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The $60,000 Question

Recall from my previous E-note that my clients were looking at a home with an asking price of $650,000 and stated to me “They would not pay a penny over $600,000.” I responded, “Let’s first see what the home is worth.” Our market analysis pegged the value of the home in the range of $535,000-$550,000. We had a problem.

On its face, buying the home for $600,000 – $50,000 less than asking price – would appear to be a reasonable purchase. The majority of home buyers, anchored at the $650,000 asking price, would certainly be pleased with a purchase at $600,000. After all, it would be purchased for $50,000 less than asking price.

At Homebuyer Associates we ask a different question, “What is the home worth?” Therein was the problem. How do you buy a home (or do you buy a home) for $535,000 with an asking price of $650,000?

When negotiations begin we can’t tell the listing agent we’re smarter than they are or that our data is better than their data, but we can do some things in the negotiation process that most often lead to success.

The negotiation on this home actually started with a showing report. A showing report is a follow-up report to the listing agent after a client has looked at a home. The report is a computer generated report to let the listing agent know how the person (our client) felt about the home. My opinion is this report can be used to help or hurt buyers. We use it to help, but then again we only work for buyers. The balance of the negotiations occurred in the Offer and Counter Offer process.

Tied closely to the concept of anchoring is the “dance.” The dance is when the buyer starts low and the seller counters high and they each dance towards the middle. In most cases the question of worth is not asked, so the middle may still be the wrong place for the music to end.

In this instance our clients followed our lead (get it?) and started at value, $535,000 and ultimately purchased the home for $540,000.

Had they danced they may have missed out on the home, for while dancing over a 7-day period, someone else may have waltzed in and bought the home. Had they followed the anchor approach, they would have paid $600,000 for the home and told their friends, “We bought the home for $50,000 less than asking price.” I would have said they paid $60,000 more than it was worth (The $540,000 purchase vs the $600,000 they were willing to pay.)

If the anchor was $650,000, the question – what is it worth – was their lifeline. If you are interested in learning more about how to buy a home – or how to sell and buy a home meet me at Alterra Coffee and we can talk. Next, the market analysis helps a client not buy a home.

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Homebuyer Associates
1835 N. Riverwalk Way
Milwaukee, WI 53212
Phone: 414-254-4129