If you are selling a home in the Denver or Boulder Colorado area, you need to know about some common mistakes I see sellers make when negotiating an offer. Often, they result in either not selling or selling for less. They also make the selling experience frustrating when it can be a fun and enjoyable experience! Here ya go:
1. Choosing a Discount Listing Agent
This may sound self serving and or like a solicitation, but hear me out. In these tighter economic conditions, many sellers choose their listing agent based on the commission their listing agent charges. There is no “Standard” commission and it varies greatly between companies, and even agents within the same company. However, negotiating is one of the main functions of your realtor/real estate agent. How quickly did they decide to come down in their commission? If their job is to get you the highest price for your home and that agent is willing to give up their money that quickly, how fast would they be willing to give up YOUR money in the negotiation? For example, if he/she went from 3% to 2% that is 33% discount – is that really who you want negotiating for you?
How to Avoid It – Hire an agent who is an expert negotiator and don’t choose your agent based on cost alone. Evaluate their entire business proposal, marketing plan, experience, etc. Often an agent can charge slightly more but you still walk away with more money because they can negotiate a higher price and terms for your home.
2. Rejecting an Offer (the folded arms approach as I call it)
When an offer comes in, this should be cause for celebration and flattery! Let’s remind ourselves that someone is saying they want to buy your house. You certainly don’t have to accept it. What is important to remember is that offer is the price/terms a buyer is willing to pay based on market conditions etc and not meant to insult you. It’s not personal. Often, buyer’s decide on an offer price based on poor information, what a friend told them, or some strategy they “Googled”. Don’t take it personal.
What To Do Instead: Counter the offer. Have your agent draw up a counter. If the buyer’s offer is ridiculous then counter at full price. The key is to counter and not reject. This tells the buyer and their agent that you are serious about selling, want to make something work, but will not accept something ridiculous. The last time we did this we ended up bringing the parties together and their home sold. At closing, the buyers told me “Sorry about the originally low offer….our agent told us to do that…but we didn’t want to. Thanks for not being a jerk about it.” Always counter – never reject.
3. Refusing to Pay Buyer’s Closing Costs
Let me ask you a question Mr/Mrs Seller. What is more important, the sales price of your home, or how much money you walk away with (herein I will call it NET)? The NET of course! So, who cares if the buyer want’s you to “pay” $50k in closing costs for them….raise the price by $50k….and it’s the same NET to you! That is an exaggerated example but I am being serious here. So many sellers get stuck on the idea that they absolutely don’t want to pay buyer’s closing costs and that the buyers should pay for their own expenses. The reality in today’s changing market is some buyers are starting to ask for closing cost credits again. It’s challenging for some buyers to come up with the additional 2%-3% to cover their closing costs on top of the 5% – 20% they are already coming to the table with for a down-payment.
Still not convinced, check this out. YOU ARE NOT EVEN PAYING THEM….THE BUYER’s ARE FINANCING THEM. Look at these options
- Option A = $350,000 Sales Price & $0 towards buyer’s closing costs = $350,000 NET
- Option B = $355,000 Sales PRice & $5000 towards buyer’s closing costs = $350,000 NET
- The difference: The buyers are really financing that $5000 and are paying interest on it for 30 years. It isn’t costing you (the seller) anything additional.
What to watch out for: The big risk here is making sure the home still appraises for the higher sales price. You do want to make sure that if the home appraises below the agreed upon sales price, the buyer will agree to lower the sales price/remove concessions first before asking you to lower the sales price.
How To Avoid It: Focus on the NET of the offer. Be willing to pay any concession the buyer needs/wants so long as you get the NET you want. Be mindful of concerns appraising and work with your agent to address those ahead of time with the offer/counter offer so a plan is agreed upon.
4. Thinking That What You “Need” Determines Market Value
Ultimately, whether we like it or not, buyer’s ultimately determine market value. What someone is willing to pay IS the market value. If what someone is willing to pay is not what you “need”, the variable we need to adjust is TIME. Maybe another 6 months, or in some cases, another 6 years, but only time will eventually lead to increased market value. Just because you “need” an amount does not mean a buyer will pay it.
How To Avoid It:
Get educated on what similar homes to yours have sold for in the last 3 months. Hire an agent with intimate market knowledge of your area and have them present a market report with pricing recommendations. Price your home where it is compelling to buyers based on this data and not on your desires. If it’s too low, you might consider waiting for the market value to increase.
5. Us vs. Them Mentality
Often Sellers think a mutually beneficial negotiation isn’t possible but it is.
How to Avoid This:
Find out what is most important to both parties and try to accommodate both side’s wishes. You will be amazed that by asking “what is most important” to the other party that you can often make both sides very happy and have an enjoyable transaction.