Buying a house is in the same bargaining territory as wrangling for a rug in Istanbul -- almost anything goes as long as everyone walks away happy.
Artful deal-making could make the difference in getting what you want in a market that is expected to be as competitive and complex as last year because of a low supply of houses for sale and rising prices. Buyers and sellers will have to be more sophisticated negotiators to gain an edge, according to Jan Horn, a Coldwell Banker Realtor and executive director of the Coldwell Banker Negotiation Institute.
With the inventory of homes for sale in Los Angeles County dropping to a 2.6-month supply in December from a 2004 high of 6.1 months in August, buyers need to know the best way to make their offers stand out when competing against multiple offers. And while sellers have more clout to call the shots, they still need to know how to create and profit from multiple-offer situations.
The best tools for any negotiators, whether they’re acquiring a Fortune 500 company or buying a two-bedroom condo, are information and alternatives, said Christopher Erickson of the executive education negotiations program at UCLA’s Anderson School of Management.
“You have to have enough information to know the point at which you can walk away,” said the management professor. “And you have to ask yourself, ‘What will I do if I can’t reach an agreement? What are my alternatives?’ ”
Here are some tips from real estate agents, negotiators and recent home buyers and sellers:
* Home buyers should decide how bad they want a property and what it would take to get it.
Buyers desperate to land a house can get caught up in a bidding war and lose sight of when to stand their ground and when to go higher.
“It’s called an irrational escalation of commitment,” said Corinne Bendersky, assistant professor and negotiation specialist at UCLA’s Anderson School. “You’ll overpay because you want to win.”
Well-prepared buyers know the comparable prices in the area, she said, and stick to their limits.
Before making an offer, Ron Winn, associate broker for Coldwell Banker in Brentwood, advises clients to decide on a scale of 1 to 10 how much they want the house. This allows them to compare the house with others they’ve seen and set a price limit on how high they’ll bid on a particular house.
“You’ll bid differently on a 4 than a 10, and you’ll need to know what your best offer will be,” Winn said, “because chances are, in this market, the seller will want that best offer, and you won’t get a second chance.”
Buyers might also be more flexible on contingencies if the house is a 10. “They might be willing to waive the inspection or shorten the escrow period.”
* Find out what matters to the seller.
Knowing a seller’s “hot buttons” can help buyers in a multiple-bid situation, said Richard Gaylord, a Re/Max Real Estate Specialists broker in Long Beach.
“It could be they want a short escrow period, or they want to sell it in ‘as is’ condition,” he said. “Any of those things can be a negotiating point.”
Real estate agents can usually find out information from the seller’s agent and try to accommodate those needs.
“Buyers can offer to pay the title insurance, offer a rent-back period or even a free rent-back period,” Winn said. “It’s not going to be as important as having the best package, but it’s a nice gesture.”
For Joelle Drucker, knowing that the house she was interested in had been overpriced in the $800,000 range and had sat on the market for a while inspired her to bid $751,000, well below its $790,000 asking price in November.
“I knew there would be a lot of remodeling involved, and I wanted to have as much money for that as possible,” said Drucker, who was seeking a four-bedroom house on the Westside for less than $1 million. She ultimately paid $758,000 for the house and plans to put $200,000 into renovations.
* Be willing to tolerate extreme buying conditions.
Some houses have complicated financial issues, due to divorce, estate and foreclosure situations. Knowing that a house is a 10 may make it easier to wait out an extended escrow period or wade through extensive paperwork and may also help the buyer get a better deal.
“Sometimes buyers hear that a property is problematic, that there are liens against it or that there is a strange situation with the seller,” said Bob Stiles, a real estate agent with Prudential California Realty in Beverly Hills. “But those properties can be good opportunities for negotiation.”
For Nazih Hakim, knowing that a house in Sherman Oaks would be ideal for his family allowed him to remain patient during a five-month escrow period and numerous bureaucratic headaches before finally closing last February.
“It’s a 4,822-square-foot house on a double lot in a great location,” he said. “It was a long time to wait, but I had faith.... I knew it was perfect for us.”
He paid $1.1 million in an area where comparable houses have been selling in the $1.8-million range, according to the Sherman Oaks Multiple Listing Service.
Difficulties with the house began in 1990 when it was only 95% complete and went into foreclosure. Subsequent owners in the late ‘90s then failed to pay additional loans against the house, and their lender filed fraud charges. A private lender finally took over the property and put it on the market, but no title or certificate of occupancy had been issued for the home, and it had never been legally occupied.
“For years, no one would go near it. No one wanted to deal with what it would take to get the title and buy it,” said Stiles, who spent months clearing up the problems and hiring contractors to make the property eligible for a certificate of occupancy. “There are deals out there if you’re willing to work for them.”
* Try bidding an odd-numbered amount.
Most people think in terms of round numbers, said Stephanie Vitacco, a Coldwell Banker Realtor associate who covers the San Fernando Valley. But in a multiple-offer situation, buyers can edge their bids slightly higher and gain the attention of the seller by using an odd number.
“If the property is listed at $875,000, and if you know it’s going to be overbid, the next logical place that people will go is $880,000,” Vitacco said. In that type of situation, she advises her clients to bid slightly more than that amount to an uneven number, such as $883,500.
“If it’s a house you really want, then $3,500 over the life of a loan is not that much money,” she said. At prevailing 30-year fixed rates of 5.22%, for example, this amount works out to be $19.26 per month over 30 years.
* Personalize the offer to make the seller feel financially secure.
Writing a letter to the seller has become a popular and well-publicized way to gain the seller’s attention. But beyond trying to forge an emotional connection, the letter can stand out by making the seller feel more financially secure about the deal.
“The seller’s biggest concern is that the buyer will back out,” Winn said. “If it’s a house you really want, you want them to think you’re the buyer from heaven.”
To inspire confidence, Winn added, the letter could explain that the buyers have realistic expectations about the house, are prepared to do a little work and, if necessary, will spend the money it might take to make repairs.
“This shows the seller that the buyer wants the deal and won’t regret it,” Winn said. “That the deal will go through quickly and will be trouble-free, which is what they want to hear.”
Tips for sellers
* First and foremost, sellers should resist the temptation to overprice.
Sellers who’ve been watching houses in their neighborhoods go for progressively higher amounts can easily fall into the trap of overpricing their own home, Vitacco said.
“If you overprice your home, it will stay on the market longer,” she said. “A good price creates urgency and the feeling among buyers that they have to bid up.”
Karin and Larry Mason had lived in their Camarillo tract home for 25 years when they decided to put it on the market in January. Having watched a similar house nearby sell in the $760,000 range, they originally wanted to price it similarly. But, unlike the other house, theirs was not on a cul-de-sac and didn’t have a pool.
Their agent, Karen Krassner of Coldwell Banker, Camarillo, convinced them they would get more attention by starting at the lower asking price of $729,000.
“We’re in a subdivision and all the houses look alike,” Karin Mason said, “but we agreed with her once we understood how our house was different.”
Within five days of putting the house on the market, the sellers had an acceptable offer.
“It’s still a seller’s market,” Krassner said, “but you have to be realistic.”
Some homeowners fall into the overpricing trap by overvaluing upscale home improvements, Vitacco added.
“When you go to value a property, upgrades matter, but only to a certain point,” Vitacco said. “If you go top of the line, you put in a Gaggenau stove, you won’t get all of your money back when you put your house on the market.”
The price of the house will depend more on location, size, condition and the local market, she said. “If there’s no inventory, then you can step up and ask a little more.”
* Create and take advantage of multiple-offer situations.
Although real estate agents and negotiation specialists have a variety of strategies for creating multiple-offer situations, they all agree that listing at the right price is crucial.
“You want to price it a little below what you think it will sell for -- maybe 10% less,” recommended Amy Hollingsworth of Coldwell Banker in Pacific Palisades.
Once a seller receives multiple offers, one strategy Vitacco uses for identifying the highest bidder is to ask for each buyer’s “final and best” offer.
“Asking for their best offer flushes out the buyer who’s willing to stand above the rest,” said Vitacco, adding that she also likes the strategy because it shortens and simplifies what can be a stressful negotiation period. “If the seller has to counter every offer, it can take a long time.”
Other agents sometimes heighten the sense of urgency by setting a date and time for when offers will be taken, Winn said. “This immediately gives buyers the mind-set that there will be multiple offers and that the property will sell for more.”
But unless the broker has a reputation for getting multiple offers, Winn cautioned, this strategy can fail.
Hollingsworth also warned that creating a deadline can be risky because fewer buyers will be able to participate, and the seller might not get any bids in the designated time period.
“I try to feel it out,” she said. “I never like to assume I’m getting multiple offers. I just try to come up with a competitive price that will get a lot of interest.”
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What not to do
Along with the do’s, here are some negotiation don’ts:
Don’t sweat the small stuff.
“Sometimes little things can be a sticking point for buyers and sellers,” said Karen Krassner of Coldwell Banker in Camarillo.
Some clients will hold up or break a deal because of a chandelier or fixture they want to stay in the house or rain gutters they think should be installed, she said. “You have to try not to get emotionally involved. It’s a business transaction, and you should keep your eye on the bottom line.”
If there are items sellers want to exclude, she recommends that they take them down before showing the house to make sure they don’t become deal breakers.
Don’t stay with an agent who seems unprofessional or incompetent.
Peter Pehl, who recently sold his Long Beach condominium for its asking price of $477,000, said he thinks his place would have sold much sooner if he had switched agents earlier.
“It was on the market for six months, and it sold twice in that time and then fell out of escrow twice,” Pehl said. The first agent did not bring in much foot traffic, he said, and potential buyers would call Pehl on the phone directly because they could not reach his broker.
He eventually took the property off of the market and hired Richard Gaylord of Re/Max Real Estate, Long Beach.
“Dick made recommendations for some updating we needed to do, and we got an offer within two weeks of putting it back on the market,” Pehl said.
Don’t be afraid to walk away.
Buyers have to go into any bidding situation with a clear sense of the maximum amount they would pay for a house and hold to it, said Corinne Bendersky, assistant professor at the UCLA Anderson School of Management.
“You should have a clear sense of your alternatives,” she said, “in case you don’t get the house.”
Jennifer Lisle can be reached at email@example.com.