*This is the first installment of a six-part blog series regarding negotiating real estate… I mean, anything! You can find the intro to this series here.
Before any negotiation, it is crucial to know how much you are willing to spend, or accept, in order to broker a successful deal. Determining this “walk-away” number has all to do with how much YOU value the commodity being negotiated. It will create an important leverage point when you enter into a negotiation.
So many times people get fixated on the price tag that the seller puts on the item they are selling. In real estate, this would be the “List Price”. The list price reveals how much the seller values their property. It simply begins the selling process.
For a buyer, the list price should NOT be viewed as a starting point in a negotiation. It is a glimpse inside the mind of the seller. The best part, it is offered voluntarily. If you think about it, in your typical real estate transaction, the seller shows their cards first, and by doing so, begins most negotiations at a systematic disadvantage. It is not the same as knocking on someones front door and asking them how much they want for their house. The seller has already told you via the list price that they want, or need, to sell. Advantage buyer.
It is very easy to end up “buying high” or “selling low” in real estate. Determining your walk-away number empowers you to see things more clearly and lessens the likelihood of making a bad deal. It allows you not to care about what others think, only what you think! Powerful.
With the exception of a pressing need to sell your home, a unique need to buy a specific home, or considering homes beyond your means, the walk-away number has little to do with your budget. A smart buyer will calculate a specific walk-away number for each property being considered. It is asking yourself “What is the property worth specifically to me?”
For example, a few years ago Meghan and I submitted an offer on a house with a walk-away number in mind and it was crucial in the negotiation. We knew we were pre-approved above the asking price, but that didn’t matter to us because we weren’t trying to buy at the top of our budget. This was a home that met most our needs. The only questions was, how much do WE value the home and how do we calculate that value?
What we knew:
- The home would need small-scale renovations over time to suit our long-term needs
- The home had been on the market for over 60 days
After having our realtor do a comprehensive market analysis (CMA), we thought:
- The home was slightly over-priced in the market
- There should be some room for negotiating given days on market
- We could probably find a similar home if we were patient
Since the CMA revealed the house was over-priced by about $20,000 we decided to make our walk-away number $20,000 under list price. This allowed us to feel confident that we weren’t spending over market value.
We then determined an offer amount based on our walk-away number, NOT the listing price. Additionally, since the home was on market for 60+ days and we felt we could likely find a similar home at a similar price, we weren’t too worried about the seller being offended by a lower initial offer.
The negotiation had your typical pendulum-type counter offerings until we came to a standstill $10,000 from our walk-away number. Since we had that number in our back pocket and we were willing to stick to that number, the seller sensed that we could potentially walk. On the flip side, we sensed that the seller wasn’t willing to let us walk. The offer was accepted at our walk-away number.
Ironically, the deal fell through at inspection…
Nonetheless, we “walked away” confident we made a good deal with no regrets! All because we were prepared, did our homework and chose to stick to our guns.
On-deck… Adding or subtracting from your pitch.