Selling your home will be one of the largest financial transactions you undertake in your lifetime, and savvy negotiators can usually walk away with padded pockets and get a great price for their property. However, negotiating — while inevitable in a real estate transaction — can also open the door to tactics that might not work as well in real estate as they do in other business scenarios.
We talked to Illinois agent Joe DePauw about how negotiating can affect a real estate transaction, and he helped us collect the negotiating tips that can actually backfire when you’re trying to sell your home.
Pricing too high with the hope of negotiating down
Pricing real estate is… tricky. With hundreds of thousands of dollars on the line, and a lot of feelings tied to a property, it’s easy to convince yourself that your house is worth tens of thousands of dollars more than it actually is. DePauw notes that real estate agents will provide a comparative market analysis as well as determine the fair market value of a listing as part of their service, but it is — in the end — up to you as the owner to bless the final listing price.
“About 99.9% of the time, a homeowner will try to overprice a listing,” DePauw explains. “Some owners decide to price high because they know the offer is going to come in lower and they need a certain amount of money in hand when the transaction is done to move onto their next purchase.”
You have to remember the price of your house should be determined by market conditions and not by the purchase price of your next house. The impulse to cover yourself financially can backfire by reducing the amount of foot traffic the property receives. And a lack of showings means the property will sit in the market longer than it needs to, potentially becoming stagnant; Your future buyer might be able to get it for a steal just because nobody else is interested.
Instead of pricing high, DePauw recommends that clients “leave themselves a $5,000 margin to negotiate with, and [then] I work with them to build value on the marketing materials, and notes to the other agent on things like a newer furnace and roof or a sought-after floorplan.”
Pricing too low with the hope of starting a bidding war
Bidding wars tend to spark more naturally in a seller’s market, and market conditions play a part. Some sellers, however, think they’ll be able to get their full asking price or go above asking if they manage to deliberately spark a bidding war between buyers. Pricing a house noticeably lower than comparable properties signals to buyers that they need to expect competition for the property.
Pricing the house too low can backfire, however, by also signaling to buyers that there’s something wrong with the house, or encouraging those same buyers to make even lower offers, getting further away from your desired purchase price.
Threatening to walk away from the sale altogether
Some sellers try to play hardball by indicating that they intend to walk away from the table rather than negotiating at all.
“It becomes a real challenge for me,” says DePauw. “It will usually stem from a lowball offer from a buyer.”
While your first instinct as a seller is to feel insulted and walk away from the offer altogether, you need to understand that the process of selling a home is a business deal, and a buyer might be testing your pricing by putting in a low offer and hoping you’ll counter with something closer to what they’d like to pay.
“In my experience, when a buyer puts in a low offer it’s because they’re expecting to meet somewhere in the middle between the listing price and the offer price.”
As a seller, you should always counter-offer: whether it’s $1,000 off the listing price or $100 off, sellers should always leave the door open so the buyer is the one to decide whether to accept or counter again. If you want to apply mild pressure on a buyer, you could decide to wait a day or two before responding. Silence can be a negotiating tactic that works for you without walking away from the deal completely.
Quibbling over repairs
Negotiating over repairs during a real estate transaction can vary according to the seriousness of the required repair; It can tilt the balance of the transaction toward seller or buyer depending on how it’s managed at the table.
At least 95% of buyers will require an inspection before closing. Taking into consideration that a home inspector will catch most major issues with a listing, it’s not a bad idea for you to have a prelisting inspection done so you can decide how to handle repair objections before the house is even on the market. You might even choose to make some small repairs that go a long way to helping your home be the ideal place for a buyer to make an offer.
Some major repairs, like roofing, can be covered by your insurance company as a claim. Others, like aging appliances, can be covered by offering a home warranty as a listing perk. As a result, quibbling over repairs is mostly a matter of “Informing the seller on how to best manage the issue — and usually it can be done with credits at closing,” DePauw says.
Conveying appliances, fixtures, or other personal property
“I always recommend that you remove the appliance, fixtures, or personal property that won’t convey with the property out of the listing before any showings,” says DePauw. “People have a tendency to want those things they can’t have, and if the item is not there for them to fixate on, you can avoid the issue altogether.”
No matter how clearly something is stated in the listing descriptions, buyers have a tendency to ask for it anyway. If you cannot remove the item beforehand, you need to understand that leaving it inside the house creates a scenario where you as the seller (together with your agent) will need to assign a dollar value to that item — no matter how sentimental or unique it is — and potentially offer it as an allowance so the buyer’s agent can convey that to the buyer in advance.
Playing good cop/bad cop
Playing good cop/bad cop can sometimes be an effective negotiation tactic, where the husband is the “bad cop” who is unwilling to budge or compromise, and the wife is the “good cop” who is trying to be reasonable. In other scenarios, the homeowner is the “bad cop” and the real estate agent plays the “good cop,” trying to be helpful to the buyer by disclosing potential competing offers or attempting to convince the seller to negotiate a certain repair or closing cost credit.
In general, this scenario tends to backfire when, as the seller, you refuse to negotiate on anything and threaten to leave the negotiating table altogether. As DePauw explains, “the longer you can keep communicating, the better the odds you’ll agree on something that works for both parties.”
Not budging on any contract elements
“Most sellers in my market have a $500 to $1,000 budget to remedy inspection report repairs,” DePauw says. “Then they have a hard date when they need to close in order to make their next home purchase work — or sometimes, there are clauses where the buyer cannot close until their previous home sells.”
When it comes to contract elements, work beforehand with your agent to determine which contract elements are set in stone and which you’re open to negotiating. Try to offer some concessions that are less important to you. When you do this, it shows you’re willing to work with your buyer to close the deal, while at the same time it creates a situation where you’ve already conceded something.
Another idea: Offer an alternative instead of a refusal. Maybe closing in 60 days instead of 30 won’t work for your purposes, but you could offer to close in 45 days instead. This way you’ve made a concession, and it’s up to the buyer to meet you halfway.
If you feel like you’ve reached the end of your negotiating rope, it might be time to let your agent give you their professional opinion. Agents negotiate every day, know the market and your competition better than anyone else, and have the experience of having done this transaction dozens — if not hundreds — of times before.
Header Image Source: (Matthew Henry / Burst)