In Part 1 of “Gauging the Other Side’s Bottom Line“, I touched on the two least promising responses sellers may have to your lowball offer. Thankfully, in Part 2 I will be discussing counter-offer situations that are typically more favourable to you as a buyer when submitting an offer.
Remember, 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
I examined the first two in Part 1, and the last one needs no explanation. Therefore this blog post will deal with situations where the seller has countered with some kind of price reduction, whether it is a ‘minimal’, ‘reasonable’, or ‘hefty’ one.
As a cautionary reminder, these explanations are in no way absolute. Knowing for certain is impossible, so please read on and take these opinions with a grain of salt.
3. Minimal Price Reduction Counter-Offer
Hey, now we’re getting somewhere! It may not be exactly what you’re hoping for, but it’s a start and better than a kick in the teeth as my Nana used to say.
This counter-offer is typically found in fresher listings where the home hasn’t had tons of exposure yet and probably has been on the market only a week or two. The sellers probably aren’t expecting full list price at this point, but they want something close or else they are willing to roll the dice and wait for the right buyer.
In my opinion, this situation is the most decipherable in terms of what the other side is thinking. It suggests the sellers are willing to work with you and negotiate, but that your original offer is just far too low. You’re going to have to come up much higher if you want them to negotiate anymore. If you don’t, they probably won’t feel it’s worth their time to entertain you any further.
In this scenario, if you come back with a much stronger offer, chances are you may be able to knock the price down a little further. Don’t expect a huge price reduction here, but there is usually a little wiggle room.
4. Reasonable Price Reduction Counter-Offer
I sometimes refer to this counter-offer as the ’10K drop’. It’s not always exactly a price reduction of $10,000, but it tends to be around that mark. Remember, we’re using a $1,000,000 home as the example, so if the property you’re making an offer on is much higher or lower than $1,000,000, the 10k drop could have different meanings…use your best judgment.
That being said, the ‘reasonable’ counter-offer usually suggests the sellers are ready to negotiate despite almost certainly not being too thrilled with your original lowball offer.
But we want to know how far they’ll go down in price, right? Unfortunately there’s no way of knowing and this situation tends to be the most difficult to predict the final sale price, as it can fall anywhere between your original lowball offer and the first counter-offer provided by the sellers. This could be a ‘take it or leave it’ counter-offer, or it could simply be the beginning of lengthy back and forth negotiations consisting of many counter-offers. What we do know is that the sellers seem to have provided a reasonable price reduction and that they’re probably looking for you to do the same.
This situation is fairly common, so be prepared. My best advice here is that if you really love the home, be fair and don’t try and get too cute. It appears the sellers are making a reasonable gesture, so it would be wise for you to do the same until an agreement is reached.
5. Hefty
When you get a sign-back with a hefty price drop it usually indicates one of two things.
The first is that the sellers are offering their ‘best and final’ price. These sellers aren’t interested in playing games and going back and forth with incremental price adjustments, so they’ve provided a ‘take it or leave it’ offer. If you don’t take it and try to get cute with another low offer, they’re almost certain to walk away.
The second is that the sellers likely know they are overpriced and have received little to no action in terms of other offers on their home. These sellers are willing to play ball and want to make sure that’s clear to you. This is a great spot to find yourself in and now it’s just a matter of settling on a final price. That being said, don’t ever expect anyone to give their homes away in this market, especially in Toronto.
Gauging between the two can be difficult as the sellers’ personal circumstance is a big factor. However, a great Realtor with really good perception skills should help distinguish between the two.
As you can see, there are many different types of negotiating tactics used in the real estate market. While a seller’s true mindset can never truly be known, hopefully these explanations will help you decide what type of sellers you’re up against and how to appeal to their senses with the ‘right’ offer. Remember, knowledge is power and every little bit of valuable information helps.