It’s easy to spend other people’s money-“OPM”. Real estate folks get hired to do that. How diligent is your representative? Is your broker giving away your cash in order to make a quick deal at considerable personal expense?
Are you a seller looking for the highest return on your investment? Are you a buyer seeking the very best price on your favorite home choice? What’s the difference between a low ball offer and a legitimate opening one?
A good way to determine what to accept or what to offer revolves around the ratio of the listing price to accepted offer price for comparable properties. If the listing price, for example is $300,000, and a comparable home actually sold for $280,000, agreed upon price was 93% of list.
If due diligence and research confirms comparables fall within a certain range, you’d be wise to adjust your offer to achieve a reasonable compromise based on that number. Here is one possible scenario based on this model:
List Price – Seller Side: $300,000 1st Offer-Buyer Side: $259,000 14% below list
Seller’s 1st Counter Offer: $293,334 Next Counter – Buyer Side: $265,666
Seller’s 2nd Counter Offer: $286,668 Next Counter – Buyer Side: $272,332
Seller’s 3rd Counter Offer: $280,000 Buyer accepts at $280,000
This is a classic split the difference model which many in the industry believe achieves the best compromise for sellers and buyers looking to make a fair and equitable deal. This example also assumes the market is neutral and does not favor either buyer or seller.
And market factors drive pricing. Although the classic example above explains a model, it doesn’t consider a number of factors relating to real estate conditions. Supply and demand orchestrate pricing. It’s important to know and understand local market dynamics before entering into negotiation.