In this buyer’s real estate market I have noticed three common negotiating psychologies.
Let’s start with an asking price of $200,000 for an average suburban home. Of course, there are many mitigating factors. How long has it been for sale? What’s the condition? Has there been a price reduction already? What else is available in the area? And so on.
Negotiating psychology #1. The buyer really, really wants this house. Buyer feels that it is worth the asking price. Buyer is willing to pay asking price. But it’s only “good business” to offer less and see what kind of price reduction might be possible—without pissing off the seller. Remember, the buyer wants this house. Here’s a typical offer and counter offer sequence:
Buyer offers $180,000.
Seller counters $195,000
Buyer re-counters $185,000
Seller re-counters $190,000
Buyer accepts $190,000
Buyer is happy, seller is happy. Remember, this is a buyer’s market and the seller will usually give some discount.
Negotiating psychology #2. This is the meet-in-the-middle psychology. The buyer wants the house, but will not be broken-hearted if the negotiation fails. Buyer feels that the house is over-priced or, perhaps, it’s just more than the buyer can afford. Buyer, coached by an adroit realtor (yep, that was a commercial), understands that the seller has “padded” the asking price to eventually arrive at the price that the seller really wants. Buyer picks a point square in the middle between asking price and buyer’s offer price. Essentially, buyer is saying, I’ll come up the same amount that you come down. Fair is fair. Even-steven. Typical sequence:
Buyer offers $140,000
Stop. Remember, this is a buyer’s market and buyer’s can get away with his kind of “low-ball” offer. What is buyer after? The point half-way between asking price and offer price, that is, $170,000.
Seller counters $190,000
Buyer re-counters $150,000
OK, the game’s afoot. Both sides know the rules. Equal reductions and raises will arrive at $170,000. It’s in the seller’s court. If $170,000 is acceptable as a final price, seller will signal such with a re-counter of $180,000. If $170,000 is too low for seller, seller will do one of two things (a) re-counter at his previous number of $190,000; this is a sign-off; take it or leave it (b) re-counter at $185,000. We can still talk, but, Bubba, it ain’t gonna get to the middle.
Seller re-counters at $180,000
Buyer re-counters at $160,000
At this point, if not before, the realtors will probably confer off the record, asking each other if $170,000 will work. Yes? It will? OK.
Seller re-counters at $170,000
Buyer accepts at $170,000
Not bad. Both parties feel pretty good about the final price. Have you seen the flaw in this scenario? Hmmmm? Fifty imperial blog points if you can tell me what's arbitrary about this sequence of offer and counter offers.
Negotiating psychology #3. Buyer likes the house, but only at a bargain price. Buyer thinks the asking price is way too high.
Buyer offers $125,000
Seller is royally pissed, and probably worried. Seller wants to tell buyer to “get stuffed,” but seller’s adroit realtor calms seller down. “Let’s see what buyer is up to.”
Seller counters $185,000.
Buyer re-counters at $135,000
Seller re-counters at $180,000
Buyer re-counters at $135,000 (!)
Buyer’s cards are on the table. Seller now knows buyer’s final offer is probably $135,000. There will be no meeting in the middle. Negotiations are over unless the seller is desperate. It was a long shot anyway. Sigh. But let’s pretend that seller is desperate and makes a final effort to keep the buyer on the hook.
Seller re-counters $150,000 (seller has capitulated)
Buyer re-counters $140,000 (sends brother out for champagne)
Seller re-counters $145,000 (have mercy on me)
Buyer re-counters $140,000 ($140,000 is $5000 above my “final” offer. That is mercy.)
Seller accepts $140,000
Buyer is happy. Seller . . . well, seller might be bloodied . . . or secretly gleeful to dump the property at any price. Who knows?
Sure, these three scenarios are over-simplified, and lots of stuff can and will happen.
Emotions on either side can explode and the whole thing can shatter into little pieces.
Prices are often . . . weird. We get a counter at $171,836.89. WTF does that mean?
Both sides can agree on a price and the damned appraisal comes in $40,000 below the agreed price.
One side can have an adroit realtor, and the other side can have a weak realtor, giving one side an advantage over the other.
Some people are better poker players than their opponents.
In an upcoming post, I’ll discuss tactics for arriving at offer prices on bank-owned properties. Till then . . . Think Bob.