Whether you’re buying or selling a home, negotiating is always easier when market conditions favor your side of the transaction.
But timing a lifetime of home purchases and sales to match market trends is practically impossible. That means you need to know how to strengthen your negotiating position, even when you’re buying in a seller’s market or selling in a buyer’s market.
The first challenge is to figure out whether market conditions favor buyers or sellers. Generally, a buyer’s market is characterized by a large inventory of homes for sale and a slow pace of sales activity, while a seller’s market is characterized by a small inventory of on-the-market homes and a fast pace of sales. Another statistic worth monitoring is the average premium or discount between listing and sales prices. Are homes selling higher or lower than the asking prices?
Homes selling in fewer than 30 days on average and sales prices higher than asking prices tend to signal a seller’s market. Homes selling in more than 60 days on average and price discounts hint at a buyer’s market.
Such big-picture economic factors as demand for housing, new household formation, job growth, property-related tax policies, the local economy and mortgage interest rates also influence the housing market.
Assessing market conditions is no small task, in part because buyers’ and sellers’ perceptions rarely are in sync with each another or with reality.
“By the time people are convinced it is a buyer’s market or a seller’s market, it is moving on to something else,” said Michael Greenwald, a Realtor with Coldwell Banker in Brentwood and West Los Angeles. “It’s a very short period where all parties agree. You have to have a lot of factors [pointing the same way]--and maybe a full moon--for everyone to agree.”
Here are some negotiation strategies for buying and selling whatever the market conditions:
Buying in Seller’s Market
* Hire a savvy agent.
In-the-know agents find out about homes coming on the market before they appear in the multiple listing service. Getting the inside scoop can give you an opportunity to make an offer before the home is exposed to other buyers.
* Be prepared to compete.
Buying a hot home in a hot market typically entails competing against other buyers’ offers. Make yours as strong as possible, and remember, list price is only a starting point.
“If you don’t get to buy the house, what does it matter that you only offered list price? You are back to square one, hoping another suitable house comes on the market,” said Emily Link, a Realtor with Keller Williams Realty in Westlake Village.
* Make the transaction seller-friendly.
“Offer as short a loan contingency and escrow as possible. Make it convenient for the sellers. Let the sellers lease back the home for a month if they need to buy another house. Include contract terms that give the seller warm fuzzies,” Greenwald said. Don’t pressure the sellers to include personal property in the deal and go easy on required repairs and warranties.
* Let the seller select the service providers.
“‘Seller’s choice’ means the seller’s agent feels a little more powerful because he can recommend his favorite escrow company and title company to the seller. The buyer wants the seller’s agent to be thinking it’s going to be an easy deal,” Greenwald said.
* Be ready, willing and able to close.
Buyers who are pre-approved for a mortgage and are renting or have their home in escrow are in a stronger position. “You can’t expect sellers to accept an offer contingent on you selling your home,” Link said. “If you are going to move, you have to be willing to sell your house contingent on finding a replacement property or you may have to make a double move.”
* Make a backup offer.
If you lose a multiple-offers competition, position yourself to be next in line. “Ask your agent to keep in contact with seller’s agent to find out whether the transaction is getting squiggly,” Greenwald said.
Buying in Buyer’s Market
* Buy a home you love.
Getting a great deal can turn sour if you detest your new home and can’t resell it without losing money. “Be comfortable and happy with the home you are buying. It’s a big commitment,” Link said.
* Take a long-term view.
Don’t try to time the market. If the market value of the home you purchase depreciates further, you might not be able to resell the home for the price you paid until the market rebounds.
“Buyers in a buyer’s market need to understand they are already getting a house for less money and they shouldn’t expect to turn it around [for a quick profit],” Greenwald said.
* Negotiate price, not costs.
“A lot of buyers ask the seller to pay the escrow costs. Instead of doing that, analyze those costs and make it [part of the] price. Otherwise, all you are doing is upsetting the sellers. Make a clean offer and you will come out ahead,” Greenwald said.
* Use the data.
“Have your agent present good arguments that you don’t want to overpay for the house because you don’t know what’s happening in the market,” Link said. But don’t low-ball, or the sellers may counter higher than they otherwise would have.
* Don’t make a backup offer.
In a buyer’s market, backup offers needlessly strengthen the seller’s negotiating position with the in-escrow buyer.
Selling in Seller’s Market
* Limit early showings.
“Pick a day, whether it is the first Sunday or the broker’s caravan, and make that the first day anyone can see the home. Let everyone have an even playing field,” Greenwald said.
* Shorten contingency periods.
Contingencies mean leaving your home in escrow while the buyers organize their transaction. “You can’t make the loan contingency period so short that the buyers can’t perform, but you don’t want a to wait a long time for the loan to be funded,” Link said.
* Plan your next move.
“If the sellers’ next step is to purchase a home in the area, that’s great. But if inventory is low, they can’t have their choice of 10 homes. Before they put their house on the market, I want them to know there are houses for them [to buy]. If not, they need to make the purchase of their next home a contingency. And most buyers won’t want to give that as a contingency unless they get a fair price for the home,” said Matt Epstein, a Realtor with Re/Max on the Boulevard in Sherman Oaks.
* Fix up your home.
An unappealing home can languish unsold even in a strong seller’s market. “The condition of the home is always important. It’s amazing how many sellers ask for advice about what they should do to their home, then don’t act on the advice,” Epstein said. “Dress your home for success. Even a vacant home can be staged to look like a million bucks.”
* Consider underpricing your home.
“Sometimes if you underprice, you end up getting more money because if you have a nice house, you’ll get more activity and you may have more offers,” Link said. But Greenwald disagreed. “I’m not a believer in positioning yourself for multiple offers,” he said. “Many times a home has multiple offers, but later it’s back on the market because the buyer didn’t perform and the other buyers have gone away.”
* Be lawsuit savvy.
Buyers who feel they overpaid for a house may be more likely to bring a lawsuit alleging undisclosed problems with the home after the transaction.
“Make sure your agent has a perfect record that clients don’t get into lawsuits,” Epstein suggested.
Don’t be shy about asking the agent outright whether he or she has been involved in any real estate-related lawsuits.
You also can search the California Department of Real Estate database, www.dre.ca.gov for information about the status of the agent’s state license and state disciplinary actions.
Selling in Buyer’s Market
* Don’t overprice your home.
“If the data shows more houses are on the market and are staying on the market longer, you have to be realistic when you price your home. If you don’t, you ultimately are going to sell for less money,” Link said. Added Greenwald: “Sellers can’t dip their toes in a buyer’s market. Price the home appropriately to begin with because most of the showings will be in the first month.”
* Shorten the contingency periods.
“Even if you are selling from a weaker position, you still don’t want the contingencies too long. And as a seller, you want to have as much done upfront as you can,” Link said. “Once you get into escrow, time goes fast. You don’t want to get hung up at the end over something that could have been found out earlier.”
* Think twice before you offer financing.
Lease-sale options, seller carry-back financing and similar arrangements can be “more trouble than they’re worth,” according to Epstein.
* Select your agent with extra caution.
“A good agent has the pulse of the market,” Epstein said. “Listen to agents who are giving true advice, not just the answers you want to hear. Some agents just want to get the home in the MLS [multiple listing service], then they will get a price reduction later. If your agent gives you advice on the price, take it. If the agent underprices your home, the market will set the stage and you will still get top dollar for it.”
Marcie Geffner is a Los Angeles-based real estate reporter.