Pricing the home

My first exposure to bargaining was in grade school. I played the part of a Mexican vendor giving advice to his new gringo friends. I still remember my lines (after all, it was my debut!)  “First, ask the vendor how much the pottery costs; his price is double the cost. Offer him less than cost, but enough so you meet in the middle and you are both happy. Senor, you should never be mad or act insulted . . . bargaining should be a game everyone enjoys.” Buying a house is not like buying a pot in old Mexico, but there’s a message here for us all. First, you must know the rules before you begin to bargain and have some understanding of how the Seller has priced his home. Second, don’t take the process personally. Even though buying or selling a home is one of the most personal of decisions, you will be much more effective in your bargaining if you remain detached and enjoy the process. 

A few weeks ago I took my clients Pat and Kim house hunting. We visited two homes in an upscale neighborhood. They were comparable, except that one had a pool and a remodeled kitchen and was priced much higher.  I knew my buyers wanted a remodeled kitchen and a pool but I took them by the other home to give them a reference for bargaining. The problem was that the Seller of the upgraded home added too much room for bargaining and then included the cost of all those extras right on top. I had already given Pat and Kim a Comparative Market Analysis of these homes so they knew what comparable homes had sold for in the neighborhood. They quickly realized that this Seller had priced himself out of their bargaining range. They decided they could buy the less expensive home and then add the pool and kitchen of their dreams.

The two parties could have found common ground if the Seller had really been aware of the market value of his additions.   Pat and Kim would have seen that they were getting a benefit if the Seller had not priced the home so high to bargain. As a Seller, it is better to stay firm with a realistic price than price the home to bargain down. But how do you find that magic number? You must dispassionately compare the property to those which have sold and avoid putting a high price on upgrades. In today’s market, most upgrades add less than half their installation value to the price of a home.

Buyers and Sellers should go through the same process when trying to decide upon the purchase price of a home. When they don’t, bargaining to an agreed price often leads to heartache and hard feelings if not a lost sale. Whether you are a Buyer or a Seller, take a realistic look at the market in your area. Get an appraisal or ask your Realtor to provide you with a Comparative Market Analysis. The more you know about the homes which have sold in the neighborhood in the last six months, the better armed you are for a successful negotiation.