One of the hardest parts of negotiating is gauging the other side’s bottom line in terms of price. You obviously want to get the best deal possible…but so do they. And with both sides not willing to give away any information, how does one decipher what the other party is trying to tell them?
If your perception skills are sharp and you do your homework, you can often determine certain information that will help your strategy. However, no matter how good you are there’s always some guesswork involved. That being said, educated guesses are always preferred to uneducated ones.
For the purposes of these blogs we’ll take the role of the buyer. For argument’s sake, let’s assume you’re putting in an offer on a home for $1,000,000. Offer night has passed, so you’ve decided to take a shot and start low with an offer for $925,000. We’ll assume all the aspects of the offer, with the exception of price, are agreeable to the sellers.
There’s basically six ways the sellers can respond to your offer. These are:
- Outright Rejection with no counter-offer
- Counter-offer for full list price
- Minimal price reduction counter-offer
- Reasonable price reduction counter-offer
- Hefty price reduction counter-offer
- Acceptance with no changes
The last one (Acceptance) is self-explanatory and could be considered hitting the real estate lottery.
Now let’s try and decipher what the first two responses from the sellers (no counter-offer and full-price counter-offer) could mean, and how they will likely affect the final sale price.
Before we start though, I must emphasize an important disclaimer. These explanations are in no way absolute and there’s no exact science or general playbook. Truly getting in the mind of someone else is impossible, unless you’re one of those blonde kids from ‘The Village of the Damned’. This is simply an aid to consider when you’re trying to decide your next move.
1. Outright Rejection with No Counter-Offer
This is a scenario that happens from time to time and one that buyers usually have trouble digesting. Buyers tend to believe that sellers will always come back with a counter-offer. This is simply not true, so consider yourself warned.
There are a few different reasons why sellers may choose not to sign-back your offer, but thankfully there are some tell-tale signs.
The first reason is that the sellers were flat out insulted. There’s no reason for them to be insulted per se, but there’s no telling that to the clearly emotional sellers. Even if you do come back with a stronger offer, there’s a chance these types of sellers will tell you to go fly a kite. It may be foolish, but people don’t always make the best decisions and this is an emotional sport.
Your offer will just expire into thin air, never to be seen again. They basically think you’re fishing and don’t want to waste their time. Clearly this is the worst case scenario.
Another reason could be that the sellers weren’t insulted, but felt confident their house was worth full price and didn’t see the point in wasting anyone’s time by entertaining such an offer. Nobody wants to beat a dead horse. In this instance the listing agent will usually be polite and explain the situation. After all, they know you could still come back with a better offer. Being rude or not replying almost always results in no deal!
A final popular reason is that during the irrevocable period on your offer, another offer or multiple offers have been submitted. The listing agent will explain this as they will want to try and pit each set of buyers against one another to maximize the sale price. They’ll likely want you to make certain changes and re-submit your offer with your competition in mind. They don’t want to sign the offer back as that would hinder their ability to work with the other offers. In this situation, the listing agent will be sure to explain the situation as they want you to stick around. Every buyer’s nightmare, but every seller’s dream.
2. Full Price Counter-Offer
Another stinger, less popular than full out rejection, but still happens from time to time. As mentioned earlier, sellers are unlikely to want to handcuff themselves to a lowball offer when they feel their house is worth full asking price. Remember, any offer is irrevocable for a certain period of time. If there is another set of potential buyers willing to make a much stronger offer, those buyers could end up walking away or finding a more suitable home during the irrevocable time frame.
However, if you do happen to find yourself in this situation it usually means one of two things.
The first group of sellers who use this tactic simply do so for emotional reasons. They were likely very insulted and frustrated with your offer price, and now they want you to experience that same pain by demonstrating their unwillingness to negotiate on price. They are willing to handcuff themselves to the offer because it’s for full list price and their emotions have gotten the better of them. In layman’s terms, it’s basically a ‘tit-for-tat’ situation. With these sellers, don’t expect any favours or price reduction.
The second group who use this counter-offer usually like all the aspects of your offer, with the exception of price. It may be a firm offer with their ideal closing date, which is something ALL sellers want. The only point of contention is price.
By signing it back at full price they’re suggesting they would love to work with you, but that they believe the property is worth every penny of the full asking price. It may be warranted or it may not, but that’s their story and they’re sticking to it. In the end you may be able to buy the property for below list price, but you need to begin with a more reasonable price that’s in their ballpark. Only then would they considering a reasonable negotiation. That being said, don’t expect to score a major deal here.
So now we’ve covered and deciphered the first 2 of 5 possible sign-back scenarios. Thankfully, they tend to be the worst two cases for buyers. Next time it will be a more even playing field where I will discuss the ‘Minimal’, ‘Reasonable’, and ‘Hefty’ sign-back situations.