Counter-Offer Strategies

The art of the deal is negotiating. The goal, when you're countering a buyer's offer, is to get the highest price and best terms possible. Once you reject the initial offer, you must decide how much to counter. The answer is easy when the market is hot. You will counter at full price or more.

If the market is normal, you may receive less than full price for your property. In this case, one strategy would be to set your asking price higher than normal. How much lower than your asking price will you counter-offer?

Beware of Setting a Minimum Counter Price.

Setting a firm minimum counter price is a big mistake that some sellers make. Depending on the deal and the buyer your counter offer should be flexible. For example, after investigating the market, you set your asking price at $350,000. Your minimum price may be $320,000. If you are offered your minimum, you sell. If you are offered lower, you don't sell. It sounds simple.

Unfortunately, in this mindset, you box yourself into a limited deal. You want to be flexible when negotiating. Let us review our last example. The buyer offers $300,000. The seller rejects and counters with the minimum of $320,000.

The buyer counters with $305,000 again. Where do you go from here? You have already offered your lowest minimum counteroffer. The only recourse would be to repeat your same offer.

One strategy would be to counter lower at $315,000. Or what if the buyer is willing to pay more than your minimum?

The buyer might be willing to pay $330,000. You will actually have lost money again by countering too low.

There are housing situations where you are just lucky to be paying off the mortgage, commission, and closing costs. You might be offered a little less but you accept to some cash to save your credit. In this case, setting a minimum price would be reasonable.

If you do feel the need to set a minimum counter price, don't set it in stone.

Try to Get a Sense of the Buyer

Your counteroffer is not the final transaction. It is one step in the negotiating process. You counter. The buyer will counter your offer. You will then counter back. This process will repeat until the a deal is made.

Therefore, your counteroffer should not be your best and lowest. The buyer's first offer is usually a low-ball offer. A seller's first counter is a high-ball offer. Both parties are testing to see how the other will respond.

Let the buyer know you are willing to negotiate. You ask $340,000, the buyer offers $300,000. You counter $335,000. You must also send the message that you are not willing to drop your price too much.

Some buyers will cave and accept the counteroffer and others will not. Anytime you reject and counter, you are opening negotiations but you are also taking the risk of losing the deal.

There are some buyers who are just looking for a desperate seller. They make a lot of low-ball offers until they find the property. You are not going to find a good price with that type of buyer.

Others will counter with close to what they originally offered, in this case say $305,000 (now you're still $30,000 apart).

What if You're Close Together in Price?

After a few counters, You are only a few thousand dollars apart. You countered at $335,000 and the buyer countered back at $330,000. Now you're only $5000 apart. Should you accept the buyer's counter?

You can simply accept the deal. Another strategy would be to tell the buyer or the agent the you want to split the difference. They accept. You will then have sold your property at $332,500.

Splitting the difference can be an effective way of closing out negotiations to bring about a win-win situation.

What If You're Far Apart?

You counter at $335,000 and the buyer counters at $305,000. You're $30,000 apart. That's serious money.

There are only two ways of handling this situation. You could hold your original counter. The buyer would understand that this is your final offer. This could be a deal breaker. If you are highly motivated to sell, a steep decline of your price would get the ball rolling again. You counter at $320,000 saying this is your best but last offer.

This action could spark the buyer's interest. He/She could accept or at least make a higher counteroffer.

Is There a Time to Walk Away?

There are only two reasons to walk away from negotiations. You are truly angry and will not lower your price.

The second is for effect. You are willing to take less, but you want the buyer to think you've made your last, best offer. You say, "Take my last offer or leave it. I'll give you an hour to decide."

As a tactic, walking away can start negotiations. You could get your price or lose the deal.

There are no guarantees when negotiating real estate. The final outcome is often determined by the following percentages:

10%--how good you are at negotiating

45%--how motivated you are to sell

45%--how motivated the buyer is to purchase

100%--luck

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Not sure exactly what you need to be asking about? These 10 questions to ask when buying a new construction home will help get you started.

1. Is the lot cost included?

   When you’re exploring new construction options, you’ll see that each plan comes with a base cost. This is the cost of the structure itself, as well as base interior and exterior features (we’ll get into those in a little bit). What may not be included is the cost of the land, so be sure to ask if the lot cost is figured into the base.

   If the lot cost is included, ask if there are premium costs for certain lots. It’s possible that the base cost does include the lot, but the remaining lots in the development all have added costs for certain features that you can’t opt out of, such as look-out windows in the basement or wider yards. If the lot cost is not included, ask what it is (and whether there are additional premium costs) and factor those into the base price for the house.

2. How long will building take?

   It’s important to know what you’re getting into timing-wise with a new construction build, particularly if you have a house to sell first or you’re going to be renting. While the building process is prone to delays and you won’t be able to get a finite schedule for how long the build will take, you’ll be able to get a general idea of what you can expect. Be sure to also ask if the build time includes the time it takes to get the permits, since those will typically take about 30-45 days to obtain.

3. What warranties are provided with the house?

   Just because a home is brand new doesn’t mean that no problems will arise. Fortunately, most new construction homes come with one or more warranties that protect you in the event of a mishap early on, including a short term whole-house warranty and a longer structural warranty. Ask what the warranties include and how long they last. While you can always buy your own home warranty, you should expect that the builder will cover you in some way for at least the first several years.

4. What are the standard finishes?

   Does a base cost look too good to be true? That might be because the builder is expecting you to spend big when it comes to finishes like flooring and countertops. Ask what types of finishes are included, and better yet, go through the model unit with the sales representative and have them point out what’s standard and what is an upgrade. You likely won’t meet with the design center until after you’ve gone under contract, so it’s important to figure out early what sorts of finishes and appliances you can expect to be included in the home’s base price.

5. Is landscaping included?

   Depending on the size of your yard, landscaping, including sodding and putting in trees and plants, can set you back several thousand dollars or more. Is that a cost you’ll have to factor in on top of the home purchase? Some builders include your basic yard work, while others leave you with unfinished land that becomes your responsibility to landscape (and generally must be completed in a set amount of time, per the contract). Ask whether landscaping is included, and if so, what that entails and if there is any sort of warranty on the materials so that if your newly sodded grass dies right away or some other mishap occurs you’re not responsible for fixing it.

6. Does the contract include a cost escalation clause?

   New builds are notorious for last minute surprises, but you don’t want to be on the hook financially if it happens. A cost escalation clause allows the builder to charge you for any unanticipated costs that arise as a result of necessary labor or materials. So if lumber prices go up before the builder has purchased the materials for your flooring, or an unexpected delay adds a few weeks onto the build, you’re on the line for those costs. If you’d rather not deal with the stress of unanticipated costs, find a builder that doesn’t include a cost escalation clause in the contract.

7. Are there any homeowners rules or regulations?

   Even if there is no homeowners association for the development, the builder may still set some guidelines as far as what’s allowed and what’s not on your property. For example, you may not be able to use a particular type of fencing or install a shed in your backyard. It’s better to ask this question early and know what to expect than to move in and find out that you can’t bring into fruition certain plans you had for the space.

8. Are there any financial incentives for using the builder’s preferred lender?

   Some builders offer discounts on closing costs if you obtain your mortgage through a company that they have a relationship with. Ask if these sorts of financial incentives are offered, but don’t make your final decision about where to get your mortgage based on the discounts alone – you may still be able to find a better deal through other lenders. It’s still good to know however if there are benefits to working with the builder’s preferred mortgage company.

If it’s your dream to build a new construction house, go in to the process with an open mind and a clear idea of what you can expect. The more questions you can ask in the beginning, the less surprises you’ll potentially face in the future.

And as with any home purchase, be sure to have an attorney read over your contract so that you can be sure everything is fair and equitable. Some buyers of new construction prefer to go in to sales meetings with a real estate agent as well, though in my own experience, I didn’t find that to be necessary. Be smart, ask the right questions, and at the end of the day (or fine, year) you’ll end up with a beautiful home built just for you.