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Dealing With Offers and Counter-Offers When Buying a Home

When buying a home, there’s a good chance you’ll have to deal with a counter-offer from the homeowner / seller. These back-and-forth negotiations are a normal part of the home buying process. But you need to be prepared for them. This article explains how to handle offers and counter-offers when buying a house.

There are three possible scenarios when negotiating the price of a house. When you submit your initial offer, the seller will likely do one of the following:

1. They will accept your offer with no other conditions or changes.

2. They will make a counter-offer by changing certain terms, such as the purchase price or closing date.

3. They will reject your offer entirely, without making a counter of any kind.

First-time home buyers often believe that the seller is obligated to make a counter-offer, at the very least. But this is not true. A homeowner can simply turn you down with no explanation, if they choose to. So keep this in mind as you try to negotiate the price.

With that being said, most sellers will either accept the initial offer as it’s written, or sign a counter-offer back to you.

If the seller makes a counter-offer, it will probably be based on the price. If they counter with the original asking price, they are basically saying: “We are not willing to negotiate the house price with you.” If they counter with an amount that is lower than the original list price, but higher than your offered amount, it means they are willing to negotiate. They are trying to find middle ground.

What you do next will largely depend on two things:

* The type of real estate market you’re in

* How much you want the house

Before you start negotiating the house price with a seller, you need to have a maximum amount in mind. This is the amount you are willing to spend on this particular home. This number will be limited by your housing budget and your pre-approval amount, obviously. But it’s also limited by the current market value of the house. After all, you don’t want to pay more for a home than it’s currently worth.

Here’s another important negotiating tip. When you submit your offer to the seller, tell them why you are offering that amount. Your agent can convey this information to the listing agent, or directly to the homeowners. You don’t want the sellers to think you’ve pulled this number out of thin air. You’ll have a better chance of getting your offer accepted if you justify the amount. You can justify it by providing recent sales data that supports your offer amount.

Example: “We are offering $275,000 for this house based on the comparable sales data attached. We realize that this home has a larger lot and several interior upgrades, so we have offered an amount that is above the comparable sales to compensate for these factors. We feel this is a reasonable offer in the current market.”

You can put this kind of statement on paper and submit it with your offer. Your agent can pass it along to the seller’s agent. If you’ve made a reasonable offer for the house, the listing agent would be wise to convince the sellers of this.

Of course, some people are simply unwilling to negotiate. If you encounter a home that you feel is overpriced (based on comparable sales data), and the sellers refuse to come down in their asking price, it might be time to move on to the next house. It happens!Dealing With Offers and Counter-Offers When Buying a Home

Where Do Sellers Get the Listing Price for a House?

Question: “I have been looking at houses for sale in my area, and I see that most of them include a listing price for the property. How do the sellers come up with the listing price for a home, and is it always negotiable?”

Let me start with the second part of your question, because it’s the quickest and easiest to answer.

Yes, you can negotiate the listing price when buying a house. As the expression goes, everything in real estate is negotiable. But a lot depends on the type of market you are in, and how realistic (or unrealistic) the asking price is. For instance, in a sellers’ market — one with limited inventory and strong demand — you won’t have as much leverage to negotiate the price. But in a buyers’ market, you’ll have move negotiating leverage.

Additionally, you have to consider the current market value of the house, and how closely the seller’s listing price matches that value.

Asking Price vs. Sale Price

In real estate, the listing price is also referred to as the asking price. The second term is actually more indicative of the seller’s mindset. It’s the amount they are asking for … but it’s not necessarily the amount they’ll get.

When a home is ultimately sold, the selling amount is referred to as the sale price. This is what somebody actually paid for the house. In many cases, the sale price will be lower than the original listing amount, because the seller reduced it at some stage. So yes, it’s negotiable.

How the Listing Price is Determined

If the sellers are smart (or if they’ve hired a smart agent to list the house), they’ll base the listing price on recent sales in the area. In particular, they will find out what similar homes have been selling for over the last few months. These are referred to as comps, short for comparable sales. This kind of data shows the seller what the market is willing to bear, in terms of the asking price. They might even have the house appraised by a real estate appraiser, who will conduct a similar analysis of market trends.

But not all sellers are this rational. Some of them base the listing price on what they paid for the home a few years ago. Or they’ll use some arbitrary annual percentage to “force” appreciation on the home, even in a declining market. Or they’ll price the home for the exact amount needed to pay off their mortgage. These are common pricing strategies among sellers, but they’re all equally flawed. Recent sales and pricing trends are the primary factors that determine market value — everything else is wishful thinking.

Keep these things in the back of your mind when looking at homes for sale. If you’re working with an experienced real estate agent, he or she can help you review recent sales in the area. This is the key to evaluating the seller’s listing price.

I hope this answers your question about listing prices for real estate, and I wish you all the best in your housing search.