Buying or selling a house can be a little like mastering an intricate dance. The seller makes a move, a buyer responds, then the seller may take another step. The entire process can involve many issues, but it usually serves to narrow the difference between the asking price and what the property will ultimately sell for. The offer price begins the negotiations.
The Asking Price
If you're the seller – and particularly if you're not using the services of an agent or broker – your challenge is to determine what your property is honestly worth in the current market. This means throwing emotion out the window, because you can't expect a buyer to feel the same about your home as you do, particularly if it holds fond memories. Your asking price is the opening salvo in the process of selling your home, and it shouldn't reflect what you hope or even need to get for your property. If a real estate agent helps you set the asking price, he'll probably base his recommendation on a comparative market analysis.
This involves determining what similar homes have sold for in your area, then adding or subtracting to that price based on unique features or problems with your home. Overpricing your home won't net you what you're asking for if a buyer can find the same features in another property for $30,000 less. He has no reason to pay you more – he can buy the other property instead.
The Offer Price
Buyers have a different challenge when determining how much to offer on a home. Many go into the bidding process assuming that the seller's asking price is a little higher than what he honestly hopes to get. The art lies in how much less it's acceptable to offer. This may depend on several factors, such as the seller's need to find a buyer quickly, how long the house has been on the market, and the norm for a particular location.
If the seller isn't desperate, he might feel angry at an offer that's 25 percent less than what he asked for. He might refuse to bargain further. By the same token, if the house has been on the market for a year, even an offer 25 percent less than the asking price might open the door for further negotiations.
Counteroffers Fall on Medium Ground
An offer is not a legally binding contracts unless the seller accepts it. If a seller doesn't accept a bid as-is, without changes, the buyer isn't obligated to make good on his offer. Only rarely will a seller grab an offer without countering it. This is all part of the negotiation process, and it can go back and forth several times until a final deal is reached.
For example, you might offer $25,000 less than the asking price. If the seller isn't offended by that and doesn't refuse to negotiate, he might make a counteroffer indicating that he'll accept $10,000 less. The final price might be somewhere between the two figures.
Negotiating a Sales Price
Real estate negotiations involve a great deal more than just the asking price and the offer price. You can negotiate other aspects of the deal as well to entice the other side to come up or down on their price. You can offer a better settlement date or to pay closing costs. The bottom line is to keep talking, because if either party refuses to respond, the deal is typically dead from a contractual standpoint. Counteroffers are only legally binding when the buyer accepts their terms.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.