Obsessing over “The Deal”

There’s no magic to a successful deal. Buyers and sellers who have a high level of understanding of where they fall within the market have a better chance of a smooth purchase/sale. As an agent, working with my clients is a careful counseling session to bring them to that place of self-awareness (within real estate)—some clients more than others.

It’s easier than you think to be blinded by something that ultimately affects your judgement and decision-making process. Sometimes it’s emotions; either your personal attachment to a home your selling and/or getting offended by a “low ball” offer. Other times it could be offering below fair price for homes, and therefore always being outbid. Or you might be robbing other factors outside of the transaction of their true value i.e. being closer to a family member or moving before the school year starts.

Whatever blinders you have on, I put all of these potential lapses in judgement into Obsessing Over The Deal. There are a lot of factors to consider, but sometimes the opportunity cost is too hard to see until it’s too late or until the lesson has been taught multiple times. Buyers and sellers alike can get too obsessed over specifics in a deal, mainly the Price, and lose sight of what’s really important—which is different for everyone.

The sooner a buyer or seller can gain their Real-Self-Awareness (Get it? Like real estate and self-awareness combined into one giant dual meaning hyphenated word?!) the sooner they will be able to secure the purchase/sale of their home. To help you achieve real-self-awareness, here are some tips to remember that will help you stay focused, and avoid obsessing over the deal.

  • Understanding what you can/can’t afford
  • Emotions
  • Negotiation Position
  • Terms of the contract
  • Intangibles
  • What to do

 

Understanding what you can/can’t afford

This applies to buyers more than sellers. Many times buyers get a pre-approval and then start looking at homes that are completely out of their price range. It may be because their approval was for 300k and taxes of 2500/year, yet they don’t quite understand how impactful a property tax bill can be when it’s just a few thousand dollars higher. Their approved monthly payment may not cover the higher property taxes on certain homes, and therefore they need to look at less expensive homes or homes with lower property taxes. (Mini side note: it really helps if you can get a monthly payment approval from your lender, then we can figure out whether something is affordable or not and play with the numbers for wide ranges of tax bills). Buyers like this are simply unaware of how the payments will affect their monthly payment, and it takes some time to fully understand. Read my other post, You can probably buy a home, and you didn’t even know it!

Sometimes buyers think that they can negotiate down the price, and therefore purposely look at homes that are higher than what they can afford. The homes that they want are also the same homes that other buyers, who CAN afford them, also want. They waste time making lower offers on homes with the illusion that they’ll be able to get the price down. Instead, they should be shopping for homes that look the same in a less expensive neighborhood. Or they should be go for a home in the neighborhood they want, but maybe compromise on size or updates—They need to compromise somewhere. At first, compromising is a very hard truth to accept. It’s worse the more unaware you are of the reality of the situation. Understand what houses cost and what you can buy, and then go find the best option.

You will not trick anyone in 2017.

For sellers, this can apply with the original price, or with the bottom line. The sooner you understand the value of the product you’re selling and match the price accordingly, the sooner it will sell. Listing something too high to see what you can get is an old school mentality that doesn’t work. You will not trick anyone in 2017. There is too much data surrounding the real estate market, and it’s easily accessible with a simple “okay Google” or “hey Siri” voice command. Instead, pricing a home fairly will bring in the most buyers and give you the best price and terms. Try not to get too obsessed over leaving money on the table; the market typically only allows for a small deviations from fair price.

The largest factor here is also putting into perspective the dollars at stake. For a buyer, 10k in purchase price equates to $50/mo on their mortgage… but for a seller, $10k is $10k.

Emotions

This is one of those things that’s easier said than done. It’s not hard to understand that emotions can have an effect on your decisions, but when you’re on either side of a home sale, it can be difficult to hold back your emotions; furthermore, to stop those emotions from clouding your judgement.

You may have heard of an offer “offending” someone—this is a prime example of emotions getting a little too involved. This is a business transaction. People have different tastes. People are allowed to offer whatever they want. Nothing is set in stone and everything is negotiable. As a seller, don’t let emotions take over when a buyer tells you your home “needs work,” or when you get a “low-ball” offer—just reject, counter, or accept.

As a buyer, when a seller doesn’t want to give you a credit for an inspection item, you need to asses it without emotion—how much is this worth? Can we take care of it ourselves? How much do we NEED the sellers to do it? Etc. Again, reject, counter, or accept. The following include, but are not limited to, things that don’t affect a deal at all: Crying, getting angry, being offended, slamming doors, crying, hanging up on your significant other, etc.

The home sale process can be a little bit of a roller coaster; the more you can level it out, the smoother the ride will be. Also, shameless plug, a real estate agent should be able to help you prepare and navigate through the process. As a 3rd party, with your best interest in mind, your agent should be able help you keep a clear head and make an educated, emotionless, decision.

Negotiation Position

In some cases, you are simply in a weaker position. However, some people may not realize what that looks like. For a buyer, your position is weakened if any of the following apply to you: low down payment, requiring closing costs, low earnest money, strict time frame, long closing period (45+ days), and any kind of “need.” All are signs of financial instability and put you in a weaker position to negotiate. Sellers who need to sell by a certain date, or cannot take less than X amount are also in a weaker position.

On the scale of NEED vs. WANT, the heavier you are on the NEED side, the weaker of a position you’re in.

Having the weaker negotiation position doesn’t mean you can’t buy or sell your home, it just means you have to give a little more to sweeten the deal. You must have tempered expectations when it comes to getting a good deal. The sooner someone realizes their relative negotiation position, the sooner they can start making realistic offers on realistic homes.

Terms of the Contract

I put this one in here to remind you that there are other things other than price that can swing in or out of your favor. Use the other terms of the contract as leverage to get the things you want. Instead of not buying a home because of $5000, maybe you can get a closing date that you want, a larger credit due to inspection items. Or instead of foregoing the difference in price, try to use an AS-IS sale or putting in more earnest money down to get the price you want. This is just a way to help things stay more realistic for both sides, therefore increasing your chances of the deal actually closing.

If you find yourself on a little heavier on the NEED side of a negotiation, you can potentially use the other terms of the contract to sweeten the deal instead of just the price. For more on this, Strengthening Your Offer with More than Price

Intangibles

You must be aware of what is really important. Yes, you’re buying/selling the most expensive asset you’ll ever have… but within that crazy intense process, remember not to sweat the petty stuff. I’ve had pregnant clients have a baby and still live with their parents when they could have had a place well in advance, but they were being picky about a small difference in price and paint colors. However, the other side of that coin is that there’s no need to rush—having a roof over your baby’s head is what important, not is trying to NOT live with your parents. BTW—they found a place and moved when the baby was about a 2 months old, don’t worry, they’re fine. 🙂

You might need to relocate by a certain date. How much is that worth to you? What if you can’t sell your home by that date and you end up having to double up on mortgage payments? Keep this in mind when you get an offer that’s a little lower than what you wanted. What if your lease is up and now you have to move into your siblings home and pay for a storage unit? Keep this in mind when you’re not willing to come up to what the seller is countering you.

This is a fine line to walk. You have a business transaction happening, but there are other factors outside of the transaction that DO matter. Your current lease ending, a family change, a job change, your financial situation, health of a family member, time frame on an interest rates, time of year, etc.

What to do

There’s a little bit of overlap within some of these tips. There’s also some situational awareness that needs to happen as well—sometimes emotion comes into it when you are considering the intangible factors, however you need to box emotion out when looking at the deal itself. You may have a mix of things that strengthen your negotiation position and then things that weaken it. Knowing what those factors are and how they impact your position is the key. Just keeping all of these things in mind while you’re in the market will help your mind stay clear and you can weigh all your options accurately. Keep emotions out of it, understand your wants vs needs, remember the intangibles, and leverage the terms of the contract to keep things within your budget. You will speed up the overall process and feel much more confident as you make decisions.

Hopefully just reading about these things have pulled them out of your subconscious and you’ll be more aware of them when you find yourself in a position to buy or sell. Since you made it to the end, an additional tip: Don’t show your cards. Don’t reveal where you fall on the NEED scale unless you have to—or—if you’re not on the NEED side at all.

As always, a real estate agent should be able to guide you through this process as well. Let me know if you need to buy or sell. 😉

Thank you for reading! Comments and questions are welcomed!

Best,

Joe

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