Is there anything more anxiety-provoking than making an offer on a new home? How the hell do you come up with your price? We were clueless about the whole process. We’d been preapproved to a certain amount before we even started shopping, so we knew what we could afford. Our real estate agent showed us the “comps,” or the recent selling and asking prices for comparable units in the same building or street. But looking at comps is a little bewildering, too.
The unit we were interested in was way overpriced. Even as rank amateurs we could see that, as we scanned the comps with glazed eyes. The owner had high-balled the price by about $20,000. What should we do? Low-ball her? Will she laugh and walk away? If so, do we care? Let’s see what the comps for this particular building tell us…
First, no two units are identical. Just say there is a unit that’s two floors higher than yours that was sold six months ago. Being on a higher floor, usually means it fetches a higher price. Say it has granite counters, and yours are Corian or some-such thing. Granite usually adds a little more value to the price. But it has one bathroom and yours has two. Now it all gets confusing. Yours is more valuable in that way, right? But how do you negotiate all these factors, when both units have positives and negatives?
The unit on the higher floor sold six months ago, and we’re in a new selling season, so presumably prices have shifted upwards a little – or have they? I’m the buyer, so I can try and set my price can’t I? Totally befuddled by all this, we decide to low-ball this buyer.
Then the psychological component of homebuying kicked in. What if the owner says no and walks away, and someone else is waiting in the wings to snap it up? What if we overpay? We’ll kick ourselves as we wait and wait for our new home to appreciate, and we’ll feel irritated every time we have to go without that extra drink at the bar, because of the oppressive mortgage payments.
Even though we low-balled the unit owner, it wasn’t a true low-ball – we felt like we had to bridge this yawning gap between her offer and the last comp price. Given that we’re currently in a buyer’s market, this was silly reasoning.
We ummed and aahed over a thousand dollars here and a thousand dollars there, and eventually we went with a figure that was one of my lucky numbers (Note: don’t try this at home – we were tired, and the bar was beckoning), just to get the damn paperwork finished.
She counter-offered with a figure that was just a couple of thousand dollars higher, and we agreed. We didn’t end up buying this place (but that’s a subject for later in the week), and I’m glad. We learnt so much from the process. The main lesson I learnt was to treat everything as a business transaction and not to want anything too badly.
We have a saying where I come from: “It’s small beer,” meaning that something is of little consequence. But the process of negotiating a home price is no small beer.
Hopefully, when we eventually close the deal on our first home, we’ll do it right – and we’ll have some money left over to celebrate with a few rounds of beer.