How to Know When to Offer List Price to the Seller
Why Would a Buyer Ever Give a Seller the Asking Price?
You might not want to initially offer list price to the seller. You might believe it is human nature to want to negotiate. But most people, if you asked, will say they do not want to negotiate. They sometimes feel uncomfortable offering to pay less than asking price.
Imagine for a moment how chaotic it would be if everything was negotiable. Suppose you walked into a bakery to buy a loaf of bread and, instead of ringing up your purchase, the baker asked you to submit a bid. How much would you offer? Wouldn't you rather hand over a $5 bill and wait for your change? No, change is passé. Nobody accepts change anymore.
Yet, these very same types of people are expected to negotiate when buying a home. It doesn't matter if it's a newer home or older home, all home prices are negotiable. On the one hand, you don't want to pay more than you need to pay. You don't want to be taken advantage of. On the other hand, you want a good value and an affordable mortgage. That means you might need to negotiate. So how much do you offer? And why would a buyer ever give a seller the asking price?
Reasons to Offer the Seller List Price When Buying a Home
This concept hit home with me when I was planning to buy a home on the coast. I figured interest rates were really low, about as low as I was ever likely to see them in my lifetime. The market was depressed in 2010 and declining. It was a perfect time to buy a second home.
I scoured oceanfront properties up and down the California coast. A home I once lived in on the Rincon in Ventura had jumped from $150,000 to more than $2.4 million over the past 30 years. Everything was expensive, from San Diego to Eureka. But I found a great buy. It was the least expensive oceanfront home anywhere. It was in foreclosure.
The first thought that crossed my mind was how low would the seller go? How cheaply could I buy that property? I totally overlooked the fact it was already priced below market. Fortunately, I came to my senses and almost slapped my own face. Here are reasons to offer list price to the seller:
- To gain seller cooperation.There are other factors inherent in the purchase contract that might be equally as important as price. You might want the seller to pay for inspections or reports, which a seller is more likely to do if you pay list price.
- To lock out the competition.In the event of multiple offers, you can bet another buyer might try to negotiate, making your offer look even better.
- To make the listing agent look good.You validate the suggested list price when you offer list price. If the listing agent suggested that price, the listing agent might urge the seller to take your offer if for no other reason than it makes the listing agent look competent. A happy listing agent will find less wrong with your offer and might be inclined to overlook an item that the agent otherwise would encourage the seller to counter.
- To leave room for repair negotiations.If you squeeze every dime out of the transaction on the front end, there might not be any room left for negotiating the cost of a repair. Plus, an irritated seller is unlikely to be receptive to a Request for Repair after you've slashed the sales price upfront. A seller might feel like you're adding insult to injury. Whereas, if you're paying list price, the seller might be willing to throw back a little of the cash in your direction.
- If there is no nickel and diming, there is less resentment. It might not be important to you during negotiations to be on friendly terms with the seller, but it can come back to bite you after closing if the seller resents you.
The thing that I learned about buying a second home is something I already knew but almost ignored. It's how I advise my own clients. If you like the home, and the price is attractive and acceptable to you, then buy it. Pay the list price. In the long run, it makes little difference as long as you own the home. You can lose the home otherwise. Before you negotiate, ask yourself: Is it worth losing the home over a few thousand dollars?
Your ace in the hole, if you're getting a loan, is the home still needs to appraise at value. If you have offered list price but it doesn't appraise at list price, the seller just might be willing to lower the price for you. In most instances, you can't go wrong by offering list price to the seller.
At the time of writing, Elizabeth Weintraub, Cal BRE #00697006, is a broker-associate at Lyon Real Estate in Sacramento.