Knowing your strengths and weaknesses
by Hugh Hardy
Knowing your relative strengths and weaknesses is perhaps the most important aspect of the bargaining process when you are buying or selling a home. If you know the strength of your position, then it is possible to get the best result under the circumstances.
Let me start with an example: Let's say that we have a couple who wish to purchase a larger home. They begin to look at houses with their Realtor. They search for awhile and soon find a very suitable home. The Purchasers want to put an offer on the home, but they also have a home to sell. For this reason their offer must be conditional upon the sale of the Purchaser's home. At this point, the Purchasers indicate that they want to negotiate price aggressively. So the Agent presents the offer and the deal does not come together - based on a price discrepancy. The Purchasers are put off by this so they decide not to move after all. So what are the problems in this hypothetical scenario?
There two things that immediately come to mind that the Purchasers should consider. Firstly, how much demand is there for this particular home - the answer to this is based on two factors - how well is the home priced and what is the general market demand for homes like this one? Secondly, to what extent will the conditions in the Offer To Purchase compromise it's strengths? Because the offer was conditional upon the sale of a property, the Seller considered the Purchaser's offer very much a trial proposition - obviously, there is no guarantee that the Purchasers would be successful in selling their home. So why should the Seller pare his price to the bone based on a "maybe"
Indeed, the Purchasers should have realized that their position was weak. Realizing this, they would have two options under the circumstances. The first would be to pay the Seller a premium price in order to secure an option on the property (most Sellers will offer more flexibility in their prices for firm offers). The second option would be for the Purchasers to put their own house on the market and then to make a firm, aggressive offer on the property when they get an offer on their own home. Both of these scenarios show the Purchasers awareness of the strengths and weaknesses of their position.
As an addendum to the first scenario, it should be added that the Purchasers could potentially re-negotiate the accepted price on their conditional offer should they receive an offer on their own home. The Purchasers could go to the Seller and say that they have received an offer and would the Seller agree to reduce his price if they were to remove the condition and to buy the house firm. Most Sellers do not like to re-open negotiations after an Agreement is made unless there is a legitimate reason for doing so. One such reason might be that the Purchasers are looking at an offer on their home which is lower than they will accept unless the Seller will "share the pain" and re-write the existing Agreement at a lower price. I have executed this particular game-plan many times - it works well as long as all parties are "above-board" in their dealings and honest in intention.
As I mentioned before, supply and demand really comes into play in assessing your strengths and weaknesses. In a busy market, the Seller of a desirable home can demand more from the Purchaser - both financially and with regards to terms and conditions. In a slow market, Purchasers are generally favoured.
Of course in the previous scenario we are assuming that the house that the Purchasers want to buy is a very saleable house in a relatively busy market. If this were not the case then I'm sure that the Seller would be more willing to negotiate both the price and the terms. Perhaps even accepting a low offer containing a "sale of Purchaser's property" condition.
In general, the more flexible that a Purchaser can be regarding terms, the more flexibility there will be in price. Firm cash offers with no conditions, a flexible closing date, and few inclusions (meaning chattels like appliances or furnishings) will be the strongest. For the most part, offers conditional on financing approval and/or a building inspection do not significantly compromise your negotiating position. Offers conditional upon the sale of a property are considered as weaker - unless there are mitigating factors - like, for example, an excellent offer price.
So assess your strengths and weaknesses - your Realtor can help - in the long run you will come out ahead.
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