25 Feb Why You Always Counter
I sent my client a link to the house of her dreams. “Oh my gosh!” she texted within seconds. “I’ve been following it on Zillow for months! I never mentioned it because it’s not in my budget. BUT I LOVE THIS HOUSE!”
I wasn’t ignoring her budget when I sent that link. I noticed it checked all the boxes on her wish list, so I decided to investigate further…
List Price: $3M
List Price per Square Foot: $785
Year Built: 1980
Lot Size: .95 acres
Days on Market: 345
In the last year, only two homes sold in that golf community. Both were significantly larger lots with wide water views, docks, and superior residences. The more similar property sold within the last six months for about $500 per square foot.
Even if we gave the seller the benefit of the doubt and considered the most recently sold property equal, we calculated an approximate value of $1.9M. And that was well below my client’s budget. So, we decided to schedule a showing to understand the pricing.
We were surprised to note that the seller, who purchased the property a few years ago for $1.7M (about $444/SF), had not done major work to the home as the list agent represented. The kitchens, bathrooms, flooring, moldings, and roof were original. The landscaping was minimal and the pool needed improvements. The “waterfrontage” was an overgrown thatch of mangroves with peekaboo views of a narrow swampy canal, blocked by a low stone bridge.
It’s true: the house was a charming classic with potential, arguably a “tear down” and not even worth the $500/SF like the neighbor. But my client loved it and was willing to restore it to its former glory. That being said, she saw the math and illogical pricing. The time on the market was further proof that other buyers weren’t seeing the value.
“Let’s make an offer,” she said. “Where should we start?”
Where does one start when a seller is so unrealistic that his property is listed about a million dollars too high? Was he just resistant to selling his memories? Had his agent misled him so she would be awarded the listing? Was he wearing blinders to shield himself from the reality around him?
After careful preparations, I submitted my client’s offer. It was an excellent offer – far more than what we calculated the property to be worth, far more than what the comps supported. It was an offer that would have made me giddy with delight had I been either the list agent or the seller.
Because the list price was so skewed, we knew it might still be shocking to an uneducated seller. It was a starting point for all though, and my client was willing to pay a premium to market even beyond her initial offer. She was so excited when I confirmed the list agent had received my email. Soon thereafter, the list agent called me to say, “They are not even countering.”
Think about that… “Not even countering.” Not willing to take a chance to see where negotiations ultimately lead us. My client wasn’t even trying to get a good deal. She accepted that she’d be grossly overpaying. And even though my client offered a steep premium to market, with so many other options available to her, she confided that she would be ok if we ended up significantly higher.
Sellers, here is my best advice I can offer.
No matter what an offer says to your feelings, your intuition your pride, or your agent’s ego, ALWAYS counter it. Never close a door on opportunity. Without a mystical crystal ball, you never know where negotiations will end. I can tell you with the highest degree of confidence, a meaningful counter offer would have resulted in a deal where my client paid far above market value.
Welcome offers, all offers, even if you don’t respect them. And if you’re receiving more than one “low ball” offer, try to determine the real reason! Is your marketing attracting investors instead of end users? Are the buyers trying to steal a property that surpasses their maximum budget? Are the buyers or their agents unfamiliar with unique attributes of the home or the market conditions?
Are you putting a high value on features that hold less value to others? Are the buyers just testing the waters to determine your motivation? Have you deliberately overpriced you home? Or are they offering you a fair price (or an above-market price) but your expectations aren’t realistic?
No matter the offer amount, an experienced and wise agent will guide you to proceed as follows:
Evaluate each offer thoughtfully. What can be done to keep the negotiations moving forward in a win-win scenario?
Review all the terms of the purchase offer. Price is only one component, so take the time to weigh all terms such as closing date, contingencies, earnest money deposits, financing requirements, down payment, and additional terms before responding.
Consider your cost to carry.
Run a current market analysis and examine recent sales to confirm or revise your understanding of your home’s value.
Find out why a low offer was presented. Ask pointed questions! It’s possible the buyer discounted her number because of something that you could easily remedy or because she misunderstood the asset?
Put yourself in the buyer’s shoes.
Determine whether your resistance to an offer is based on fact or emotion. Communicate that you are still interested in selling with an improved offer to keep the buyer’s momentum alive. Counter with something … anything! Even if you counter is a mirror image of your original terms and list price. Someone took the time and spent the energy to work toward a goal. A written counter shows your good faith and willingness to negotiate. At the very least, tactfully invite the buyer in writing to submit a new offer. You have nothing to lose by communicating diplomatically that you are not desperate and the property is priced correctly.
The moment your agent communicates that you’re “not even countering,” you create an atmosphere of disappointment and/or humiliation that some buyers will not overcome. Leave all doors open and realize that all buyer interest is beneficial. Be certain that you’re working with a seasoned agent who knows how to handle a full spectrum of offers with finnes.
An agent who ignores market conditions is an agent who wastes everyone’s time, including yours. An agent who doesn’t know how to negotiate on your behalf is just as dangerous. Competent, savvy representation is key.
In some cases, you can use an unacceptable offer as leverage to encourage a strong offer from other buyers. Stay focused on your goal, and remember an offer is often just a starting point. Some transactions will require many rounds of negotiations to create the success you and your property deserve. What matters is not where you start, but where you arrive! Onward and upward may you go…