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Old 01-20-2009, 12:40 PM
SXN SXN started this thread
 
349 posts, read 553,070 times
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Default Negotiations with Seller... Is this a good strategy?

Thanks to everyone on this board who has given me advice on my first time home purchase. I'm currently negotiating an offer/counter-offer with a seller and wanted to know if anyone had some feedback on what we've done so far and what we can do to get the seller closer to our price.

Background:
The property is a 2 bed located in one of the best areas of my city. It has great ameneties, is close to my work, transportation, shopping, the beach and a park. However, the seller has been living there for decades and the place needs major rehab new floors, kitchen, bathroom - pretty much cosmetic from what I can tell until a home inspection is performed. (The place also smells attrocious like dirty hamster cages/ the zoo so I'd be shocked if anyone else presents an offer anytime soon in the current condition). The building is also older than many of the newer developments in the city, but it looks like it has been maintained well. We also randomnly stopped two residents during our home tour to ask what they thought of the building and they love it. It has been on the market about 2.5 months with no change in price. Average length of time on the market for homes in the neighborhood is 90-120 days.

Compare analysis
My realtor and I did a comparative market analysis of similar properties sold in the area taking account the work that would need to be done to the property to get it on par with all the other 2 beds for sale in the neighborhood. We came out with a FMV price about %5 less than the sellers list price. (I think that still is a little generous, but I'm going with my realtor on this as he has more knowledge of the neighborhood than me. I also think the seller wasn't way off on her list price). The seller bought the home in the 1990's for about 50% less than the current list price.

Negotiations:
Here's what we did:[
1st offer: 10% below list price hoping the seller would meet us half way. They counter-offered the next day just going down less than 1%

2nd offer: the next day we went up to 7% below list price and they counter-offered the next day at 4% list price. My realtor said the listing agent had to really fight with the seller to get it down this much and probably won't go much lower. Apparently the seller is really attached emotionally to his home since he lived there for so long (20 years). (I'm a little miffed at my realtor as he seemed to spend more time talking about the listing agent and her struggles with the seller than focusing on my qualifications and reasons I am well leveraged to negotiate a better FMV price). I'm preapproved, can close quickly and don't have my own home to sell. I'm not asking for any unusual contingencies.

Summary
So at this point I still want them to come down 1% to reach that FMV price point my realtor and I discussed. It's only a couple thousand, but I could really use that to money for updates and rehab etc. Also, if I look at it purely from a monthly payment perspective, I could get a modern style 2bed with all the latest updates, appliances, washer/dryer and one additional bathroom for the same monthly payment amount. Only thing is it would be in a good area of my city - not the best like this property! So here is what I'm thinking my next step should be: I just started looking for a property so I will keep my options open and continue my tours this weekend for comparable units (granted it will be in a different part of the city). I figured I would wait a day or two (make the seller sweat a little) to let the listing agent know I will sign the offer contract right away if the seller goes to 5%, otherwise I am going to keep looking. I think maybe I responded too quickly to the counter offer and raised my buying price too quickly also. Am I being to anal with sticking to my FMV price? Is this a good approach to get the seller at my price or are there any other tips people might know of? Any thoughts would be appreciated, I can provide more info if needed.
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Old 01-20-2009, 12:53 PM
 
Location: Orlando FL
1,052 posts, read 2,632,645 times
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Well, at this point you are only 1% away from the maximum price you wanted to pay. The only thing you should be thinking of is if that 1% in price is worth the risk of someone else coming in and putting in an offer over your last.
It is still a buyer's market in most area's so you do have more leverage than the seller in most cases....however leverage doesn't mean squat it the seller just plain doesn't want to sell. So don't second guess responding to quickly to counters or coming up too fast, that has little impact on where you are now with the negotiations.

I like your thought on letting the seller sweat for a day or two and continuing your search. I actually was in a very similar situation with a client of mine not a week ago. This seller was a good 13% over market value though, but we put in our offer where we thought was reasonable. Negotiated back and forth for a day or two until it ended up we where only 1.3% away from eachothers price. The buyer in this situation decided there was no use going any higher as there were other unit's available in the neighborhood, and the chance of another offer coming in above ours, with their price as high as it was, wasn't too worried. In this case there was low risk of the property selling otherwise, and other options available.

Today we got a call from the listing agent saying the seller wants to know if the buyer is still interested.......

each situation will be unique however and there is no one size fits all with negotiation
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Old 01-20-2009, 01:50 PM
 
20,749 posts, read 32,523,550 times
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GT's perspective about another unit being available makes the situation he describes a useful point -- if other properties come on the market at or below the original listing price the seller's motivation really can change.

Things really get tricky with a "poor condition" property. On the one hand if this is a $500,000 dollar unit (which in the best areas of some cities is not out of the question for even a 2 bedroom unit...) you could EASILY spend $5,000 on a single bathroom. If the "hamster smell" means that you have to tear out carpets or other flooring you'll wish you had 2-3X to spend...

The other side of the coin is of course the details of the purchase -- if you have plenty of cash to put down 20% or more to be well outside PMI territory then the 1% ought not hold you back -- ESPECIALLY if this TRULY is "the best" part of whatever city you are shopping.
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Old 01-20-2009, 06:01 PM
SXN SXN started this thread
 
349 posts, read 553,070 times
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Quote:
Originally Posted by chet everett View Post
Things really get tricky with a "poor condition" property. On the one hand if this is a $500,000 dollar unit (which in the best areas of some cities is not out of the question for even a 2 bedroom unit...) you could EASILY spend $5,000 on a single bathroom. If the "hamster smell" means that you have to tear out carpets or other flooring you'll wish you had 2-3X to spend...

The other side of the coin is of course the details of the purchase -- if you have plenty of cash to put down 20% or more to be well outside PMI territory then the 1% ought not hold you back -- ESPECIALLY if this TRULY is "the best" part of whatever city you are shopping.
Thanks for the info Chet and GT. The list price is well below other comps, so I am going to definitely meet the 20% down payment and avoid PMI territory. But the assessments/condo fees are higher than all the other comps. So my monthly payments would be the same overall. The condo is empty save a bed frame, drapes and the carpet (which has several big stains). I think the smell is from the carpet. Since there is concrete underneath I already know I need to replace the flooring before I would move in. I was thinking I could pay extra couple thousand to meet the seller's price, but ask them to remove the carpet and at least air out and clean the place before delivery. But I'm thinking that would be insulting and the seller wouldn't go for it. The common areas are very clean and other units for sale in the building are very clean and are more modern. I think this seller is elderly, has just lived there a long time with tons of pets and doesn't notice the smell.
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Old 01-21-2009, 06:37 AM
 
Location: San Antonio
4,048 posts, read 6,043,465 times
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You're over-analyzing things and trying to get into too many "mind games" with the seller. Counter at where you want to be. If they accept it, great. If not, spend the extra $1000. Try to get it where you want it, but don't get hung up on it and walk over $1000. You'll regret that down the road.
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Old 01-21-2009, 11:09 AM
 
Location: Austin
4,160 posts, read 7,218,075 times
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You're bickering over 1%? If that's just even $2000, you're talking less than $10 a month. How many times do you buy a latte or Big Mac in a month? Cut one out and there's your 1%!

However, if you were buying a 2 bedroom home in my neck of the woods, you would be shooting yourself in the foot as a 2 bedroom never appreciates like a 3+ bedroom an you're limiting your buyer pool on resale.
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Old 01-21-2009, 11:48 AM
SXN SXN started this thread
 
349 posts, read 553,070 times
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Quote:
Originally Posted by FalconheadWest View Post
You're bickering over 1%? If that's just even $2000, you're talking less than $10 a month. How many times do you buy a latte or Big Mac in a month? Cut one out and there's your 1%!

However, if you were buying a 2 bedroom home in my neck of the woods, you would be shooting yourself in the foot as a 2 bedroom never appreciates like a 3+ bedroom an you're limiting your buyer pool on resale.
I should have made it clearer the 1% is not $1000. The 1% amount I am negotiating comes out to about $3,500-3,600. I'm thinking that's new flooring or new appliances right there - things that most other properties already have. I guess the other thing someone pointed out, was that I don't need to do all the rehab at one time. I could spread it out.

I started out looking at 2 bed one bath, but taking a closer look at my finances I realized I can afford a 2 bed 2 bath in a better part of the city. A 3 bed would be nice but that gets me well out of my price range unless I were to move to the suburbs. For condos in the city of chicago, I'm thinking 2 bed 2 bath is pretty good with regards to the buyer's pool. I know Chet is more familiar with Chicago, so he might have a good idea.
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Old 01-21-2009, 01:28 PM
 
Location: Downeast, Maine
467 posts, read 671,393 times
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Two things - 1. The location is perfect for you and there is no more inventory right now in that location. and 2. You haven't yet had an inspection. Go with the last counter, make it contingent
on your inspection. If no major headaches are found you've got your location. If, they are negotiate with the buyer for an allowance to take care of them. Both ways, you have your location and $3500 is not a whole lot of money to secure it.
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Old 01-21-2009, 02:03 PM
f_m
 
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What about asking for carpet credit or other credits if you can show they need to be replaced or repaired?
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Old 01-21-2009, 02:40 PM
 
Location: Mountain Ranch, CA The heart of Calaveras County
5,930 posts, read 10,480,395 times
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Quote:
Originally Posted by f_m View Post
What about asking for carpet credit or other credits if you can show they need to be replaced or repaired?
You will want to avoid anything in your offer that asks for credits or repairs in the current lending market as it raises red flags for the loan underwriters.

You could ask for credits etc in your original offer, but you'll need to change the way they are accounted for before you send you deal off to the lender.
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