Negotiations

Negotiations may be the least favorite part of most Ann Arbor home buyers. In general, we seem to shy away from confrontation, and often times, negotiations can feel like a prolonged confrontation of ideas or wills.

Think of your home purchase negotiations as a conversation with the seller about the specific terms to purchase their home. The seller began the conversation by placing their home on the market, at a certain price. Your offer is a response to the home, and the price that’s been chosen. If you approach the negotiations as a conversation, not a confrontation, talking about the specifics of the purchase becomes a little less harrowing. Assuming the seller actually wants to sell, and that you are approved and capable of purchasing the home up to the list price, the conversation typically revolves around the purchase price of the home.

There are times that the closing timeline needs to be discussed. Perhaps the sellers haven’t found a place to purchase yet, or they need extra time to pack up. Additionally, there are smaller items on the contract, like a home warranty, that sellers may not want to pay for and may counter your offer by removing that from the conversation.

Negotiations to purchase a home really are pretty similar to chatting with a friend about where you would like to go out to eat. Perhaps your friend is interested in having a great night out on the town, and wants to have a wonderful dinner at The Earle. The music, the food, the ambiance, all of it combined is how they would like to spend time with you. You, however, may not want the added expense of grabbing a meal at The Earle, as wonderful as that experience may be. Your budget is more inline with a bite at the Fleetwood Diner. Still a fine place to spend time with your friend, but not as big an impact on your pocketbook. Imagine the conversation with your friend on where to grab a meal and spend quality time together, and you’re beginning to get an idea of how negotiations on a home can be seen.

Multiple Bids

So, in a neutral or buyer’s market, the scenario above about seeing negotiations as similar to figuring out where to have a great meal and time with a friend, goes out the window.

Multiple offers on a home means that there are multiple buyers interested, at the same time, in purchasing that home. How does one negotiate in that scenario? Well, truth is, as a buyer, you really don’t. The seller holds nearly all, if not all, of the cards in this situation. The seller is in the enviable position of being able to dictate most of the terms of the purchase contract they end up choosing.

As a purchaser, this is why it is important to have your best offer ready to go, as soon as you zero in on a property. The chances of other buyers being interested in the same property as you, at the same time, are greatly increased in low inventory marketplaces. It is also not uncommon to have buyers appear at the same time as you, even when the property has been on the market for well over the average days on market for properties. A minor, but often helpful point here is being the first to the table with an offer. More than a few times, a strong offer, first on the seller’s table, leaves a strong impression on the mind of the seller.

In this scenario, a couple assumptions will be made:

• the house is your dream house and you really want it
• you have the ability to pay the final sales price

If you have the ability to use cash to pay for the house, you are in a better position than most of your competition, most likely. Cash purchases made up 33% of the 2015 closed transactions in Ann Arbor. Cash purchases have the luxury of not requiring the extra flaming hoops that financing a purchase brings to the transition. Financed purchases have the added burden of an appraisal and underwriting for buyers to clear, before getting to the closing table.

From the seller’s point of view, if two offers of the same sales price come to the table, one is a financed purchase and the other is a cash purchase, then the seller will choose the cash purchase 9.999 times out of 10. Simply put, there are fewer hurdles in getting to the closing table. Additionally, because those hurdles do not exist on a cash purchase, the transaction can be closed very quickly, in some cases a matter of days after the agreement is reached.

Back to a financed purchase. How do you make your offer stand out in a multiple bid scenario? Well, remember, sellers are concerned with three things in their selling process: price, time, and convenience. Each of these three items are at play, all the time, with each seller. Often, to varying degrees, but typically, these three are all in play in some way. With that in mind, you can guess that offering more than list price, closing as soon as possible, and not inconveniencing the seller will be the winning formula.

You would be correct.

Offering over list price means that you will either use the appraisal, should it come in lower than the sales price, to bring the price back in line, the seller may require you to make up the difference in cash, or some amalgam of the two. To make your financed offer very attractive, you could offer that the appraisal is not a condition of your purchase. The lender will still do the appraisal, but you are simply indicating to the seller that the appraisal will be your issue to resolve.

Informing the seller that your inspection will be for informational purposes only, is a way to indicate to the seller that any issues with the home that your inspector does find, will be your problem to solve. Clearly, this is a high-risk option. Not making your purchase contingent on the inspection means that you inherit any issues the home may have. I do not recommend this option to many purchasers, but it is an option and it catches the sellers’ attention.

Being flexible on the closing date also assists the seller in seeing your offer as a superior offer. In combination with a great sales price, and perhaps getting rid of the inspection contingency, being flexible on the closing date allows the seller to breath easier about when they need to pack up and vacate the property. Of course, if the home is vacant, this is nearly a moot point.