Part of
being an effective negotiator is realizing who has the leverage in a
negotiation. Conditions can change – and
they do – which means the side that may have the advantage in one market may be
at a total disadvantage in another market.
That’s
pretty obvious, but it’s amazing how slow people are to adapt.
Right now,
due to record low inventory, surging prices and extremely strong buyer demand
(especially below $300,000), sellers have the upper hand. Homes at the lower price ranges are getting a
ridiculous number of showings, and properties that are priced with some modicum
of common sense and which aren’t completely falling down are regularly going
under contract in a day or two.
That’s a far
cry from 2007-2010, when buyers wouldn’t even imagine the thought of writing a
full price offer and homes languished on the market for months at a time. (Distressed inventory also made up nearly 50%
of the active market during this time, too, as opposed to 5% today)
So realizing
that times have changed, you have to change.
If you’re a
buyer, that means recognizing you are likely to be in competition for any good
property, which means you need to tone it down with your list of demands and
realize that there will be no future equity gains for you if you don’t find a
way to own a piece of something.
With
sellers, that means you might be able to sell your home on an “As Is” basis,
meaning you are telling buyers that “what you see is what you get”. No repairs.
Now every
situation is different, and so this isn’t a universally applied principle. It’s a tool – one of many in the negotiation
toolbox.
If I have a
buyer and we’re looking at a clean property that’s sure to attract intense
interest… I am now talking to my buyers about the “As Is” purchase. We still get to do inspections, and we still
have the right to cancel if something unforeseen turns up in inspections. But if the house is what we think it is,
we’re telling the seller in the contract that we are prepared to go forward “As
Is”, subject to an inspection for buyer’s knowledge only (but retaining our
right to cancel).
For many
sellers, who dread the inspection process (we’ve all heard horror stories,
right?), it’s much easier to say yes to the “As Is” buyer than someone who
might carve you up and cause you heartache by nitpicking, or worse yet, tearing
you apart on inspections.
If you can
reasonably expect 5% appreciation in the coming year (which is a strong
probability at the lower price points), a $250,000 purchase will net $12,500 in
equity gains in the coming year. If you
forego $2,000 of possible repairs to secure a $12,500 gain in 12 months, that
still makes plenty of sense.
This past
week, I closed on my first “As Is” listing in many years. I sold a ranch home built in 1971 that had a
fair amount of deferred maintenance – nothing fatal, but a lot of little
things. Old paint, old carpet, old wood
trim, aluminum wiring, an older roof, old appliances, an older furnace.
Because of
the price point and the location, I knew we would get a lot of showings.
If my
sellers started to address these issues, my fear was that it would only make
the other deficiencies more glaring. If
he painted, the carpet would look bad.
If he updated the appliances, the dark wood would be out of place. If he replaced the furnace, why not the
roof?
In this
case, we decided that whoever would buy the house would probably want to do a
total remodel, so why gum up the works by starting a handful of projects?
So did we
discount the price? Not really. We just braced for the fact that this house
would not be for everyone.
What’s
different today is that when you have a dozen motivated buyers coming through
in the first two days, you don’t need all 12 of them to love your house or love
your price. You just need one.
And so that
“As Is” strategy, which would have been unthinkable 24 months ago, is now a
viable option for many sellers.
Again, I
must emphasize that every situation is unique and these strategies are not
universally applicable. But in some
situations, they make all the sense in the world, whether it’s writing an “As
Is” offer for a buyer or offering a property strictly “As Is” for the
seller.
The “As Is”
sale is merely another tool in the negotiation toolbox, albeit one that hasn’t
been broken out on a widespread basis in many, many years. But then, we haven’t had a market like this
in many, many years.
Change is a
fact of life. The market has
changed. You must be willing to change
your thinking as well.
