume the buyer is hostile or off in some way.  It is very hard for sellers to be emotionally uninvolved with their home, and they have gone over and over and over in their mind all the good points that justify the price they have on the home, so it is worth showing them the “other side” of the thought process.

Another important point is that there ARE times when a more aggressive offer is the best first move.  Things you can do to increase the strength of a low offer are:  offer cash (or don’t put a financing contingency on it, which means the seller automatically gets the earnest money if you don’t get financing), put down a high value earnest money to show how serious you are (but we never advise this unless you are sure, in which case it makes your offer stronger and doesn’t lose you anything), or be ready to be more flexible on timing if the seller needs that, either to hurry the closing or to delay it.  This doesn’t cost you money, but if you have flexibility it can be a good bargaining chip in certain circumstances.  None of these things is always a good idea, it depends on the circumstances of the buyer and seller.  The idea is to offer the most that won’t cost you extra and will please the seller and might tempt them to take a lower price for their property.

One of the factors that affects the success of your purchase is certainly the broker you choose.  If you choose someone who only represents buyers, then they will tend to have a very proactive attitude toward getting the price down.  Also as a buyer, the best thing you can do for yourself is get a competent broker that knows the market.    When we are preparing for an offer like the above for our buyer, Dave and I go through a process called a CMA.  This is a comparative market analysis which shows not only the prices of recent sales in the area and neighborhood, but shows why those prices happened that way.  Average price based on square footage can inform you in general at the start of the search, but it is very loose in terms of estimating actual value, for which features of the home, placement, nature of the street and neighbors, lot, upkeep, etc. etc. become very important.  We can see why some homes in the neighborhood sold for much more or surprisingly less than the average by doing this in-depth research, and we discuss that with our buyers before the buyer takes the step of deciding on that first, and very important, offer.

By the way, from my side as the buyer’s agent I would say, you should never walk away if the seller doesn’t take your first offer.  If we don’t go back and forth two or more times then I feel we may have cut the negotiation process too short and risked paying more than you should for the home.  It’s a process, fasten your seat belt, we’ll equip our vehicle with all the best road-worthy features, and let’s ride it out.

Edy Kizaki at an Inspection (Video)

April 30, 2009 in Monroe, Real Estate 411, Surrounding Cities