[The following is the fourth part in a series about my adventures to buying a vacation/retirement home. It may make more sense to read it after Buying a Vacation/Retirement Home and Buying a Vacation/Retirement Home (Part 2) and Buying a Vacation/Retirement Home (Part 3). There’s also a prequel at Time to Buy that Vacation/Retirement Place?.]
I feel like this journey is getting a little long, especially for those you who aren’t in a house-buying state of mind. With that in mind, I’m going to condense the story quite a bit. When we last left, there we had 6 places that we liked. In dollar per square foot terms, two represented very poor values, but my wife liked them. By the same measure, two other properties were great values, but one is a slightly questionable part of town, and the other was a slightly creepy, unfinished mansion.
We limit ourselves to the final two
The two leftover properties in the middle of the value, hit exactly what we were looking for. They were both recently renovated. One was average size, with a small year, but near the beach. The other my wife described as the Barbie Dream home, bigger and better, with more land… but it was further from the beach and really stretched our budget to the limit… maybe even going a little beyond it.
Time to feel out the sellers
We decided it was time to start placing bids. Our agent did a good job of calling up the seller’s agent and fishing out what would be an appropriate starting point. He did this by crafting a story and saying, “My clients don’t want to embarrass themselves with a poor bid, but how about something in [this range].” The value for this range seemed to be around 18% off the asking price to about 10% off the asking price. For example, if the place was 300K he’d say, “They were thinking of something around the mid 200s, how do you think your client would feel about that?” The typical response was that a mid-200 would likely be rejected, but that a high-200 bid would be taken into consideration.
There was a lot more information given up by the sellers such as the couple’s desire to move more quickly or wait until the summer market. It was hard to trust whether the seller was really looking to wait, but a sign that they want to move quickly definitely adds to our negotiating leverage.
Time to make the bids
With the information from our “feeling out”, we learned that the while the people at the Barbie Dream House seem to be in a hurry to move, they’ve already rejected some offers around the 8% off their asking price. We would need them to come to at least 12% off to begin to entertain it and 15% off to really consider moving forward. This didn’t seem likely.
The other house (the one near the beach) implied that a bid at 20% off the asking price would be asking for too much, and that around 15% wouldn’t be a bad start. We decided to float a formal Purchase and Sale agreement at 16% off their asking price. They countered by reducing their asking price by 2.3%. We decided to offer a number at 13% off the original asking price – a sizable sign of goodwill on our side. They countered by offering a price that was 4.7% off the original asking price – not much of a move from before. Despite their poor counter, we decided to try another sign of goodwill… we suggested we split the difference at 8.8% of the original asking price. That was painful, because we had given up significant negotiating ground already. They countered by suggesting 5.9% off the original asking price – their lowest concession yet.
If we were to accept that, we’d have come up in price twice as much from the reasonable starting point (that their agent suggested) than they would have come down. I think the goal of a negotiating is that each person should have a good feeling about the result. I was certainly uneasy about even offering to split the difference after already giving up the biggest concession. Anything less than agreeing was “walk away” time for us.
That’s just want we did. We didn’t even respond to the final counter. Their negotiating tactics have left us quite bitter. At this point, I wouldn’t take it if they came back accepted our offer to split the difference. They would have to work their way back to giving us 10% off of the original asking price. I’m penalizing them for being greedy.
In the meantime, we are turning our attention back to the Barbie Dream House. With a couple of weeks passing by and their original desire to be in a hurry to make a sale, perhaps we can swing a deal.
IPA @ investmentpropertyasset.com says
Good for standing your ground. Especially on the purchase of a vacation/retirement home you can be picky and take your time. Before my wife and I purchased our first home we put an offer on a condo that we felt was way over priced. At the time I was acting as my own agent as I have an RE license in CA. I did some research and submitted an offer on par with other property sales and listings within a 5 mile radius. Of course it was rejected and we walked away. I asked the agent how she based her price and she said the entire region, good luck selling any properties when doing that. I’m enjoying this series!
Mr. ToughMoneyLove says
“Penalizing them for being greedy.” Really? So if they caved and met your prior offer, you would turn it down? It’s not like you would be doing business with these folks again and therefore had to define some boundaries. No offense, but emotion like this won’t get you very far in the negotiating business.
Lazy Man says
Sorry, Mr. TML, I disagree. We bent over backwards twice and gave up more ground than we wanted to in order to get things done quickly and easily. Now that things haven’t gone quickly and easily, I don’t see why should continue to offer the “quick and easy” discount.
While there’s emotion, it’s also quite logical.
Sandy @ yesiamcheap says
I’m with Lazy Man on this. He can afford to walk away from a million of these homes. Coming down only 5% isn’t realistic in this market. We I selling I would probably be prepared to come down up to 8% off a reasonable asking price.
Barbie Dream Home people were not motivated enough I guess. Perhaps now you can score a good deal.
I’m with IPA on following this series.
Lazy Man says
Thanks Sandy. I think you hit the nail on the head on something that I might not have mentioned since the beginning. We don’t need to buy a house at all. We recognize a potential buying opportunity and are looking to take advantage of that. We probably got too emotionally invested in the house to even offer to split the difference to begin with. This gives us a chance to review our thinking.
Dr. Timothy Lawler says
Good for you! Set your limit and stick with it! My wife and I just bought our first place, and we had the same thing occur. If it doesn’t feel right or the negotiation starts to get out of control, just walk away. Never feel pressured. You guys did good!
Big - D says
I think there are a few things here that I wanted to comment on. First off I agree completely with what you did on the price. Any price, no matter what market, is up for negotiation. I have lived in the hottest markets around and never sold (8) or purchased (9) any of my places for anything less than 5% below asking price. If they are unwilling to take anything but the asking price, then they have it priced wrong. As for what you did, I don’t know specifics, but I can say that if you hit them 15% off the price and came up and they are coming down only so little, walk away. I had a place where the place was overpriced by 40 grand and I put in a bid where it should have been. They balked and came back taking 5 grand off and I came up a little as I knew this place would need work. They said no, I said no and we walked away, after my final offer (and telling them as such) and telling them what was wrong with the place and what would have to be done to get it to the price they were asking. 6 months later, I get a call and they tell me they want to see if I am still interested. I was, but said I was not going above my final offer, and they said sure, and they had performed all the upgrades which I suggested as their real estate agent knew I was right. So I got a place with tons of upgrades (new floors, new faucets, freshly painted walls, etc.) for 30 grand below the asking price. Patients is a virtue.
Secondly, I hope you are not looking exclusively at the $/SqFt. You bring it up but I find that to be a totally worthless option. You can have a house which has a high $/SqFt but has a lot of amenities, and things that you will like (wood floors, marble counter-tops, etc.) However if you look solely at the $/SqFt, you will get yourself a place with a $5 kitchen counter, and cheap floors and lots of empty room space (the SqFt), but not a lot else in the house. If they have done upgrades (new toilets, new showers, new furnace/water heater, etc.) then it might be worth more and paying a higher $/SqFt.
Lazy Man says
There are a lot things wrong with going with solely $/sqft. I hope I didn’t imply that in any way. As you mentioned, it doesn’t reflect on quality (or maybe it reflects on what is likely poor quality). However, I was combining it with newer construction. That was a good filter because the new construction meant that you didn’t new toilets, showers, etc. The pictures will generally tell you if it’s a $5 kitchen counter. Anything like this got eliminated. We had to keep going up in steps of $20 (in terms of $/sqft) to find places that qualified. For example, we found 2 places at $130-150 range and eliminated a dozen. We then looked at $151 to $170 and found a few more, eliminating around 10.
This approach gave us a good list of things that were frugal and quality. Some of the places my wife chose to look at before doing this analysis were $260-$280 a square foot. They weren’t any better quality – just more expensive.