Crafting a Winning Purchase Offer
Learn these dos and don'ts when negotiating with the seller.
When crafting a purchase offer, it is first important to understand the several truisms of the real estate sale.
- Homes will always sell at market value. Market value is determined by what a buyer is willing to pay.
- Market value is not a fixed, rigid price, but instead is a range of value. This is because no two buyers are alike. While one must have a pool, another will consider a pool a liability. I might not appreciate the wallpaper depicting whimsical garden gnomes, but you might be positively giddy that the extensive, wall-mounted bottle cap collection conveys.
- You, the buyer, are the market.
As many areas are continuing to experience declining home prices, we see the "low-ball" offer becoming the new pink for Spring. The term low-ball is generally defined as the deliberate underestimation of cost or value. In real estate, the low-ball offer has come to mean an offer significantly below a seller's asking price.
In our current real estate environment, there are two distinct categories of buyers. One includes the traditional buyer looking for a good home at a good "value" today, because today is when they are shopping. The second category of buyer is a little less concerned with timing or even suitability of the property and much more concerned with value, not only in the context of value today but in terms of anticipated value tomorrow or next year.
Regardless of the category in which you fall, keep in mind that both flavors of buyer are in the market at any given time. Unless your goal is to accumulate a scrapbook of rejected offers you will one day share with your grandchildren, it is critical to remember that you are offering to purchase a home. A home, unlike a share of stock, a gallon of milk, or a commercial office building, is inherently emotional.
So, it is helpful to keep in mind a few dos and don'ts when creating your offer:
- Don't offend. Unless you are offering on a property which has been held purely for investment, the seller is emotionally invested in his property. Do not try to be Donald Trump; trash-talking the seller’s shelter is not a winning strategy. Statements like "This offer reflects the fact that the premises will require professional cleaning with a blow torch prior to possession" may just get you and your offer kicked to the curb.
- Do get personal. Write a cover letter summarizing why you believe this is the right home for you. On many occasions, I have seen sellers accept a lower offer because they felt a connection with the buyer. The seller has a dog? It never hurts to mention that your own Scruffy, who has been on Prozac since moving to your current top floor studio apartment, is (or soon will be) “digging” the large rear yard. The seller raised his children in the home? Why not mention that the glow cast by the cozy brick-trimmed fireplace will be the ideal backdrop for your own little Einsteins to read Tolstoy aloud as they so often do? It may not help, but it can’t hurt.
- Don't defend your offer the wrong way. As in, by saying it is all you can afford or that you are basing it on what you believe values will be during the next lunar cycle. This approach will likely leave the seller with the notion that there is a buyer out there, one who isn't you, who can afford his home and at the price it is worth now.
- Do know the seller's circumstances. Does the seller want to move or does he need to move? Does he need to be out of Dodge by sundown, or is he just toying with the idea of relocating to the Catskills if he can get "his" price? Circumstances will dictate whether there is a bargain on the horizon, and knowing this in advance can save everyone the aggravation of a long trip to nowhere.
- Don't preach. Your agent has given you information on comparable property sales. Beating the seller over the head with your 16-column spreadsheet will not endear you to him. He has set a price, presumably after having taken this same data under consideration. You may believe his price to be high, but it is his price. Insulting his intelligence (even if you believe this intelligence, based on the price he is asking, is of the artificial variety) will not further your cause.
- Do be prepared to negotiate. No buyer wants to think they paid too much, and no seller wants to think he sold out. Expect to go a round or two. "Take it or leave it" offers are rarely met with high-fives and bear-hugs from the seller, regardless of the price and even in this market. In negotiations, everyone wants to feel like they were in control and that they prevailed.
- Don't be unreasonable. There is value, and then there is crazy-talk. If a home is offered for X, and you are willing to pay 10% less than X, do not offer X minus $2 million and then ask the seller to throw in his bedroom furniture and a pony. You will not be taken seriously.
Today's real estate market is teeming with opportunities for the buyer. Great values, values relative to prices a year or two or more ago, are plentiful. But, insanely great "deals" are still needles in the proverbial haystack, because market value will always be determined by what a buyer is willing to pay. This buyer might be you, but if you are unrealistic or even simply careless with crafting your offer, it will probably be someone else.
Kris Berg is a broker associate with Prudential California Realty in San Diego, Calif. Visit her Web site at www.SanDiegoCastles.com and read her blog at www.SanDiegoHomeBlog.com.