Tuesday 13 January 2015

Negotiation: when is enough enough?

No one wants to pay more for a house than they have to.  So as long as there is no competition, you'll probably want to go in below asking price when making an offer, unless the property is so perfect you don't want to risk missing out on it.

There is danger in making offers too low that you might offend the seller and make negotiating more difficult, but there can be some power in audacity.  I've seen low ball offers work out. 

The main thing to bear in mind is that you might miss out on the property if another offer comes in while you're still negotiating back and forth with counter-offers.  If you're not okay with that possibility, then there may be some wisdom in coming together sooner rather than later.

Not long ago, I saw a situation where the buyer was being really firm on a very low price and not coming up very much. Truth be told, it almost worked out for them.  The final difference in price was only $2500.  The seller was ready to accept just to be done with it, but another offer came in at a higher price and the new buyer was able to bump the first buyer out. 

$2500 is not much on a real estate purchase.  Even at higher interest rates than we have today - let's say 6.00% - you're talking less than $20/month difference on mortgage payments. I don't know about you, but that seems like too small an amount to miss out on the property you want to buy. 

Another thing to keep in mind when negotiating is that the sellers' position on pricing is different from the buyers'.  While the buyer certainly pays the difference in the long run, and more with interest, it is worth considering what the difference is to the monthly payments and whether it is worth struggling for more of a reduction to save a little bit on the payments and whatever the difference is on the down payment. Using the $2500 example above, you're looking at less than $20/month on the mortgage and an upfront difference of probably $125-500 on the down payment (depending on your down payment amount). But a $2500 reduction in price is a difference of over $2300 to the seller. That is something to keep in mind if the seller is being firmer than you like - it makes a bigger difference up front to them than it does to the buyer.

In any case, make sure you are working with an experienced real estate agent who can give you solid advice in negotiating, and consider carefully the market value of the property and the risks of pushing too far.

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