NEGOTIATING WITH BUYERS TO OBTAIN THE HIGHEST POSSIBLE SALE PRICE FOR YOUR HOME. $$$$
A buyer made you an initial offer. Negotiating the deal is the next step in selling.
One rarely receives a perfect first offer. This doesn’t mean it doesn’t happen, just that it’s unusual. A first deal is accepted, but the seller wonders if they could have gotten a better offer, and the buyer wonders if they could have offered less.
Be prepared to be unsatisfied when you see the offer for the first time. There is a good chance it won’t have all the bells and whistles you want. Real estate agents with negotiation skills and industry experience can help you bring the offer closer to your objectives.
Prepare for your negotiation.
Naturally, sellers and buyers are at odds with one another. The list price is what you want as a seller. You would even accept more than the list price. As real estate agents, we understand that.
Buyers want to pay as little as possible for the house. To close the gap, negotiation is required. Be prepared in advance in these four ways to close the gap.
Be realistic about the list price.
Home sellers will likely get less than 100 percent of their list price. If they do, they likely made some concession. However, according to the 2018 Profile of Home Buyers and Sellers published by the National Association of Realtors (NAR), nationally, sellers received 99 percent of their list price. Know that you probably won’t get 100% of your list price when you start the negotiation. Figure out what you want your bare minimum list price to be, but do consider more than the dollar signs. Other areas for concessions exist that may be more important to you than the buyer’s offer price. This might apply, for instance, if you suddenly need to leave because of a change in your circumstances. Perhaps selling quickly is more important to you than getting the best price. That alters how you approach negotiations.
Before the offer, increase your chances of winning.
When you remain in charge of the sale from the moment, the buyers walk through the door, your chances of getting close to 100% of the list price increase. A home inspection is the simplest method for accomplishing this.
Before listing your house for sale, have it inspected for any significant flaws. You have the option of either fixing the flaws or lowering the list price. You give your listing agent a tool to use with the buyer’s agent when you choose to make adjustments to the list price. Your agent demonstrates that you have already made up this cost in the pricing for this specific issue. It restricts the buyer’s options.
The smallest details, such as squeaky closet doors or flickering lights, tend to bother buyers the most. You’d be surprised at the kinds of concessions customers will demand over a problem that can be solved with some simple tools, and some elbow grease. Fix the minor issues before you list them, taking them off the table.
To further stack the odds in your favor, obtain a third-party appraisal before you begin the selling process. Display to the buyers the property’s market value and the justification for your chosen price. If you’ve recently undergone renovations or have some special features, this is helpful.
Last but not least, including a home warranty as a perk can help you overcome price objections and increase the marketability of your property if you suspect there may be concerns about some features of the home.
Have knowledge
Before listing, discuss the market dynamics in your neighborhood with your listing real estate agent. Have a basic understanding of the current interest rates, as well as your available inventory, market prospects, and outlooks.
Understanding supply and demand is crucial. In a buyer’s market, there are more homes available than there are potential buyers. In contrast, a seller’s market sees fewer homes for sale and a rise in housing demand. Consult your agent if you have questions about the local markets in your area. Work with your agent on a strategy to handle the negotiation. They know what to anticipate and how to respond to potential offers. You hired your real estate agent for their expertise; have faith in them.
Be willing to walk away
Nobody implied that you had to accept the initial offer. Yes, common sense dictates that the best offer will usually be the first one made. However, there is no reason you cannot walk away and wait if you genuinely cannot accept the buyer’s offer and you are unable to negotiate. When your listing agent tells the buyer’s agent that you are prepared to walk away and you mean it, it makes a strong impression.
The initial steps after accepting an offer
After all you’re planning, your listing agent now presents the first offer for your consideration. Ask as many questions as you can while going over all the specifics. What to study is as follows:
Price
Contingencies
Terms
Earnest money deposit
Down payment
Estimated closing date
Terms and conditions have the power to elevate or derail what initially appears to be a good offer.
Review the following contingency clauses
Is the sale of another house required in order to purchase this one? The offer is weakened by this. This means that the sale of another house with a different set of sellers and buyers will affect the sale of your own home. Your sale is put at risk by a home sale contingency’s cascading effects.
Is the buyer’s purchase subject to approval for financing? There should be no concern if they have already been pre-approved for the loan amount. The proposed closing date may be extended as a result.
What date do the buyers want to close? For you to determine whether you will have enough time to move out, this is crucial. There are some options available to you, which we will talk about later.
Are they requesting assistance with closing expenses? Later in the article, we’ll discuss what to do in this situation.
Inspections and disclosures a fairly typical contingency clause says that buyers won’t commit to buying a house until they accept the results of a professional home inspection. Typically, the buyers have a few weeks to conduct these inspections.
You will examine the reasonableness of the condition and how it is constructed to determine whether it alters the value of their offer.
Steps following the review of the offer
You now have three basic options to consider:
1. Accept the offer as-is
2. Reject the offer outright
3. Reject the offer and counter with your own
The buyers have every right to back out of the deal if you take steps two or three. They’re not obligated to accept your counter or offer one of their own in response. Typically, there is back-and-forth between buyers and sellers.
Let’s start with where to make counters more favorable to what you want from the deal.
Countering the contingencies
Depending on the contingency you are contesting, you have several options. You can choose to omit the contingency entirely. This tells the buyer that you are not open to negotiating on this. Additionally, you can set time or financial limits on contingencies.
Earnest money deposit
This down payment demonstrates how committed buyers are to buying your house. Once both of you have agreed to move forward and signed a purchase agreement, the deposit is paid. EMDs usually range from 1 to 3 percent of the purchase price. The buyer is more likely to follow through on the purchase of your home if the deposit is higher. This sum, however, might be somewhat less if you’re working with first-time homebuyers. The buyers are probably setting aside their current funds for the down payment and closing costs.
You can gain the upper hand in negotiations by requesting a larger deposit. If certain requirements are not met, the buyers run the risk of losing their deposit if they back out of the deal.
Closing price
Typically, both buyers and sellers are most concerned with the purchase price. It really depends on you and the other conditions in your counteroffer how much wiggle room you have here. Some negotiating strategies real estate agents use are listed below.
Counter at the list price.
The buyers anticipate some back-and-forth discussion regarding the list price. The initial offer they make is typically less. Furthermore, it is probably less than what they would be prepared to offer for your property. Since they don’t want to appear unwilling to negotiate at this point, the majority of sellers now slightly reduce their list price. Let’s assume that your property was fairly priced based on your market analysis. Why not counter with the list price?
This strategy will turn off some buyers. They may walk away. Buyers looking for deals and making lowball offers are probably ones you want to avoid working with anyway.
Consider lowering your list price by just $1000 if you don’t like this tactic. You come across as being tough but not rigid.
Counter the buyer higher than the list price.
This works best if you’re granting one of their conditions, such as covering a portion of the buyer’s closing costs. Additionally, it’s a risky tactic because it might drive them away.
In response to the terms
A lot of flexibility exists in this area. The majority of buyers are looking for a new loan and intend to pay the down payment in cash. The sellers may be asked to take on a second or third mortgage to cover a portion of the buyer’s down payment. Loan terms and interest rates are negotiable.
Other terms refer to things like furniture and appliances that come with the property. There would be a list of what’s included in the sale of a fully or partly furnished home. Let’s look at some other terms that are often used when countering.
Counter the occupancy
Do you need more time to vacate the property than the buyers are willing to give you? In response, you can propose an alternative closing date or offer to lease back the space. With this arrangement, you can still stay in the house for a predetermined number of days after closing.
Essentially, you lease your home back from its new owner for a set rate. This option allows more time to prepare and execute the move. Not all buyers might agree to this. They see it as a risk that you could damage the property after closing or you may not leave at all.
Cover the buyer’s closing costs
More and more real estate deals are including this kind of term. Closing costs can amount to up to 3 percent or more of the purchase price. Since closing costs are added to the buyer’s already substantial down payment and moving costs, the total can quickly become overwhelming. Some buyers, especially those purchasing their first home, need help to pay closing costs in order to complete the purchase.
Depending on the loan program, borrowers may be able to finance a portion of their closing costs. If that’s the case, the buyer may be able to take out a larger loan to compensate for the fact that you’re covering their closing costs.
If a buyer submits an offer that includes closing costs, you should counter with a higher purchase price, even if it means selling at a price higher than what you originally intended. There are times when buyers don’t understand that covering their closing costs will reduce the seller’s profit. It shouldn’t be too much of a problem if you need to increase the asking price by a few thousand to cover the difference.
The caveat is that you need to make sure the home appraisal reflects the higher purchase price. The deal cannot move forward if the buyer’s lender considers the home overpriced.
The buyer’s home sale contingency
A home sale contingency is a clause that may often appear in a real estate sales agreement (or an offer to purchase agreement). The transaction is conditional (or contingent) on the sale of the buyer’s home. If the buyer has to sell their home in order to acquire the funds to purchase your home, and for whatever reason cannot sell their home, they are not legally binded to purchase your home.
Most sellers aren’t so willing to accept a contingent upon buyers home sale offer, for obvious reasons.
Offers and first right of refusal
Option One. The seller can take the property off the market and wait for the buyer to sell their home.
Option Two. The seller may accept the offer but insist on a stipulation with a 72-hour first right of refusal notice to perform in the event the seller receives a better offer.
Obviously the buyer would prefer option one and the seller would prefer option two.
There are risks involved for each party with these
options. If option two is executed by the seller and
the buyer is close to closing the sale of their home but
can’t produce the funds to purchase the seller’s home
until they close, they may have nowhere to move. So,
you could see why many buyers wouldn’t agree to
option two. Option number one is risky for the seller
as the home has to be listed on the MLS as pending
or under contract. While the seller is waiting for the
buyer’s home to be sold, they’re missing out on a pool
of buyers. Further, if the buyer can’t follow through or
their home doesn’t sell, the seller loses all that time,
carried the cost of the home, and has to start over
again.
Possible options for removing the
first right of refusal contingency
If the seller receives a second offer and the buyer
hasn’t sold their home, the seller can ask the buyer to
remove the contingency.
Check with the buyers in the very beginning if they’re
willing to get pre-approved for a home equity loan, a
line of credit, or a bridge loan. If they are, this could
save the deal for both parties.
Are there any exceptions to this?
It’s almost always true that there’s always an exception
to every rule, including a contingency sale. You might want to accept a contingent offer if the buyer already has their property under contract and the buyer for their property appears to be able to get the funding. However, you need to make it clear in your agreement that if the buyer is unable to sell, you, the seller, can decide to cancel the contract.
If the contingent offer is the only offer you have, you may want to give it a good amount of consideration and try to negotiate some of the terms. If the offer is contingent on the sale of the buyer’s home and the buyer’s home is not yet on the market, you may want to find out all you can about the property. What is the asking price? What is the condition of the home? Where is it located? You then can decide whether or not you’d be willing to accept the contingency and take your home off of the market for an unknown extended period of time.
72 Hour kick-out clause
When the seller receives a home sale contingency offer , while they may want to accept it, they usually don’t want to take their home off the market for an indefinite amount of time. In this case, their attorney can place a 72-hour kick -out clause in the contract that enables the seller to continue marketing the property while the buyer attempts to sell their home. The kick-out clause received its name because if the seller receives another offer, the seller can legally “kick out” the buyer if they can not remove the contingency within 72 hours. This invalidates the contingent contract and
enables the seller to sign a contract with a new buyer.
The major problem with this is it somewhat protects the
seller , but the opposite for the buyer. Imagine the buyer
is two or three weeks or less away from closing , and
you exercise your right with a 72-hour kick -out clause,
the buyer would have nowhere to move or a place for
all their belongings. Most buyers will probably not sign
this kind of agreement and move on to the next home
for sale unless they have enough cash to purchase your
house. Speak with your attorney for more information
about this clause.
Seller Strategies
Rejection
A firm “no” can be the best response at times. While this approach can be extreme and run the risk of losing the buyer, it just might work if they are truly committed to purchasing the home. Rather, it shows that you are confident in your property’s value and are patiently waiting for the right buyer. Unless they take the negotiations seriously, you have no intention of negotiating with them. Some buyers are scared of missing out because they know that a better deal could come along at any time.
A straight-up rejection also discourages buyers who are looking for deals.
Getting multiple bids
This plan only works well when you first put your house on the market. Make the property available to be shown and schedule an open house for a few days after it gets on the market. But don’t take any offers from buyers until after the open house. Use this as a marketing strategy with your listing agent.
The goal of this method is to make people feel like they are in a competition. You might only get one offer in the end, but that buyer has no idea. If you do get more than one offer using this method, you can go back to your best bidders and start a bidding war.
Taking advantage of multiple offers
This is your ideal scenario as a seller. Your buyers are immediately at a disadvantage because they are competing against each other to win the property.
The first step is to notify all interested parties that you have multiple offers. Request their highest and final offer.
When all of the final bids have been received, compare and contrast the terms of the deal. Choose the best contract or the one you believe will be most willing to negotiate on your terms.
When reviewing the various contracts, keep in mind the various terms and contingencies. The buyer who offers you a slightly lower purchase price may also include more favorable contingencies, such as a larger earnest money deposit or no request for closing cost assistance.
Taking the best offer on the table
Accepting a buyer’s offer means you’ve found a deal that makes you happy in every way, including the purchase price, terms, and any contingencies. To reiterate, until you sign the purchase agreement, the offer is not binding.
How to negotiate successfully
OK, let’s review. To win the negotiation as a seller, you must maintain your position regarding your most valuable financial asset. Recognize that you will likely not be completely satisfied with the agreement, but you should never settle for less than your home is worth. Your listing agent will assist you in approaching the negotiation process with knowledge and a clear understanding of your bottom line. You are always free to walk away and wait for additional buyers.
Looking for someone to represent you when selling your home? We are skilled negotiators with a passion for fully representing sellers. We are dedicated to ensuring that you get the most out of your home and are well-versed in maximizing its greatest assets.
Call, email, or text me today you’ll be glad you did; We’re friendly, not pushy, but great negotiators.
Billy Cassie
Broker/Owner/Author
SHORE REALTY EXCHANGE
416 Richmond Ave
Point Pleasant Beach NJ 08742
732-539-6539
billycassie@comcast.net
www.shorerealtyexchange.com
