The road to a real estate deal is paved with emotion

If there is one piece of advice I can offer to home buyers today, it’s that emotions seem to rule the day for home sellers in today’s market. If you can recognize that there is a human being on the other end of the transaction who may driven by emotion or irrationalities, you will be able to craft an offer and approach the results in a successful sale at a fair price.

I should start by saying that there are three main types of home sales on the market today. One is a fair market sale from a private-party seller. You may also encounter distressed properties that are bank-owned or short sales. Negotiating on a bank-owned home or a short sale are different animals that deserve their own unique approach.

As a home buyer, you may feel emboldened in today’s slower housing market. Negative reports in the news lead you to believe that there are deals to be had for aggressive negotiators. Friends and family may offer up a variety of semi-educated advice about how to take advantage of the situation. Our experience with hundreds of offers over the past few years has shown that overly aggressive up-front offers may reach a dead end, or backfire on you in later inspection negotiations.

When we represent buyers, our job is to get the property at the best possible price. That obligation is balanced by a competing factor, which is that we also must help you to actually get the property under contract. Having seen hundreds of deals over the past few years, I can say with quite a degree of certainty that extreme low-ball offers are not the path to success with private-party home sellers. A very low offer from a buyer with a large range of negotiability is almost certainly going to get a worse result than a more carefully thought out offer that involves less negotiation. Here are some of the emotional factors that may drive how a home seller negotiates with you.

  1. Attachment to the home – Never underestimate a seller’s personal attachment to their home. If they’ve lived in it for years, brought up children there or celebrated other major life events in the home, parting with the home can be difficult. Many sellers have a conscious or subconscious desire to see the home passed to someone that they feel good about. They may make this judgment based on the offer terms you are presenting.
  2. I’m offended – I’ve seen some of the most rational, data-driven creatures come totally unglued when presented with what they feel is an unfair offer. Sometimes they legitimately get their feelings hurt, as they perceive their home value differently than you do. Many times they just don’t think you’re a serious buyer. (Clearly you are, if you spent the time to write up an offer.)
  3. My home is better than the neighbors’ – This is a tough one, particularly in fairly homogenous neighborhoods. Sellers may perceive their yard, lot location, or the finishes of their home as wildly superior to their neighbors. All you can do if offer up your own opinion and analysis of competing properties, but some gaps simply can’t be bridged. A private backyard may be worth $20k to one buyer and nothing to the next.
  4. I just spent $50k on upgrades, so my house is worth $50k more – Recent upgrades were likely costly, and their memory is fresh in the seller’s mind. New countertops or updated bathrooms do legitimately add value to a home, but not on a dollar-for-dollar basis. Other upgrades like a new roof or siding may simply be maintenance items that add no measurable value to the home. They simply make the property sellable. Try to step back from debating the value of individual upgrades and focus on the overall price of the home and how it relates to similar sales in the area.
  5. I just lowered my price – There is a totally predictable psychology at work when a property is first listed and each time the seller makes a price drop. Negotiability in the first few days or couple of weeks is definitely limited. Low offers have a greater chance of success with properties that have been at a particular price point for long periods of time.
  6. Get to the point – Most sellers do not relish negotiation. It makes them nervous and uncomfortable. Craft an offer that will get you to your desired result in 2-3 steps at most. Any more than that, and I can almost guarantee that a seller will begin to feel that they are being taken advantage of or that they are being nickeled and dimed.
  7. Don’t forget about the inspection – Unless you are buying a brand-new home, you are going to be worried about repair and maintenance items that show up during your home inspection. Buyers want perfection, and long-time home owners recognize that every older home has issues and ongoing maintenance items. If you beat a seller down too hard on price during the initial negotiation, there is not going to be anything left to give if your inspection turns up issues that you want fixed. We find that inspection negotiations can often be more contentious than initial price negotiations.

You should always try your best to negotiate a great deal on a house, but if you can put yourself in the seller’s shoes for a moment and acknowledge some of the emotional factors driving their decisions, you will craft offers that have a better chance of success. Nothing here says that you should overpay on a house, and if all of the data tells you are overpaying, sometimes letting more time pass is the only solution that is going to get the seller in a frame of mind where your offer can be successful.