Living Better

Warning:  I am generally a Seller’s Agent, so this post will most likely be from the Seller’s point of view.  However, one of the greatest tools of negotiating is to get in the mind of your “opponent”, so hopefully you’ll continue reading and glean some helpful information.

For the sake of this post, we are going to keep the tips to new homes that are already complete (speculative homes) not custom homes or pre-sales.  There’s no reason any sane builder would negotiate their pricing on custom or pre-sale,  it doesn’t make sense for a for-profit company to negotiate away their profit before they even show up to do the work.

When negotiating to purchase a new home, I would urge the buyers and their agents to keep in mind three main points:  Value, All ready reduced pricing, and Budget vs. Equity.  In future posts I’ll address the issue of all ready reduced pricing and Budget vs. Equity.  Today, we’ll talk about value.

Value

Oft times, value is simply perception.  What I hold as valuable, may not hold the same value to the next perspective buyer and vice versa.   When the market started to falter for sellers, it seemed the general thought process of builders was to add as many upgrades as possible to the home.  We just knew the buyers would see all the glitz and glitter as a value and purchase the home.  Unfortunately, that didn’t happen.  In fact, in several successful neighbors, the trend we began seeing was buyers purchasing at a low base price and adding the features that were important to them – sometimes over 25% more in upgrades.  What we realized is that each individual buyer perceived value differently, were willing to pay for what they perceived as value, but wanted that control.

With all the homes on the market, a buyer could be looking at an apple and an orange and trying to decide between the two.  Let’s take a real life scenario to demonstrate my point:  (names have been changed to protect the identities)

Becky Buyer has narrowed in on a particular neighborhood, where she wants to be for retirement.  Becky isn’t quite ready to retire, in fact she has two years to go and is working in another state.  However, Becky Buyer is smart.  She knows that the current interest rates, coupled with the fantastic deals are not going to be around forever and in fact she is listening to reports in the media of the strong possibility of rising interest rates to combat inflation.  Becky Buyer clearly remembers the interest rates in the 80’s and is wishing to avoid paying 15% or more.

(Side note, it seems that recently everyone we talk to is retiring and moving in two years.  Is that a farce????)

Becky has watched the prices coming down in the neighborhood she is already sold one.  She has chosen two properties.  One property is a resale single family home.  It has a big yard and garden and vinyl siding.  The home was built in ‘02, so it could stand a little updating, the price of the home was recently reduced to $175,000.   The next property is a new two bedroom brick townhome also with a price reduction to $184,900.  Currently, these two homes are the least expensive homes in the neighborhood.

Becky decides to make a verbal offer (which isn’t really an offer in terms of selling real estate) on the townhome, her first pick, of $160,000.

At this point, the buyer’s agent should be addresses several issues.  The first of which is the verbal offer.  If a buyer isn’t willing to put their name on the dotted line, they aren’t really committed, they aren’t really buyers.  In this instance, we are assuming that the would-be buyer believes her offer won’t be accepted and doesn’t want to waste time but has a sliver of hope it will be accepted and thinks, “it doesn’t hurt to ask”.

The second issue is that of value.  With the verbal offer, the sellers were told Becky was also considering the resale home.  As far as we know she hasn’t made an offer on the resale and she isn’t sure what she could get the resale for (even though public comments in the MLS suggest all offers will be considered).  We are also assuming the new townhome is Becky’s first choice.

In the grand scheme of things, there’s a big difference between the two properties.  One is a resale – it’s been lived in for 8 years, along with the general wear and tear, 8 years of life of the roof, the HVAC, the plumbing, etc has been used as opposed to the new townhome.  It also has a large yard and garden, opposed to no yard in the townhome.  One is vinyl, one is brick.  These differences (with the exception of the used versus new) are neutral and fall in line with perceived value.

As a buyer’s agent, it would be at this point where I would take the opportunity to sit down with a Pro’s and Con’s list.  Do you, Becky Buyer, prefer to do your landscaping or would you prefer someone to do it for you.  Do you prefer brick or do you prefer vinyl? etc., etc.

Once the list is compiled it would be prudent to give an actual dollar amount to those items which the buyer values.  Perhaps it would look something like this:

*Homes in the chosen neighborhood have sold in the last 6 months for 97% of asking price, for the purpose of this scenerio, we’ll assume that trend will continue and go with the lower estimated sales price.

Brick and vinyl are both low maintenance, but Becky Buyer prefers the look of the brick and likes the fact that she won’t have to pressure wash every six months to keep the house looking clean.  She is in fact, retiring to the area and doesn’t want the upkeep.

Yard Maintenance isn’t fun for Becky Buyer.  In fact, she will be using her purchase as a second home for the next two years until she retires, so she will definitely be paying someone to tend to the yard until then.  Conservatively, it will cost $5,000 for just the next two years and she will just have to grin and bear it when she’s taking care of it in the future.

Wear and Tear and Upgraded Aesthetics – it will cost Becky more than $15,000 to update the resale, but some of the items she can live without – she probably won’ t HAVE to replace the roof for another 10 years, and she can live with formica countertops…

The resale offers an extra bedroom and an extra garage space.  Becky could use the extra room for storage and the occasional guest.

As you will note, the value of the townhome now becomes greater than the asking price.   These numbers are all based on the value perceived by the buyer.

Stay tuned for more…

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