By BOB & DONNA McWILLIAMS, For The Capital, Published 05/31/09 - Once you've found a house you'd like to buy, there are many things to consider in writing a contract.
You'll need to select a settlement date, get a handle on your financing, and determine the various types of home inspections you're looking to do. But, paramount among these considerations is how much you want to offer on the place.
When developing an offer, there are many factors and strategies that can have a significant impact on the degree of success you may have in ultimately securing the price you want to pay. As with any negotiation, this is not an exact science and different people have different ideas of what works best.
However, here are a few factors we take into account when recommending an initial offering price to our clients:
Owner occupied house
When you're dealing with a homeowner, especially if it's a property they've owned for a long time, there is usually a lot of emotion invested in the property. They have worked long and hard on the place; they may have raised a family there. It's much more than bricks and mortar to them. It's the place they call home. So, as a buyer, you need to recognize this pride of home ownership in making your initial offer. If you lowball such an owner, it can come across as a personal indictment of the seller's home. Invariably, further price negotiations will meet with a lot of resistance. Be reasonable upfront and you'll improve your chances of getting a good price down the road. Homeowners are often more flexible if they believe the buyer is respectful of the value they see in their property. If they think you're just trying to scarf something up at bottom dollar, they may simply refuse to negotiate.
Bank-owned properties
If you're working on a foreclosure or properties under the control of a relocation company, the homeowner has been removed from the picture. As a result, the landscape for price negotiation is quite different. Banks don't have any emotional investment with a property. Their investment is purely a financial one. As a buyer, you'll be playing a cold, hard numbers game with someone who's never seen the property and is probably sitting in a cubicle a thousand miles away. They don't care about much beyond working their way through the pile of foreclosure cases sitting in their inbox. In this case, buyers don't need to worry about hurting anyone's feelings. So, if you want to throw a low ball in there, have at it. The worst they can say is no. Just last month, one of our buyers got a price on a foreclosure property that would have never flown had the home been owner-occupied. That's not to say that every foreclosure is a buyer's dream come true; there are many obstacles to reaching the settlement table. But the strategy for price negotiations is clearly different from an owner occupied property.
The numbers game
Turning back again to a contract where your offering price will be evaluated by the homeowner, there's some strategy in specific numbers. When Joe Homeowner put a list price on his house, he probably didn't select something like $501,000; he probably put a number like $499,900 on it. The difference in these prices may only be a fraction of 1 percent, but a number that starts with a four sounds like a lot less than a number that starts with a five. It's the same reason a Sham Wow or a Slap Chop costs $19.95 and not 20 bucks. When you're the buyer and making an offer, the same pricing psychology comes into play; the only difference is that you're working in reverse. So, if you're thinking about offering $499,800, just go ahead and make it $500,000. It's only $200, but it sounds like much more to the seller, and that $200 might make all the difference. Many sellers have a bottom-line number in their head, and it's usually a round number like $500,000 or $525,000. You don't have sellers who say to themselves, "I'm not going to take a penny less than $499,900."
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