Three ways to win a negotiation for home buyers

Finding the right home to buy takes knowledge, skill, and often a modicum of luck. Once you’ve found it, the next thing to tackle is the negotiation.  This is not a “one size fits all” situation by any means! The wrong approach will have you overpaying or losing bids to others that understand the game better.

There are three common situations, that we see, where home buyers have the opportunity to get a leg up and win the bid!

1. The buyer’s market
2. Ongoing interest in a property
3. The bidding war

To help you get an edge, here is how you can come in with a winning strategy to get the best deal!

Situation 1: The Buyer’s Market

This is the best situation for the buyer and because of the reticence of other buyers in the market, you have some time.  Here’s what you do:

1. Look at closed sales. Estimate price per square foot, and apply that number to the size of the apartment you are looking to buy.
2. Look at on the market properties. How competitively priced is your target apartment to those? Adjust your price estimate accordingly.
3. Look at supply of similar apartments. Is it a lot or a little compared to the last several years? Low supply suggests that you adjust your price up. The converse is true for high supply.
4. Look at contract activity (a measure of demand). How does this compare to the supply? Low contract activity suggests you can bid lower.
5. Look at days on market for similar properties. How long has your target property been on the market?  If a long time, you can bid lower.

After this analysis is complete – and we do this for you as part of our buyer services – bid lower than the price that you came up with and stick to your guns.  How much lower will depend on a variety of factors to be discussed with your agent.

Situation 2: Ongoing Interest in the Property

Here, you have one or potentially more other parties expressing interest in the property. There may be a low-ball bid or some second looks scheduled by other bidders. In this case, you still do the analysis you did in the first case. However, with other buyers lurking around, you have far less flexibility to stick to your analysis and fight for a specific price.

The strategy here is to price with respect to other supply on the market. If this apartment is bought then buyers who lost out on this one will pivot to the next best thing for them.  Make a list of these apartments. If they are all more expensive than the one you are considering, you can bid up on the apartment you want, but try to stay below where the others are. The logic is that you can always go buy one of those for the asking price later if you lose on this one.

Situation 3: Bidding War

Of course this is every buyer’s nightmare and every seller’s dream.  The structure of a “best-and-final” bidding situation is designed to extract the maximum dollars from the winning bidder.  It is an emotionally harrowing experience, and needs to be dealt with properly.

In this case, there are multiple bidders and the seller’s agent has told everyone to submit their “best-and-final” bid by a specific time and day. You often don’t know how many other bidders there are, but you can bet if there are five or more, or if the price is over a million that you are up against at least one all-cash buyer. Here’s what you do:

1. Do the pricing as before. But you cannot really take that number into account. It’s more just to have a reference point.
2. Just because you may be paying over the asking price does not mean you are overpaying! A large percentage of sales go over the asking price in a rising market.
3. Be sure this is THE ONE. If it’s not, go look for another apartment.
4. Remember that real estate that is your primary home is far more than just a financial investment. There are strong emotions attached to one’s home and they are not all about money. This means the same property could be worth two different prices to two different people.
5. Pick a number to bid that is the highest number that you won’t have buyer’s regret about. Your real estate agent will be of limited use to you in deciding this! Then bid with confidence.

There are other ways to make your bid stronger, such as offering flexible closing dates to the seller, waiving your mortgage contingency, offering the seller a sale-plus-leaseback option, etc. Discuss these points with your real estate agent to maximize your bid.

It is a rising market out there in New York City. Contact us anytime if you have questions!