2million - My Journey to Financial Freedom

A Personal Finance Blog      ANNOUNCEMENT:2million has moved to www.2millionblog.com.     

Monday, June 19, 2006

Inside FSBO Offer Negotiations

When I and the seller negotiated for the home I am purchasing we did the contract negotiations entirely over email. This gave me a written record of everything that happened and presents a great opportunity to do a post mortem to see what worked and what I can do differently to get a better deal when I purchase my next property.

Background information:
  • The house was listed initially at $139,900 FSBO, buyers agents welcome.

  • I challenged the seller to show me some comps that justified the price and the seller ultimately lowered the asking price to $134,900 after being challenged.

  • I had decided I was willing to pay up to $130,000 before I made an offer and I was willing to walk away at $130,001.00 if I needed to. I think it was very important to set this up front so that in the process of the negotiation, despite what I am feeling at the moment I have a firm number I am working with

  • I was the first person to see the property, so I was taking me sweet time getting ready to make an offer. I knew after seeing the property the 1st time that I was going to make an offer, but I didn't want to seem too eager so I waited a week to asked for a 2nd showing.

  • The seller played this beautifully by calling me after the 2nd showing to let me know that a couple told the seller they were going to make an offer in the next 24 hours. This ultimately led me to push up my initial offer by $2k to make sure the seller would get a better feeling what I was willing to pay for the property instead of immediately accepting an offer from another person. I am kicking myself now over this move.




My Initial Offer:
[Seller],
Thank you again for letting us take another look at your home this past weekend. After a quite a bit of thought, I have decided I would like to make you an offer.

From what I can tell your home seems to be in very good condition. I am VERY concerned about the size of the house from a resale perspective, I think the lack of multiple bathrooms will limit potential buyers if I sell it. I am also concerned that the HVAC system and roof has already reached their half-life and realize the
HVAC could need to be replaced at any point in the future.

Looking at the comps that both you and I found, I think an offer of $128,000 is very reasonable. With no real estate agents involved this would be equivalent to over $136,000 offer (before 6% agent commissions).

In addition, I think you'll find I am a very attractive buyer for you. I was prequalified a couple months ago and I am very flexible with a closing timeline since I do not have any home to sell and can close very quickly if needed.

I figured I would go ahead and email this to you to let you know what I'm offering. I'll be happy to write this in an offer contract and fax it to you. Do you have a fax number I could fax it to? Also as far as earnest money, do you have any preferences on an escrow agent? I was thinking if we came to an agreement on the rest of the terms, I would see if the closing real estate attorney could serve as the
escrow agent.

Thanks,
[2million]

My Commentary:
-I was planning to initially offer $126,000, but ended up offering $128,000 when the seller executed beautifully by notifying me that someone else was making an offer. Whether or not it was true is irrelevant. The seller put the idea in my head and the result was I raised the initial offer. If I ever sell a property I have to remember this.
-I think I gave a good justification as to why this offer was very reasonable - I pointed out my concerns with the property; I used the real estate commissions to show the seller my offer was just as good as the asking price by adding real estate commissions (even though that is not really true, by making that connection I think it helps build my case); and I tried to sell myself as a buyer - I knew I was the target buyer he was looking for.
-I tried to distract the seller from the negotiation by asking about an escrow agent, this didn't work, but I suspect a potential seller could get distracted and not come back with an aggressive counter.


Seller's Counter Offer:
Hi [2million],

Good evening! Thanks for the pre-qual letter. I'm excited to work with you and your contract was very straight-forward, just as you said. The only issue I had was with the price. Obviously, we would like to get a bit more than $128,000. The excellent location and condition of the property should aid in any resale... not to mention the renovated kitchen, bath and laundry, too. Having said this, why don't we compromise at $132,500. Please give it some thought and let me know. Thanks so much and have a good night.

Kind regards,
[Seller]




My Counter Offer:
Hi [Seller],

Thank you so much for getting back to me. I have given your proposal some thought, but unfortunately based on my research I feel the amount I have already offered you is at a premium to the market. In the spirit of trying to reach an agreement I would be willing to offer you $129,000, but I will be unable to go any higher. I feel this offer is very generous and since I have no buyer's agent I think it is very
close to the net proceeds you would expect at your original asking price ($134,900) if I had a buyer's agent representing me. I hope you will find this to be an acceptable compromise.

Please give it some thought and let me know if this is something you would accept.

Thanks,
[2million]

My Commentary:
->I made a tactical error by offering an extra $1,000 to the seller at this point. In retrospect given the seller's counter was pretty weak and I should have been more aggressive. I just offered the seller an extra $1,000 for nothing. I should have asked for some added provisions to the contract such as:
  • professional housecleaning
  • chimney sweep
  • a piece of furniture I liked
  • lawnmower
  • etc.

-On the plus side I drew my line in the sand and told him I wasn't willing to go any higher - this I hope signaled to the seller that we are very close to how high I am willing to go so that the deal doesn't fall apart if he makes a counter offer.



Seller's Next Counter:
Hi [2million],

Good evening. Sorry it's always so late at night when I reply to your emails - we've been busy these last few days! I've taken some time to think about your offer, and though I see where you are coming from, I also know that this property is a terrific buy, even at our original asking price. All square footage in a given neighborhood is not the same and the condition of this house is far superior to that of the only two comps that you've had to compare it to. Neither had nearly the upgrades, nor the overall good condition that we have here. I do want to work with you on this deal as I feel that you are a strong and confident buyer, and will be able to close on the property with no problems. Also, you were the first to show interest and I could tell you like the place, too. But I also don't feel that I can take less than 130K for it. I hope that you can see your way to inching up just that much, in which case we'll have a deal. Think it over and share your thoughts.

Thanks,
[Seller]

My Commentary:
-The seller picked up I wasn't going any higher on my offer and is trying to get me to some up just a little more (wise move on his part). We are only $1,000 apart so both of us see this deal as probably happening at this point.
-The seller also states he can't go any lower so we have finally see the "best offers" from both of us.



My Final Counter:
[Seller],

Thanks for getting back to me. I agree I think your house is in very good condition and suspect it is in much better shape than the comps in the area. I think we are very close. I would be willing to offer you your price of $130k if we included the washer/dryer with the house as I would be in desperate need of these appliances when I move in.

I hope you will find this satisfactory. If so I am available most of Saturday if you would like to try and get together to finalize the contract. Please call me anytime to discuss. I look forward to hearing from you soon.


Thanks,
[2million]

My Commentary:
-Since the seller said he was unwilling to go lower and we were only $1,000 apart I knew this deal was just about agreed too and didn't want to rock the boat too much. I decided to come up to his price if he was willing to throw in the washer & dryer (which I valued at $500). I think it was a good move on my part - it is near impossible for a seller to walk away when a buyer is offering you the money you are asking for the property.
-I also presumed he would take the deal and raised questions about how we could get together to sign the contract - I thought this would increase the resistance of him trying to counter again.



Seller's Acceptance:
Hi [2million],

Good morning. You drive a hard bargain alright, ha! But OK, I'll accept that
offer. And I agree, I'm ready to get this taken-care-of. However, this
weekend we are moving and have a lot of things already planed for today.
Would it be OK to do it tomorrow? I'm sure I'll have more opportunities to
meet on Sunday. Your thoughts? Feel free to call if you wish and have a
great day.

Thanks again,
[Seller]



Summary
In the end I think I negotiated adequately. I only came up $2,000 in negotiations and that was partially offset by a washer/dryer. More importantly I was able to get the contract in place for the price I was willing to pay for the property. I think my biggest mistake was making the initial offer too high. I may have achieved better results if I had offered $125,000, but I'll never know.

Anyone have any additional suggestions/tips that might be useful in future negotiations?

15 Comments:

  • Way to go! You stuck with your game plan and even got a washer/dryer in the end.

    Good negotiating tactics.

    -Grant
    www.TheCornerOfficeBlog.com

    By Anonymous Grant, at 10:32 AM  

  • Hey, i found this great site www.megadox.com.
    They offer real estate forms for FSBO. They are inexpensive, and its as easy as downloading them to your desktop. I use them for such matters, among others.

    i recommend you check it out.Tell me what you think!

    good luck!

    www.megadox.com

    By Blogger HomeUser, at 10:35 AM  

  • www.HomePriceMaps.com integrates
    how much homes SOLD for nationwide using the google mapping technology.
    Simply select city and state from the city menu and click search. If you
    don't see data for your area simply email HomePriceMaps@gmail.com with your
    zipcode and or address and they'll update the site with your info and email
    you within a few days.

    By Blogger HomePriceMaps.com, at 4:21 PM  

  • 2million,
    What kind of research did you use to get your comps?

    By Anonymous Anonymous, at 7:20 PM  

  • The county that I am purchasing this property in has all the sales data published on their web site so its easy to look up.

    By Blogger 2million, at 9:21 AM  

  • Great post. I think alot of people now-a-days do not try or even think about negotiation as a tactic to save a little money. It seems that many people (including myself) are pushovers when it comes to that stuff.

    Thanks for the info.

    Matt
    www.mattsmoney.blogspot.com

    By Blogger Matt, at 2:31 PM  

  • Property should be bought based on returns whether it is 5% return or 6% return or 10% return per year. Other than that the property's return should be able to increase over a yearly period (increase in rent). This would cause the property to appreciate. And the higher the price of the property the more difficult it is for the seller to sell. Always remember these few things.

    Anonymous Millionaire.

    By Anonymous Anonymous, at 11:18 PM  

  • This is very interesting. Were you also working with an attorney when signing on the dotted line? Either way a house, not even a condo, for that price is unheard of in my parts: Denver. Congrads on the big buy!

    By Anonymous Dasha, at 4:17 PM  

  • Very interesting - thanks for sharing.

    Are these e-mails or actual letters?

    By Anonymous Jonathan, at 1:40 PM  

  • Hey u negotiated beautifully, I wouldnt be so sure it could have worked out better than this.. plus u got a washer dryer!!..

    Nice deal

    By Anonymous Anonymous, at 2:00 PM  

  • This comment has been removed by a blog administrator.

    By Blogger LazyBoy, at 2:01 PM  

  • Jonathan,

    These were all emails we traded back and forth.

    By Blogger 2million, at 3:42 PM  

  • Wow, there is so much helpful info above!
    Рекомендую проститутки Челябинска и проститутки Кургана

    By Anonymous проститутки Киев, at 3:32 AM  

  • Nike free run 2 shoes, 2011 new style.
    Nike Free Run Plus shoes for sale.
    Nike Free Run Black shoes for sale.
    Nike Free Run Grey shoes for sale.
    Nike Free Run Blue shoes cheap for sale.
    Nike Free Plus 2 shoes new collection,
    nike free run 2 mens shoes new collection Australia.
    Nike free run 2 womens online store.
    mulberry fashion
    choosing mulberry fashion

    By Anonymous Anonymous, at 10:16 AM  

  • I really enjoyed reading.
    ---
    mobogenie and apply baixar facebook movel | descargar mobogenie gratis

    By Anonymous baixar facebook gratis, at 12:35 AM  

Post a Comment

<< Home