Negotiation where to start…

So you have found the home you want. You and the spouse have both kicked the various "tires" to make sure there are no problems. The neighborhood looks terrific. The grocery story is within 5 minutes as is the school and Spot’s veterinarian.

As each new fact falls into the "yes" column of the Ben Franklin list, you are more and more certain, this home is for you.

What comes next?

Finding the right home is just the beginning of the process. Now we go back to my office to crunch the numbers. We need to make an offer (most people don’t pay full price) so where do we start?

The listing price on the home is typically the one the seller would like to get. Sometimes the price is based on actually sold comparables in the neighborhood, sometimes it’s a number pulled from a hat.

We want to know what the home should sell for, based on our OWN research, not someone else’s!

To do that, I look for sold comparables in the area that match the home as closely as possible. This process is very much like the process a fee appraiser uses. We look at style, age, condition and size.

Most neighborhoods and price ranges in the Denver metro area have sold comps that will give us a good idea of what the house should sell for. I find most of the buyers I work with, get very good at recognizing value. We look at enough homes that by the time my buyer is ready to make an offer, they have a very strong feeling of confidence about the home’s value.

Pulling up the facts on the computer validates our findings.

How much LESS can we offer?

The trickiest part of negotiation is the price a buyer wants to offer. Many buyers hear about how bad the real estate market is and assume they are going to get tens of thousands off the price of a home. This just simply is not true.

MetroList the MLS service covering the Denver metro area publishes statistics on "price to sale ratios". These statistics are based on actual list prices and the amount the home ends up selling for. My favorite list of stats is the Year to Date Summary by MLS Area. This summary gives the percent of list to sale ratios on our MLS areas.

Consulting this list results in a better understanding of where to position your offer. Obviously if the area you want to buy is showing a 98% list/sale ratio, offering 85% of the list price on a home will not fly. In fact it may very well alienate the seller!

Let’s face it, as a buyer you have no responsibility to "make the seller happy" but you also don’t want to annoy him to the point of negotiating higher than he would have had you been more realistic!

I see this scenario all the time. Some people just have to "do it their way" and they end up making a mess of things.

Being reasonable, showing you have done your homework, providing proof that you are a well intentioned buyer (pre-approval letter and solid earnest money) will get a seller’s attention every time.

Seller’s like to know they are dealing with a real player, not a wishy-washy deal maker that might disappear into the sunset before closing.