As we know from my last two columns, there are five prices that a seller should consider when setting the listing price, and five prices that a buyer should consider when making an offer.
In order to get to a listing price, the seller and her agent had to roll up their sleeves and evaluate the pros and cons of the property, factor in market sentiments, benchmark the property against X-Value, and drill down into the comparables and Home Report™.
On the buyer side, the agent and her client had to conduct a similar analysis. In order to arrive at the offer price, they had to do their own comparable market analysis and try to figure out why the seller had listed the home above (or below) the X-Value.
For more details on the two pricing exercises, I encourage you to go to SRX.com.sg/ask-home-prof and check out "Five Prices to Consider When Buying a Home" and "Five Prices to Consider When Pricing a Home to Sell".
Now that we have a listing price and the offer price, it is time to do a deal. All that remains is to find the right price.
What is the right price?
It is not necessarily splitting the difference between the listing and offer prices. It doesn’t have to be the listing price. It may be the offer price, but not necessarily. It might come in at the X-Value but it could also be above or below the X-Value. The right price might be above the value of the home as determined by a valuer or a banker. It might be below.
The only thing that we know for certain about the right price is that it is the price at which the home will change hands between a willing buyer and a willing seller. In real estate, we arrive at the right price through a civil negotiation. We don’t haggle like we do when we are trying to buy a rug at the flea market. The respectful seller doesn’t list the price at some obscene price just so he can cut it in half. A serious buyer doesn’t make an offer at 50% of listing price unless his agent has already discussed the rationale behind the offer with the seller agent.
A real estate negotiation is an orderly process. Both sides do their homework to come up with the listing price (seller) and the acceptable price (buyer). Then, if there is a difference between the two prices, the agents work together to see if they can find a meeting of the minds. All of this is done before the offer is made. (Don’t make an offer unless you are reasonably certain it has a chance to succeed.)
Whether the right price is closer to the listing price or the acceptable price depends on the facts of the case and the negotiators. Assuming both agents are good negotiators, then the facts will prevail. If the negotiators vary in skill, then the stronger one will prevail, even if the facts are against him or her.
In negotiating a real estate deal, there are five steps to follow:
1. Hire an agent who can negotiate. No matter how smart you are, you need a representative to work the back channels so that you don’t leave money on the table or get taken;
2. Price the home from your perspective;
3. Price the home from the other side’s perspective;
4. Have your agent work with the other agent to try to close the gap between the listing price and the acceptable price;
5. Review your agent’s findings and consider your options.
Repeat the five steps as many times as necessary until you conclude that both sides can arrive at the right price. Try to keep emotion out of the process and stick to the facts. If an agreement can’t be reached, walk away.