Welcome! This blog tracks the real estate market in the Central Shenandoah Valley, featuring market data and analysis, an exploration of common buying and selling questions, and candid commentary on all things real estate.
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Negotiations
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Do Not Fear the LOW Offer On Your Home |
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 Sellers are usually quite shocked, dismayed or disheartened to receive a low offer on their house, for example, an offer of $225K on a $275K listing. But it is important to remember that even that low offer really is a compliment!  If you have not yet had an offer on your house (that is listed at $275K) and you receive an offer of $225K, that doesn't necessarily mean your house is only worth $225K, nor does it necessarily mean that you should accept $225K or something close to it. It does, however, mean something quite exciting --- somebody wants to buy your house!!! Of course, negotiations won't always work out with low offers -- but recognize a low offer for what it is -- a buyer who wants to buy your house, and perhaps the first buyer who has declared as much through a written offer! If there is any way to put a deal together with those buyers, you ought to pursue it, as it's hard to know when the next buyer will work up the courage to tell you that they want to buy your house! | |
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How do home inspection negotiations usually proceed? |
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 How do home inspection negotiations usually proceed? The short (and vague) answer is -- well, it depends on the terms of your contract. But, overall, here is how the inspection process typically flows....  As you can see above, after a buyer requests repairs (based on the home inspection) the seller can choose to make some, all or none of the requested repairs. The transaction (and negotiations) can then go in a few different directions based on that response. Learn more about the home buying process at....  | |
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Should you accept a home sale contingency? |
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 Based on the analysis above, it would seem that sellers are not (in almost all cases) accepting home sale contingencies. Here's the logic....
I must say, I was quite surprised to find this to be the case --- I thought perhaps 10% - 20% of contracts might have kickout clauses (and thus home sale contingencies) because plenty of buyers have to sell before buying. It would seem that most buyers are likely waiting to make offers until they have their own properties under contract (thus eliminating the need for the kickout clause) AND/OR most sellers are not accepting offers with home sale contingencies unless the buyers' houses are already under contract (thus eliminating the need for the kickout clause). If you are a buyer, I would certainly suggest the strategy outlined above (and the only one that is apparently working with sellers right now) --- get a contract on your house and THEN make an offer on the property you would like to purchase! | |
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When making a low offer, accentuate your other offer terms |
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 If you are making a low offer, you can increase the appeal of your offer by strengthening your other offering terms.... DEPOSITS Make the largest deposit you are comfortable with so the seller knows you have money "on the line" and that you won't risk losing that money by attempting to walk away from the deal. CLOSING COST ASSISTANCE Sellers don't just look at the contract price --- they calculate their net proceeds based on the offer price and any credits or closing cost assistance. Only ask for assistance if you truly need it. FINANCING Provide as much detail as possible about your financing intentions, and always include a pre-approval letter. Sellers who believe you are capable of financing the purchase will be less hesitant as they consider other terms of your offer. And yes -- offer cash, a large pile of it, if you are able. :) PERSONAL PROPERTY Don't automatically ask for everything the seller intends to convey --- if you don't need them all, leave them out of the offer. Allowing the seller to keep their washer/dryer (for example) may make them more flexible in other areas. INSPECTIONS Having a professional inspect the property you are purchasing is usually a good idea; however if you only intend to do it for informational purposes, consider leaving it out of the contract negotiations and conducting it post-settlement. SETTLEMENT & POSSESSION If possible, cater your settlement date and the details of transferring possession of the property to the needs or wants of the seller. This can go a long way towards gaining seller flexibility on other contract terms. Finally, research the seller's context for selling. That information can be invaluable in negotiating a successful contract. | |
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Sellers are only negotiating an average of 3 percent off of their list price these days |
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 Sellers, on average, are willing to take 3% off of their list price -- based on a historical analysis of how much sellers have negotiated in recent years. That being said.... 1) This ratio (homes sell for 97% of their list price) is a comparison of the sales price to the LAST list price. Sometimes it takes a price reduction or two until a list price is seen to be at a reasonable place by buyers to elicit an offer that then gets negotiated to that average of 97% of the final list price. 2) On a related note, a seller can't price their home wherever they'd like and then expect it will sell for 97% of that list price. A home with a market value of $300K will not sell for $388K if you list at $400K. 3) Buyers should not necessarily expect to be able to negotiate 10% off of a list price. Sometimes it happens -- a seller is extra motivated, a list price is way too high, etc. -- but it is not a common occurrence. 4) Sellers should not expect to sell for 100% of their list price. If you lower your list price from $315K to $300K, buyers will certainly take note of the recent price reduction, but they won't necessarily be ready to pay you 100% of your new list price -- unless you have lowered the list price to the point where it is right at, or just below market value. If you're getting ready to put your house on the market this Fall, let's start talking now about pricing strategies to best prepare you for what a buyer might offer you for your house in the current market. | |
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Maximize strength of other offer terms when making a low offer |
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 If you are making a low offer, you can increase the appeal of your offer by strengthening your other offering terms.... DEPOSITS Make the largest deposit you are comfortable with so the seller knows you have money "on the line" and that you won't risk losing that money by attempting to walk away from the deal. CLOSING COST ASSISTANCE Sellers don't just look at the contract price --- they calculate their net proceeds based on the offer price and any credits or closing cost assistance. Only ask for assistance if you truly need it. FINANCING Provide as much detail as possible about your financing intentions, and always include a pre-approval letter. Sellers who believe you are capable of financing the purchase will be less hesitant as they consider other terms of your offer. And yes -- offer cash, a large pile of it, if you are able. :) PERSONAL PROPERTY Don't automatically ask for everything the seller intends to convey --- if you don't need them all, leave them out of the offer. Allowing the seller to keep their washer/dryer (for example) may make them more flexible in other areas. INSPECTIONS Having a professional inspect the property you are purchasing is usually a good idea; however if you only intend to do it for informational purposes, consider leaving it out of the contract negotiations and conducting it post-settlement. SETTLEMENT & POSSESSION If possible, cater your settlement date and the details of transferring possession of the property to the needs or wants of the seller. This can go a long way towards gaining seller flexibility on other contract terms. Finally, research the seller's context for selling. That information can be invaluable in negotiating a successful contract. | |
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We are again starting the year with a six month supply of homes for sale, a sign of a balanced market |
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 For the second year in a row we are starting out in January with a six month supply of homes for sale, which is traditionally seen as a sign of a balanced housing market. A few years ago (2009-2011) we were consistently starting the year with enough homes on the market for every buyer that would buy in that year. That equates to 12 months of housing supply, and those were years of having a significantly oversupplied market -- which caused sales prices to decline and gave buyers the upper hand in negotiations. In 2015, we should expect that buyers and sellers will have relatively equal amounts of negotiating power, depending on the other factors affecting the sale. Important Notes: 1. The 2015 sales (1083) is an estimate of the number of sales we will see this year. Read more here. 2. The number of months of housing supply available varies by price range. See my full market report for further details. | |
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That low offer is really a compliment! |
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Sellers are usually quite disheartened to receive a low offer on their house, for example, an offer of $250K on a $300K listing. But it is important to remember that even that low offer really is a complement! If you have not yet had an offer on your house (that is listed at $300K) and you receive an offer of $250K, that doesn't necessarily mean your house is only worth $250K, nor does it necessarily mean that you should accept $250K or something close to it. It does, however, mean something quite exciting --- somebody wants to buy your house!!! Of course, negotiations won't always work out with low offers -- but recognize a low offer for what it is -- a buyer who wants to buy your house, and perhaps the first buyer who has declared as much through a written offer! If there is any way to put a deal together with those buyers, you ought to pursue it, as it's hard to know when the next buyer will work up the courage to tell you that they want to buy your house! | |
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Prevent gazumping by getting deals in writing quickly |
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 We're starting to see multiple offers on some properties, likely because inventory levels are so low. In some other countries, that dynamic can lead to gazumping, a practice where a seller accepts an oral offer from one buyer, and then before firming it up in writing, accepts a second, higher offer. Read all about gazumping on the Matrix Blog. This is most common in England and Wales, where apparently it takes 10 to 12 weeks to get from an oral agreement to a written agreement. Blimey! Thankfully, it doesn't (usually) take more than a few days to move from an oral agreement to a written agreement here in the U.S.A. | |
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The best deals (compared to list prices) are behind us. |
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 It seems that 2011 and 2012 were the years when sellers had to negotiate the most off of their list price -- giving up over 5%, on average. Now, that has shifted down to less than 4%, and I expect that average amount of negotiating will continue to decrease through 2014. | |
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Price negotiability, pace of home sales seem highly correlated |
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 First, a disclaimer, I am not a statistician --- though I did take a fantastic stats class in grad school with Kevin Apple. That said, it sure would seem to me that there is a direct correlation between the pace of home sales, and the negotiability of home prices. Take a look at the graph above and let me know (online or offline) if you agree. Actual statisticians --- feel free to chime in. :) | |
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Maximum Negotiability in Home Prices.....Has Passed Us By |
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 You can still get a great deal on a house these days --- but the amount you can expect (on average) to negotiate is a bit lower than it was over the past two years. We're back to 2010 negotiability levels, and that trend is likely to continue. Read more about what's going on in our local housing market at HarrisonburgHousingMarket.com. | |
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How negotiable are bank owned (REO) list prices? |
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 As you'll note, above, banks aren't that much more flexible on price than the average seller on the market. That said, their list prices are oftentimes more compelling than typical listings, which makes the "normal" amount of negotiating room less of a concern for most buyers. View upcoming Trustee Sales View current bank owned listings | |
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When to make a price adjustment? |
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As I mentioned last month, after we have your house on the market for a month or two, if we aren't having many showings (or we're not satisfied with the feedback from those showings) we may want to adjust our pricing strategy to work towards a successful sale. But then the question comes to WHEN to make the price adjustment. In some ways, as soon as you have decided you need or want to make a change in pricing strategy --- MAKE THE CHANGE! However, one of my clients brought up a great point this past week, which is that there aren't always buyers for every house in the market at all times. So....if the right buyer is in the market now, great, a price reduction will help them decide to make a move now versus later. But....if the right buyer is not in the market now, the lowering our price now doesn't do much other than leave us with less negotiating room later. There is no one "right" answer here -- as we can't conclusively know whether the buyer of your home is in the market right now, or whether they will be later. That said, develop a pricing strategy that works for your timing, your life situation, your motivation level to sell, and stick to it. | |
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Making a low offer? Beef up your other offering terms. |
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I know, I know, you want to make a low offer on the house. It seems like every buyer does these days -- and why not, as it is certainly still a buyer's market in Harrisonburg and Rockingham County. But when making that low offer, you can increase the appeal of your offer by strengthening your other offering terms.... DEPOSITS Make the largest deposit you are comfortable with so the seller knows you have money "on the line" and that you won't risk losing that money by attempting to walk away from the deal. CLOSING COST ASSISTANCE Sellers don't just look at the contract price --- they calculate their net proceeds based on the offer price and any credits or closing cost assistance. Only ask for assistance if you truly need it. FINANCING Provide as much detail as possible about your financing intentions, and always include a pre-approval letter. Sellers who believe you are capable of financing the purchase will be less hesitant as they consider other terms of your offer. PERSONAL PROPERTY Don't automatically ask for everything the seller intends to convey --- if you don't need them all, leave them out of the offer. Allowing the seller to keep their washer/dryer (for example) may make them more flexible in other areas. INSPECTIONS Having a professional inspect the property you are purchasing is usually a good idea; however if you only intend to do it for informational purposes, consider leaving it out of the contract negotiations and conducting it post-settlement. SETTLEMENT & POSSESSION If possible, cater your settlement date and the details of transferring possession of the property to the needs or wants of the seller. This can go a long way towards gaining seller flexibility on other contract terms. Finally, research the seller's context for selling. That information can be invaluable in negotiating a successful contract. | |
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In a market upswing, crying over missed past buying opportunities can lead to even more tears |
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 In the fictitious value trend graph above, the best opportunities were yesterday (or some time before now). As a housing market starts to improve, some buyers have a tendency to get stuck on the fact that they just missed out on the lowest prices seen during a market downturn. It is important for those tearful buyers to remember, however, that there will likely be more tears and larger tears tomorrow (or some amount of time into the future) when prices have recovered even further. For example....
A few notes and disclaimers....
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Is the window of maximum negotiating ability closing? |
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 Hidden in yesterday's monthly market report was this new graph that explores the amount that sellers negotiate off of their asking prices. As you can see, at the peak of the market (2005) sellers only negotiated 0.9% (on average) off of their asking price. That metric has since fallen all the way down to 94.7% in 2011 --- well below the assumed normal of 97.4% in 2000, before the real estate market started taking off like a rocket. The important thing to note, though, is that this metric is edging back upwards thus far in 2012 --- to an average of 95.4%. That means that sellers are finding themselves negotiating less on their asking price because of gradual overall market improvements. Sellers -- be encouraged that you won't be beat up as much on price as we move forward. Buyers -- if you want to negotiate heavily on price, consider buying now, not next year. | |
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Evaluating a low offer as a seller |
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Let's suppose you have a house listed for sale for $300K. But keep in mind that you just lowered it to $300K from it's previous price of $309K. How would you respond to an offer of $270K? You probably consider $270K to be way too low of an offer, after all you just reduced you price from $309K. These ridiculous buyers are offering you $39K less than your asking price last week. Certainly, you should be able to sell for around $295K, right? Well, maybe not. In the last 365 days, properties in Harrisonburg and Rockingham County sold for an average of 95% of their last list price. That means that if $300K is a fair asking price, you should probably expect to sell for around $285K -- if you hit that 95% average. Then, all of a sudden, maybe the $270K offer on a $300K list price isn't too low at all. If you met in the middle, after all, you'd be right at that 95% mark. So....let's make it really hurt....how would you respond to an offer of $250K?? The same logic above applies here -- if your house is an average performer, you'll end up selling for $285K. And the $250K again probably seems waaaaay too low. But what if your house still isn't listed at a fair price? If nobody comes to view it over the next month, it may still be overpriced. Then, perhaps you'll find yourself lowering the list price to $290K. And then, of course, you might sell for that 95% average and end up at $275,500. So.....if you're listed at $300K and you might (a month+ from now) end up at $275K....perhaps you shouldn't turn up your nose at that $250K offer. See how high they are willing to go. . If you can get them up to $275K, you might want to consider taking it (bird in hand! bird in hand!) -- and if their super low offer of $250K was just to try to get you down to $280K or $285K, all the better! As a seller, don't be discouraged about what you view as a low offer -- after all, it's an indication that somebody really wants to buy your house. Don't let those buyers slip away --- negotiate creatively and try to get to a reasonable and mutually acceptable price. | |
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True Story: Bidding wars after lengthy time on market |
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Timing is everything when it comes to real estate. For example, 2006 was not the best time to buy, and 2011 was not the best time to sell. But moving beyond those obvious realities, it is wild to see how the timing of offers can affect listings that have been on the market for "quite some time" -- sometimes defined as 6+ months, sometimes 12+ months, and sometimes even 18+ months. I have had two situations thus far this year when listings had been on the market for "quite some time" with no offers at all, and all of a sudden, two offers were received within the same week. It is quite a strange situation....
Now, let's be clear here -- multiple offer situations used to involve ultimate sales prices at or above the list price -- and that is rarely happening these days in multiple offer scenarios. However, sellers in such circumstances are certainly selling for a bit more than they would have if both offers had not happened to come in simultaneously. | |
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How does this home inspection process work, anyhow? |
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Here's a reminder of how the typical home inspection process works in Virginia....  And a brief reminder of a few of the timing issues.....
To map this all out, here's how long a home inspection contingency could really take....
Yes, that innocuous 14 day inspection contingency can really turn into a month! | |
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Scott Rogers
Funkhouser Real
Estate Group
540-578-0102
scott@funkhousergroup.com
Licensed in the
Commonwealth of Virginia
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