With properties sitting on the market longer, buyers and their brokers are exploring how low they can go with offers, and a once unspoken word is getting much more common in real estate transactions.
“There was a time — about a year and a half ago — when ‘negotiate’ wasn’t even in our vocabulary,” said Citi Habitats sales manager Sara Rotter.
Times have changed, and while agents say properties that are priced right can still fetch enough offers to set off bidding wars, in most cases, there’s no frenzy.
Buyers are taking more time to make a decision and trying to get apartments for below asking prices. It’s a strategy that, depending on how motivated the seller is, can yield a great deal for the buyer. But that strategy, if not handled properly, can insult a seller and kill the deal.
The question remains: how to manage the often delicate negotiations between a firmly convinced seller thinking of one price and a buyer who believes he has leverage in the absence of a long line of competing bidders banging down the door?
An offer within 5 percent of an asking price is usually OK and within 2.5 percent is “very reasonable,” said Jorden Tepper, sales director of Manhattan Apartments and Manhattan Lofts. “In this market, you’re seeing a lot of offers within 10 percent, which is not necessarily an insult, but below that threshold it can really be a tough negotiation.”
How low sellers are willing to go depends on their motivations for selling. If sellers have deep emotional attachments to their property, for example, they might refuse to work with a potential buyer who comes in with a low offer.
“We got an offer with one of my listings that was 15 percent below the ask price,” Rotter said. The seller wasn’t pleased, questioned whether or not the buyer could even afford the apartment and said he didn’t know if he “‘wanted to work with a person like this who’s trying to lowball me and work me down.'”
A more business-minded seller who keeps up with changes in the market or an investor — whose chief concern is to make a certain profit margin — might see things differently than more emotional buyers, Tepper said. It’s usually easy to see which sellers are just testing the waters to find out how much they can get, he said.
Sometimes sellers need a gentle reality check.
Laura Matiz, executive vice president in Bellmarc’s East Side office, said she gives sellers data on recent comparable sales and will counsel a seller to consider an offer lower than their expectations six months to a year ago.
“If they have to come down, it’s still not dropping dramatically. Say, on a $1 million property, maybe it’s $50,000, and, if they really need to sell, is $50,000 going to change their life?” Matiz says. “Most of the time, it doesn’t.”
Another reality check for sellers can be choosing a lower offer from a buyer who is more qualified and more likely to pass co-op board approval than a buyer making a higher bid, Tepper said.
“A good broker is going to look very closely at the financials of that purchaser,” Tepper said, “because if they do not fit the criteria of the co-op it could be a waste of time for the seller because they lose time and money.”
Whether representing the buyer or the seller, educating them about the market is crucial, agents and brokers say.
“You have to be straightforward and not only provide market data in regard to comparables, but, assuming the property is marketed in an aggressive way where it is exposed to the entire broker community, and is being advertised in the right way and it’s still not selling,” Tepper said, “you might want to re-strategize and think about lowering prices. And you have to encourage the seller to do so, and you have to be very direct about it.”
Things can get just as tricky when representing buyers. In order to get the best deal possible for a buyer without insulting a seller, Rotter says she finds out as much as she can about why the seller is selling and how long the property has been on the market.
She also tells the buyer what she thinks a fair price would be for the property, backs it up with data, and finds out what the buyer wants to pay. Finally, she delves into the highest amount they’ll consider without feeling as if they overpaid. “If an apartment is priced at $600,000 and the buyer wants to pay $580,000, we might offer $560,000 hoping to get somewhere near $580,000,” Rotter said.
When making an offer for lower than the asking price, Rotter says she will sometimes go to the seller’s broker and explain why they are making the offer at that level.
In one case she’s currently dealing with, there are two units in the same building. One is larger and more renovated but less expensive on a per-square-foot basis than a smaller unit with fewer improvements. Her buyer wants the smaller, less renovated unit. She’s approaching the seller’s agent with the argument that the lower price per square foot on the larger unit should push the smaller unit’s seller into selling for less than the current asking price.
No matter how much data and advice that a broker provides, some buyers will insist on putting in the offer they want to make.
“Even if we feel it’s way too low,” Rotter said, “we have to submit any offer.”