DECISION 6. – OFFERS: DO WE ACCEPT, REJECT OR COUNTER?
DECISION 7. – BEST & FINAL OFFER: ACCEPT OR REJECT – DO WE SELL OR STAY?
In an auction situation the buyers will be bidding on auction day and so sellers don’t have to consider individual offers unless they consider offers prior, or after the property is passed in at auction.
In a typical private treaty negotiation, the buyer will make a low offer, usually between 5% – 15% below the sellers’ expected sale price. The agent will try to negotiate up to a level that is acceptable to take to the sellers, knowing that the sellers will counter offer.
The sellers will, after expressing the requisite outrage at the dismal offer, counter sign with a selling price. It is only at this point that the agent knows for sure what price the seller will agree to on paper.
Sellers’ reaction to the buyer’s first offer varies considerably. Some sellers can suddenly go weird and demand a price 5%-10% higher than has ever been discussed. Some show the agent the door.
Once the buyer and seller have made their buy/sell prices known, the agent will review the gap. Usually it’s between 5% and 10%, but sometimes it might be more. Let’s say on a property priced at “Offers over $600,000” the initial offer is $550,000. The seller comes back with $620,000. We have a $70,000 gap (11%) that needs to be closed. Halfway is $585,000, but it depends on negotiations from here as to where the final price will rest. The agent negotiates with the buyer, and so it goes on until a satisfactory sale price is reached that both parties are agreeable to, or one party walks away. In this case, we will probably end up with a sale price somewhere between $575,000 and $600,000.
In my experience, both parties usually come to somewhere in the middle ground and the outcome is a win/win, with both parties happy.
Let’s look at a couple of scenarios for offers. If you are the seller, try to put yourself in the buyer’s shoes so that you can understand where they might be coming from. Get as much information about the buyers as you can from the agent—who are they? Why are they wanting the property? What jobs do they have? What is their financial position? The more you understand the buyer the more you will know how far they might go in the negotiation. The agent should have a good idea of this.
Factors that will impact on your negotiating position:
- Is your property priced, or for sale by negotiation? How does your counter offer compare to the price guide, if any? If it is unpriced, perhaps the buyer is genuine but doesn’t really understand the value of the property? The agent needs to provide evidence to support the price being asked.
- The state of the market – is it rising or falling?
- The nature of the buyer – what are the buyer’s motivations, family demographics and how urgent are they needing to buy?
The early low offer
Scenario: A buyer decides to jump in and try and get your property at a low price, say 15% below what you and the agent agreed is the bottom of the market range. How should you respond?
Depending on the circumstances of your case, you might:
- if your price is realistic, have the agent present the evidence supporting the price.
- if the property is priced, it should have allowed a little negotiation room, so come down a little to show a willingness to negotiate.
- have the agent go back to the buyer and state or re-state the case for a counter offer at the higher end of the market range. See what the buyer comes back with.
- if the market is rising you are in a better position to bargain.
- if the buyer needs to buy quickly you are in a better position to bargain. However, if you lose them they will buy another property quickly.
- wait a few days (until after the next open home) to see if any better offers come along. The buyer may not allow this much delay.
- reject the offer as inadequate and ask for a realistic offer. In my view this is not as strong a position as putting in a specific price as a counter offer.
The early high offer
Scenario: A buyer offers close to your desired price, certainly more than you expected to get on the first offer.
Sometimes, when an agent who has negotiated hard to bring sellers a good offer early, some think it is easy and decide to be greedy. In a rising market they may be lucky. But they may also lose the buyer if they become too demanding.
There is a saying in real estate: “Often an early offer will be the best.” This is because in the first few weeks you will get the buyers needing to buy something quickly. This is when the most buyers will be looking at your property. Often the best offers come in the first three weeks.
- In a rising market, properties can be bid higher than the listed price. But is the price offered going to be too high for a bank valuation?
- Is the buyer emotionally driven? – ie “my wife must have it!”
Alternative actions here might be:
- Is the offer fair in the current market? Accept the offer if you’re happy with it. Don’t get overconfident.
- Counter by a small amount without pushing too hard.
- Hold out and see if they’re willing to pay.