In a Buyer's Market the First Offer is the Best Offer

By: Robert Thomson


The most counter-intuitive part of buying in a buyer's market is to make the first offer the best offer. Ordinarily sellers, or more accurately the seller's realtor, try to create a sense of urgency to buy the house. They want the buyer to think other people are looking, there is going to be a bidding war, and the buyer needs to get an offer in today. Realtors thrive by creating fear in buyers. They will use lines like:

* It is a good time to buy!
* Hurry. This one won't last.
* Don't throw away your money on rent.
* If you are serious, you had better buy now or you might be priced out of the market.
* They are not making land anymore.
* If you see a property you love, you really need to make an offer.
* Things have been a bit slower than last year, but the last two weeks we have seen a lot more traffic.
* Rates are at all time lows and buyers have more choice than ever!
* Rates are creeping up, so you better get in now.
* If you wait until the bottom, you will miss out on getting a property that you really like.
* This property is priced at below market value.
* Incentives this good won't be available after...
* I will show my client the offer, but I just want to let you know that we have another offer for more coming in this afternoon.

In a buyer's market these ploys are all lies (the truthfulness of these statements is questionable in all market conditions). Generally, the buyer is the only prospective buyer, and they can take as long as they want to buy the house. The buyer's task in negotiating is to create a sense of urgency and panic in the seller. This is why buyers should make their first offer their best offer.

There are many properties priced over market in a buyer's market. Sellers resist the realities of the market environment. Asking prices that are much too high do not warrant buyer consideration. Most sellers will not reduce their asking prices more than 15% to consummate a transaction, so "lowballing" a seller with an offer 25% from their asking price is a waste of everyone's time. If the asking price is not within 15% of the price a buyer is willing to pay, the buyer should not even instigate a negotiation. If the asking price is within range, buyers should start with a bid at least 10% below asking price. This is the best offer. The buyer should lower the opening bid as follows:

* If actively bidding on the property, the buyer should make all offers expire in 3 days, and these offers should be delivered on a Tuesday. The buyer should not allow the seller to think about things over the weekend. If the buyer is still interested in the property after the offer expires, resubmit a fractionally-lower offer (1% is a good rule) on the following Tuesday (make them sweat over the weekend). The new offer should not be so much lower as to lose consideration, but make it should be enough lower that the seller gets the message that they need to come to accept the offer before it gets any lower.

* If the seller makes a counter offer, the buyer should retract the offer and resubmit a lower one. This works the same as the time decay offer above. After the buyer has lowered an offer a few times, the seller may panic and take the offer before it goes any lower. This is what buyers are after.

* Buyers should lower their offers 1% each time they speak with the seller's realtor. Every time the seller's realtor communicates with the buyer, the realtor will pressure the buyer to increase their offer. If the buyer lowers their bid each time the realtor speaks, the buyer sends a message that the realtor pressure is not working, and it is, in fact, hurting the deal. Buyers should lower their offer 2% if the realtor uses one of the standard lies mentioned above.

* If the realtor tells the buyer there is another bidder on the property, the buyer should immediately withdraw their offer and tell the realtor to call if the deal falls out of escrow with the other buyer. Since this statement from the realtor is almost certainly a lie, it will cause them to have to explain to their client why the only buyer around has pulled their offer.

When the seller starts to counter-offer, it is very tempting for buyers to agree to their price to close the deal, particularly if the counter offer is below the original offer. Buyers should not do it. In a buyer's market, the seller will come to meet the buyer's terms. Buyers have the power. However, if the seller is now asking below the original offer, and if the buyer really, really wants the house, the buyer may raise the offer one time.

Not everyone has what it takes to implement all of these price-shaving techniques. However, the more of these that buyers put into practice, the lower the price they will pay for the home they want. A buyer will never see the seller or the seller's realtor ever again. It does not matter if they are offended. In the end, they will be relieved the buyer took the house even if that buyer made their lives hell in the process.

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Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall? Learn more and get FREE eBooks at: www.thegreathousingbubble.com/ Read the author's daily dispatches at The Irvine Housing Blog: www.irvinehousingblog.com/ Visit In a Buyer's Market the First Offer is the Best Offer.

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