Better Ask For Full Concessions Or Offer A Much Lower Price

Dated: 09/19/2016

Views: 108

Q: Interested in buying a home but it's easily $10,000 over priced. (And furnace is dated) We would need help covering closing costs if our offer was taken, but would it be better to offer a lower price for the house or offer full/close to full to gain seller concessions? I've been told you either pick one or the other...hoping for a middle ground?

A: Michelle - thanks for your question... and it's a good one. 

A negotiation is very much a dance. Without knowing all of the details, it's very difficult to provide an answer. I don't know your market in Michigan... but the negotiation starts with an understanding of the market. Is the market a Buyers Market, Neutral, or a Sellers Market (this is a ratio known as Absorption Rate)? What type of market is it in the price range of the home you're considering? How long has the home been on the market? How did you determine that the home is overpriced?

Let's say you're right... that the home is overpriced by $10,000. If I assume the home is listed at $250,000, then you believe the value is $240,000. You have a few alternatives:

  1. You believe there are $5000 worth of repairs to be done... so offer $235,000. This means that you will be responsible for making the repairs from your savings once the property closes.

  2. You can offer $240,000 and ask for $5,000 credit for closing costs/prepaid items. This will reduce your out-of-pocket expenses at the closing and leave you with the $5,000 to do the repair work since you didn't take that money out of your savings. Essentially, you are financing the repairs amortized over the life of your loan.

If you're in a hot market - and you can tell by looking at the Absorption Rate, noted above, and the Pending Ratio together - it may be challenging to write an acceptable offer below market value. If you're in a more neutral market, you may have a higher likelihood of success and get the terms you want.You really need your agent to help you understand what, exactly, the market is doing so you can start to put a plan together. Once you understand the market data, you can start to play with the offer price, the downpayment, and any additional terms like closing credits.

Good Luck!

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