How To Not Negotiate Your Best Deal
Everybody wants to save money and get the best bargain they can on a home. At the same time, everybody with a newspaper or a broadband connection knows that we’re in something called a buyer’s market.
Many buyers feel on some level that they’re not going to get a good buy unless they actively create one by serious, hard-fought negotiations. Unlike Realtors®, who have the luxury (or the curse) of looking at MLS data day in and day out, buyers don’t always understand that at any given time, the homes offered for sale in the MLS for any given set of criteria the buyer may have will cover a whole range of prices.
Find an Inexpensive Home and Buy It
The easiest and most sure fire method we’ve found for getting a good deal on a home is to simply find a good deal and buy it.
This sounds obvious, but in fact, most of the buyers we work with have an idea that they need to negotiate or they’re not going to get a good deal.
Sometimes, though, depending on the market, the opposite may be true!
Let’s take three categories of homes. In all the numbers that follow, we’ll use homes that sold in Placer County in June, 2008:
- Category 1: Buyers negotiated an average of 4.3% off of the list price.
- Category 2: Buyers negotiated an average of 3.6% off of the list price.
- Category 3: Buyers negotiated an average of only 0.5% off of list price (1/2 of one percent).
OK, so who got the best deal? Did you say the buyer who negotiated 4.3% off of list?
Let’s look at these same categories again, now with some different information:
- Category 1: Buyers paid (selling price) an average of $178.20 per square foot for their home.
- Category 2: Buyers paid (selling price) an average of $197.91 per square foot for their home.
- Category 3: Buyers paid (selling price) an average of $150.78 per square foot for their home.
That’s a different story, isn’t it?
Why is it that the people who got the best selling price were the ones who "negotiated" the least? It’s simple: because the discount was already built in to the listing price. The buyer needed to step up and offer something close to (or often, over) full price to get the home, because it was priced well enough that other people were competing on it.
Category 3 properties are bank owned foreclosures. Category 2 properties are non-distressed sales. Category 1 properties are short sales.
What Matters?
What’s the definition of a real estate bargain? To me, a bargain is a home that has all the features you want, and the best price compared to other homes that sold at around the same time. Indeed using "homes that sold at around the same time" is exactly the comparative market method that appraisers use to determine value as well.
One thing appraisers don’t look at is the listing price of your home, or anyone else’s for that matter. List price is doesn’t matter. How much or whether you negotiated doesn’t matter. What matters is the sale price compared to the sale price of other, similar homes.
Which Of The Following Is the Best Bargain?
The following homes are in the same neighborhood, sold around the same time, and have similar features. Which one is the bargain?
A) Home listed for $400,000. Buyer wrote lowball offer for $325,000. Seller came down to $350,000. Sold for $360,000.
B) Home listed for $350,000. Buyer offered $340,000. Sold for $340,000.
C) Home listed for $280,000. With fierce competition, winning buyer offered $320,000. Sold for $320,000.
"I’m Not Going To Get In a Bidding War, and I’m Not Going To Pay Full Price"
Buyers tell me all the time that they don’t want to get in bidding wars, and they’re not going to pay full price. I understand the psychology of both these claims. But to my way of thinking, bidding wars don’t matter. Full price doesn’t matter. What matters is the sale price compared to the sale price of other, similar homes.
Let’s review. Buyer A is a shrewd negotiator. Price Line’s William Shatner would be proud. He paid too much. Buyer B is a fair negotiator, who knocked ten thousand off the price. He paid the market price. Buyer C found a bargain, recognized it as such, and bought it. He got the best bargain, and he was the "worst" negotiator.
Do you have comps in the neighborhood you’re shopping in? You should. Your Realtor® should get them for you. Are you looking at enough homes to recognize a bargain when you see one? You should. Your Realtor® should be showing them to you.
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