Reader Question: We made a good offer on a home. The seller countered with $40,000 higher than our offer. According to our agent, the house is not on the market, so they are saving about 3 percent with a lower commission. The house needs significant upgrades. The bathrooms and the kitchen are original, and the house is very tired. The furnace, air conditioning, roof and water heater are at or past the end of their expected life. Any advice on getting them to see reason?
Monty’s Answer: How much do you know about the seller’s reasoning? Does the seller have other opinions of value? Has the seller shared a reason for selling? Do you know anything about the seller’s circumstances? Has the seller tried to sell on their own? Did the seller quote a price to you before you made the offer, or is your offer based on your agent’s analysis? Is your agent dealing with the seller?
Many home sellers believe their home will sell right away. Your quick offer could reinforce that belief and embolden them for such a counter offer. Another factor to be aware of is that if a seller gathers multiple opinions of value, in most cases, each agent will come to a different conclusion than the others. These opinions can vary 25 to 30 percent, which translates to big bucks. While it is possible that their counter-offer is too high, it is just as likely your initial offer was too low. Your agent could be low, and homebuyers often over-compensate for repair and replacement costs. Only rejection in the open market will convince some sellers of their high price.
The seller does not see your agent as working for them. From a timing viewpoint, the seller has not had the opportunity to "test" the market. A well-reasoned opinion that contains good comparables and value adjustments to the comparables for feature differences may help. Here is an article at https://dearmonty.com/challenge-home-appraisers/ that explains feature adjustments.
If you have the time and inclination, here are a few tips that may be helpful. Your agent has to be on board because they will be doing much of the work. They may push back because they are putting in time that is not guaranteed, but you are the client.
— Have your agent research homes that are selling at the counter-offer price and make feature adjustments comparing the sellers home. Both you and the seller could be influenced with the results.
— Offer to take the seller on a Sunday home tour of the competition, or arrange a showing for the most comparable home. The seller may see a benefit from actually viewing a competing property. It is very different than looking at a sheet of paper.
— Make a "beat my price" offer. Offer the seller your price, but give him time to beat your offer. If the seller accepts your offer, they have 90 days (or some mutually agreeable days) to find someone who will pay more. If they can produce such an offer, your offer is null and void (or you could agree to pay "X" more than the offer they produced). The chances of success here depend on the seller's motivation, the state of the market, and the home's price. You want your agent to draft the offer, but have it reviewed by your attorney. Many agents will never have been exposed to this contingency.
— Using photographs, ask contractors to give you non-binding "guestimates" on the updates, HVAC, bathrooms, etc. based on the size of the rooms and scope of work. This may help both you and the seller. You may learn the cost is not as much as you perceived, and the seller may learn it cost more than they realized.
— Make an "average of two appraisals" offer. Each party picks their appraiser. The proposal states how to use the appraisals in reaching agreement on the price. For example, the sale price will be the average of the two; or the highest; or the lowest appraisal. The results would be non-binding, so the transaction may ultimately fail, but it may convince them because they see this as an independent exercise, especially if your appraiser comes in higher.
When you have obtained all the information you can, and you have tested the seller for openness and willingness to communicate, you can decide which, if any of the tips may help bring the two of you together.
— Richard Montgomery is the author of "House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home." He is a real estate industry veteran who advocates industry reform and offers readers unbiased real estate advice. Ask him questions at DearMonty.com.