Help me Re-Negotiate

December 19, 2007 4:29 PM

The appraisal came in low. Buying a house with no real estate agents involved. Offer contingent on appraisal. Re-negotiation strategies needed.

The appraisal is 95% of the offer price. It does not affect financing. We re-negotiated after the inspection and the seller is fixing a bunch of stuff, as well as taking 1,000 off the price. Price is 190,000, appraisal is 180,000.

Seller has dropped price consistently over 8 months. Seller may be cash-strapped. I've invested 1500 in inspections, appraisal, lawyer & financing fees. I'm in love with the view, and really ready to move.

posted by theora55 to home & garden (21 comments total)

In that situation, I would drop the offer to, at most, 10% less than appraisal.
posted by The World Famous at 4:46 PM on December 19, 2007

At most.
posted by The World Famous at 4:46 PM on December 19, 2007

I know you love it.

That aside, you are probably paying too much. Go back to the seller and tell him you must pull out of the deal unless he can drop the price to the appraised price.

No one else is going to get approved at a price that far above the appraisal. This is a falling market; the appraisal will go down, not up in the next few months. If the seller is motivated (8 months and cash strapped), then he'll work with you on price.
posted by 26.2 at 5:49 PM on December 19, 2007

$1,000 off the price is nothing, that's last-minute negotiation territory. If you really want to show the guy some numbers, tell him if he doesn't sell it to you now at the appraised price of $180,000, he's most likely going to be sitting on it for a while. And if he eventually gets tired of this and does hire a real estate agent, he can expect his cut to be that $180,000 (if he's lucky) minus the 6% or whatever is standard for your area. At the 6% rate, he's paying out $10,800 to the agent(s) involved. So he can be out $10,000 from his asking price now, or potentially $20,000+ if he tries to wait it out.

This is not a seller's market. If he's still not willing to go that extra $10,000 off, he either is mortgaged to the hilt (this is where second mortgages, AKA home equity loans, really get people), has lived in the house a long time and overvalues it compared to the market, or who knows what else. As a real estate agent, I often see people way overestimate the price of their home, especially in a volatile market. If a seller can do it without an agent, more power to them.

I know this is hard to hear, but $1500 invested into this house is virtually nothing. You have to consider that a sunk cost, and you do not want to buy an overpriced house in a falling market.
posted by shinynewnick at 6:28 PM on December 19, 2007 [3 favorites has favorites]

to add to Shinynewnick, the appraised price is most likely the price that your insurers are looking at and basing their decisions on. Make the offer at the appraised price. I nthis market, only a fool wouldn't take it.
posted by kuujjuarapik at 7:01 PM on December 19, 2007

1. Approach seller and state you are retracting to 5K under appraisal to account for near-certain depreciation over the next 9-12 months.

2. If no budge, kindly pull the offer.
posted by omidius at 7:12 PM on December 19, 2007

The fact that you have put in $1,500 is irrelevant. It's a "sunk cost", meaning that you are not going to get the money back regardless of any future decisions. Therefore it should not affect any future decisions.

Suppose you pay $10 to go to a movie, and after five minutes you decide it's a really bad movie, and a waste of time to watch. Your options are:

(1) Walk out of the movie. Result: you lost $10.

(2) Sit through the movie because you paid $10 for it. Result: You've still lost $10, AND you wasted your time on a bad movie.

Which decision costs you more?
posted by mikeand1 at 7:15 PM on December 19, 2007

I'd also - just for my own sanity - check neighborhood prices on Willow.com, just to see if the appraiser's out of line. It's been known to happen.
posted by Dee Xtrovert at 7:55 PM on December 19, 2007

it's zillow.com.
posted by violetk at 8:44 PM on December 19, 2007

You may not want to go this route, but you could always ask the appraisers for a second, more in-depth appraisal.; sometimes they are just done as a drive-by plus comps and don't take improvements into account. It may not get you to the number you want, but at least you'll know they've done due diligence.
posted by Sweetie Darling at 8:52 PM on December 19, 2007

Also, you don't want the seller fixing stuff. You want dollars off the offer. If the seller is fixing things, you bet your ass they are doing it on the cheap and you will have to do it again later for more money. I know you want to move, but be prepared to pull the offer off the table if the sellers don't come down 10-15k.
posted by crazycanuck at 9:04 PM on December 19, 2007

The real estate market is such that you can adopt a "take-it-or-leave-it" approach with sellers. In fact, that is what we did with our recent house purchase. We submitted our offer, told the sellers we had other houses lined up, and said that we would not consider any counteroffers. They took our offer.

The seller needs to drop the price to match the appraisal, or else you'll walk. You can bargain hard on the next property and easily make up the $1500. You'll just have to look at this one as one that was just "not meant to be."

What he or she has done with the pricing of the house over the last 8 months is not something that concerns you. People overprice their houses all the time.
posted by Ostara at 9:31 PM on December 19, 2007

Well, $190,000 vs. $180,000 assuming 5.75% interest and no downpayment (I'm imagining this isn't quite the scenario, but anyway) is an extra $58.36 every month, for a total of $21,000. If you negotiate harder, you can buy yourself a new pair of jeans every single month for the next three decades. Or, you know, save it in the bank or something.

(Also, where are you buying houses with great views on the east coast for only $180K? Pray tell.)
posted by salvia at 9:39 PM on December 19, 2007

There is a chance the appraiser is off, it certainly happens on both sides of the price. Real estate agents often complain that appraisers are 6 months - 1 year behind the current market, which is more of a "problem" for agents and sellers in a rising market (or for buyers in a falling market). That being said, I don't think there are many rising markets out there right now, you'd be lucky to be in an area with a slower decline.

Real estate prices are determined by the market. Even if the house truly is "worth" the $190,000, the market may say otherwise. And all other houses are under this same rule - this appraiser will come through the neighborhood and use the same numbers to value the next house - say at $175,000 for a neighbor's home similar to yours. When you go to sell this home, you could be out that extra $15,000 you spent up front, and as salvia showed in the previous comment, every extra dollar financed truly ads up over the years.

After re-reading the question, I think the seller is reluctant to lower the price because they overpriced to begin with (whether they know it or not). They were initially asking more than $190K, as you said you renegotiated after inspection and the price has dropped steadily over 8 months. So it's not really a negotiation of $10,000 in the seller's mind, but more likely a negotiation of $20,000 or more from their original asking price - which was too high to begin with. Unless they truly are motivated to move - another house ready to move to, mounting financial pressure - you may have to let your dream view pass you by for now.
posted by shinynewnick at 7:37 AM on December 20, 2007

Are you a first time buyer? What kind of down payment do you have and is there a mortgage contingency in the sale agreement?
posted by butterstick at 8:45 AM on December 20, 2007

What I really need is the strategy for approaching the seller. I plan to ask for a reduction in price, but need some negotiating tips. I should have written the question better.

This has scrolled off, but it's not my 1st home purchase. I'm financing with equity loan on existing home, which I have decided to sell. I came at all of this quite sideways, but that's another story. And it turns out you can get a lake view on the east coast.
posted by theora55 at 10:56 AM on December 20, 2007

"... I plan to ask for a reduction in price, but need some negotiating tips. ..."

Well, opening with the low appraisal is certainly one good gambit. Whatever issues you have from the home inspection, if any, could be another goal for you in the price negotiation.

At this point, you've indicated a willingness to pay a higher price, and if you've discussed financing with the seller, you may have given away that you have financing at that price. In the worst case, you may even have made an offer at that price, with limitations on conditions for cancellation, and re-negotiation, in consideration of which, the seller has been holding the home for you, and turning away other offers. If your only financing contingency was appraisal value, that's really all the factual basis you have for asking for a lower price. Everything really depends on the terms of your offer.

But...

People walk away from residential real estate deals for irrational reasons, all the time. You can, too. Anything that makes you "uncomfortable" about the transaction, including the price you're paying, is reason enough to walk. Your $1,500 is sunk cost, as may be any earnest money or cancellation contingency fees, but until you close, you can walk away.

The threat of walking away is, ultimately, your biggest negotiating point, assuming, of course, that you actually are willing to walk away, if you don't get the price concessions you want. If you're not willing to that, don't fake it, however. There's nowhere to go in a negotiation, if somebody calls your bluff.
posted by paulsc at 3:40 PM on December 20, 2007

This is where my Realtor earned her money. Anyone can find a house, but negotiating and renegotiating is really worth the 6%. That's not your situation and bringing in agents will most likely sour the deal. Here is what I learned from the agent process that you can incorporate into your strategy. Agents give you some time to have a tantrum and then regain your composure. A home transaction is emotional on both sides, people do need some time to think through the details.

First, if you have an option where you can leave an email or a voice mail, do that. Explain that there is a problem with the appraised value. Give the seller fair warning.

Second, talk to the seller and explain the appraised value and the concessions you'll need. Clearly state that you know it's a big decision for the seller and you don't expect an answer for 3 days. That gives the seller time to go through anger, panic, and finally start making some sense of the situation.

Third, in 3 days call and find out your answer.

Other than giving the seller time to respond, I don't think there's much strategy involved. You aren't purchasing at the price you offered and you need a concession of XX dollars.
posted by 26.2 at 3:55 PM on December 20, 2007

See, if you ask the question right, you get better answers. Thanks.
posted by theora55 at 10:31 AM on December 21, 2007

Followup: emailed the seller w/ a copy of the appraisal. Waited a couple days, then called. He dropped the price to the appraised price. Yayy! thanks, y'all.
posted by theora55 at 6:49 AM on December 27, 2007

Congrats, hope all goes well with the new home.
posted by shinynewnick at 1:08 PM on December 27, 2007