Monday, January 14, 2008

Is ten-percent off a reasonable starting-out offer on a property?


Wouldn't it be great if the answer was that easy?

In the past week, there have been a number of questions on the discussion boards along these lines. Another one was worded this way: "Is an offer of $420,000 on a property listed for $460,000 reasonable?"

Of course, it's difficult to say what a reasonable offer on a piece of property would be if I didn't know the property myself. This question is one of the more difficult ones to pin down in and internet-discussion-board type of environment.

Probably the most important place to start in any negotiations on a piece of property will be with a professionally prepared CMA (Comparative Market Analysis.) Properly armed with your CMA you will know whether or not the property you are interested in is priced appropriately for the market, priced too high or even priced too low.

In my neighborhood, there is one house listed for $2.6-million that I think is only worth $1.6-million. How outrageous would it be to bid "One... Million... Dollars..." (Mwaaa Haaa Haaa) lower than the asking price on a house? I would.

On the other hand, there are a few developers out there that are completely in tune with the realitites of the current market conditions and have their properties priced aggressively for the neighborhood. These developers are writing contracts rather than complaining about how few buyers there are.

It's like they're negotiating up front. "Hey - we're already 10% off! Come check out our inventory!" In this situation, you might not be able to negotiate as much. Especially if the developer is down to his last unit. You wouldn't want to miss out on a great price on a property because you couldn't get just a little more off the price.

If a property is priced just right, usually there is a little bit of negotiating room in order to preserve the tradition of making an offer and haggling a bit. Probably not 10%. Maybe not even 5%. But at least a few hundred dollars to several thousand dollars can be negotiated if presented well.

Prepare a good reason. Great negotiators will have a logical reason why they are asking for a few more dollars. Even if you don't. Do your research. Perhaps the property you are bidding on is the exact same price as the same model that sold just a few weeks ago. But perhaps that unit had newer carpeting. Or some desirable built-in cabinetry. Or a fireplace. Pointing out a feature that is important to you that is missing is a great negotiating strategy.

Another good strategy is to ask for credits. Perhaps you've saved up just enough money to cover the down-payment on your new property, but the closing costs (perhaps including Chicago's notorious buyer transfer tax) are higher than you expected. Ask the seller to cover some of these expenses. Having a logical reason to ask, and presenting your case as politely as possible goes a long way. Way better than hammering away at that last thousand dollars. Just Because.