Negotiation Strategies for Buyers- A tale of four buyers

For 30 years I have watched buyers enter the real estate marketplace with varying ideas about buying real  estate. Some buyers move forward without much thinking or planning. Some buyers come to the market with refined strategies for achieving their goals.  I’ll give you a small sample of some of the more interesting approaches that I have seen over the years.

 

 

 

Flippers.  Professional property flippers have made lots of mistakes before they learn the business. The successful flippers have learned the mantra… Profit has to be in the acquisition. 

In other words they need to buy a property for less that market price. That difference between the purchase and market price will reflect most of their profit when the property is resold. They have learned that expensive improvements for the most part do not create profit. They simply increase the asking price. There is a limit to the return on investment (ROI) in the flipping business. After figuring in acquisition costs carrying costs and selling costs the flipper needs to hedge their investment by purchasing below market.  This reality forces the flippers to take a stark unemotional attitude making low offers to sellers until they have accepted offers. Flippers traffic in taking advantage of sellers who find themselves in distressed situations (divorce, bankruptcy, illness, death, old age etc) in order to make a profit.  Flippers buy properties that would sell for more money if the sellers could afford Realtors services or staging.  If the sellers had more time and resources to stage their properties and make repairs required by lenders and local municipalities then they would not have to sell to a flipper. But many distressed sellers  do not have these resources. That is the flippers negotiation strategy. They locate sellers who need to sell properties quickly AS IS for below market.

 

Emotional Buyers.  Most buyers of residential real estate buy on emotion. They ”fall in love” with a property and purchase to satisfy emotional needs.  Sometimes these buyers align themselves with properties that will always have strong emotional appeal and because they buy great houses with modern features, they will have no problem in resale. Their equity position will be preserved if they make good choices.  

Sometimes buyers with less than mainstream wants and needs buy properties for more than most other buyers would pay for the same house.

 

Emotional buyers tend to buy houses right when they come on the market fearing that other buyers will beat them to the properties. Fear of losing a property to another creates what I find to be a false sense of scarcity  in their minds try this out.  In fact , in my experience, buyers who have lost a house in bidding wars to another buyer have always been able to find another property that they “fall in love with” again in a reasonable period of time.  The sense of urgency is created  by smart marketing by real estate agents. The sense of urgency is heightened by agents who are commission based. The agents want the buyers to buy quickly. It is essential to the agent’s success to find a house quickly for a buyer before the excitement of buying a house evaporates. 

 

The practical analytical buyer.  A few  buyers approach the market-place with practical not emotionally based approaches. These buyers see real estate as a roof over their heads. Perhaps they view owning a house as a good investment when compared to renting.  The practical buyer works within a budget. They do not care if they lose a property in an emotional bidding process. They want a dollars worth of house for a dollar… nothing more… nothing less. 

 

The Smart Patient Buyer.  The smartest buyers I have met over the years take a different approach. Like emotional buyers they choose homes that they really like. Unlike emotional buyers who  focus on one property the “smart” buyers choose  5-10 homes that they  like on an emotional level.  They identify the properties by touring many properties to create a buying/watch list. Then they then do nothing.

 

These smart buyers are aware that the market dynamics are working in their favor if they have patience. For the 5-10 properties that they identify as possible homes they make up a watch list. The odds are in their favor that all of the properties will not sell in the first 30-60 days. On their watch list they wait until price reductions lower the asking prices of their homes.  Sure some will sell but they are prepared emotionally to accept that fact. After 60 days there may be 5 of the properties on their list sold …but there are 50% that have had price reductions. In fact the 60 days of not selling may have created distressed anxious sellers and listing agents.  Couple these facts with the fact that most emotional buyers ignore the shop worn homes that have 60 or more days on the market. They want new listings not the properties that the market has rejected.  This puts the smart buyers in a very good position.

By the time 90 days have passed the “smart“ buyer strikes with an offer below the asking price on the adjusted home. Perhaps they will have 3 or 4 properties to choose from.  In the end when the smart buyer owns a house they have purchased a home at a significant discount.  Like the flipper the “smart” buyer finds equity and profit in the acquisition.  These buyers do well at resale and they have more money available to improve their property over time.  By putting their emotions on the back burner the smart buyers make substantial gains over the emotional buyer.

 

Most buyers approach the marketplace looking at houses. The agents are there to try to make a quick sale. The thought that there might be agents who see their job differently would never cross their minds. At Artisan realty our job is to help you make smart decisions with your real estate transactions.

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