Keeping the Deal on an Even Keel
Striking the Right Balance for Pricing and Negotiating
by Michele Lerner

The back-to-basics approach embraced by Realtors® in the current market means that agents need to focus on two key steps to reaching the settlement table: pricing and negotiating. Listing agents know that a home that is priced appropriately will sell. One that isn’t priced right won’t sell. Negotiating skills are needed more than ever to bring buyers and sellers together so that everyone feels satisfied at the transaction’s end.

While many Realtors® think that the pricing presentation is where prices are set, Mark Leader, a real estate coach and owner of Mark Leader Courses, says that the pricing presentation is like the icing on the cake. The process leading up to the pricing presentation is the recipe for achieving a satisfying result.

“Before the first listing appointment, successful agents need to be highly prepared with market statistics, but they should start by making small talk and wait for the home owners to bring up real estate,” says Leader. “It’s important to put the sellers’ minds at ease and describe the process so that they are more apt to talk with you.”

Leader explains that this appointment, which should include a walk-through of the house and a discussion about why the home owners want to sell, is about building a good rapport.

“People won’t care what you know until they know you care,” says Leader. “So whatever price you come up with for their house doesn’t matter. They won’t listen to you until they believe in you.”

Clients May Need a Reality Check

Kim Kaufhold, a Realtor® with Weichert Realtors® in Fair Oaks, says that in addition to preparing herself with market statistics, she brings sellers to see competing properties.
 
“The numbers don’t lie, so I provide as much statistical information as possible,” says Kaufhold. “I think it’s important for the sellers to look at their competition, so they can see how a property shows in comparison to theirs. Sellers need to know that a home that is priced well and shows well will sell.”

Kaufhold explains to her clients that aggressively priced homes, within the price range of recent comparable sales, are easier to sell.

Dan Stone, a Realtor® with RE/MAX Allegiance in Alexandria, says that most sellers are savvy and understand the need to price their home appropriately.

“A few sellers are still bull-headed, so I explain to them that the market doesn’t care what you need or want,” says Stone. “I tell them your house is only worth what a buyer will pay. Sometimes I ask them what they think their house is worth and then I ask them if they would pay that right now. The answer is usually no.”

Stone also tells his seller, “The first offer is usually the best offer, but you can always hold out for less.”

 For sellers who insist on pricing their home too high, Stone sets up a feedback system that demonstrates how few showings the house is getting. He will share with sellers the reactions of potential buyers who call because they have seen the For Sale sign, and decide that they don’t want to see the property once they are told the asking price. This method should eventually encourage even the most stubborn seller to lower the price.

Lisa Moffett, a Realtor® with Coldwell Banker Residential Brokerage in Vienna, says, “I educate my sellers about the market and try to get them to price the house close to recent comps or even a bit below. The idea is to price it to bring energy and excitement from the buyers – a ‘wow’ price so the place doesn’t sit on the market too long. I call it the ‘energy price’ that will generate buyers, based on the prices of other homes that have recently sold in a short time frame.”

Moffett maintains that pricing for most sellers is dependent upon their level of motivation. Eager sellers are more willing to price aggressively.

“If they have owned the house for five years or longer and have some equity, they are more accepting of a lower price,” says Moffett. “I show them the estimated net amount that they will see from the sale at different prices and see if they can live with that bottom line. In this market you can’t just ‘try out’ a price. You really have to gauge the price according to what has recently sold.”

Kathie Eaton, the Managing Broker of Prudential Carruthers Realtors® in Vienna, says that when presenting comps to sellers, she looks at only about three months of sales because six months is now too wide a time frame.

One-Size Pricing Presentations Do Not Fit All

Leader believes that Realtors® have three options for the pricing presentation. For sellers who have already discussed an appropriate price for their home, agents simply need to use the “Net Only” presentation to go over the market research and present the net sheet that will estimate their profit.

If the sellers want to price their home a little high, Leader recommends the “CMA [Comparable Market Analysis] Adjuster Technique.”

“In this case, you would need to go over your research and make some minor adjustments to the price and then show them the net sheet at that price,” says Leader.

A more complicated technique, which Leader calls the “Fact or Fiction Technique,” is necessary when the sellers opt for an extremely high price.

“In this scenario, the Realtor® will need to ask the sellers for permission to explain the problem, and give the reasons for the market evaluation, telling the sellers he tried hard to substantiate their price and just couldn’t,” says Leader. “At this point, the Realtor® asks, ‘Should I tell you what you want to hear and leave it at that or should I level with you and risk losing this listing?’ If the sellers say they want to hear the truth, then the Realtor® should pull out the CMA and go over every detail.”

Leader says that at this point the Realtor® should ask the sellers what they think the price should be. Most sellers will want the Realtor® to make a suggestion.

Leader states that homes have three prices: market value, an investor’s price and the right price.

“The right price will be somewhere in between the market value, which is based on what someone will pay who wants the house for life reasons such as a good school or transportation; and the investor’s price, which is what someone would pay to turn it over for a good profit,” says Leader. “Pricing a home at the right price means it will sell in a reasonable amount of time.”

The Art of the Offer

Setting the price is the first move made by the sellers in the negotiating process.

“Most sellers are now pricing their homes right so there just isn’t as much room for negotiating as buyers might expect,” says Eaton. “A lot of buyers are looking for the deal of the century, and they don’t recognize that they have to make a reasonable offer.”

Eaton says that Realtors® need to educate buyers about the market and about what is a realistic offer. She says that sometimes buyers must lose two or three contracts before they realize that they cannot make a lowball offer.

Leader says that there are only two reasons why someone would choose to make an unfairly low offer: either they don’t believe the house is worth the asking price or they just want to get the property for less than what it’s worth.

“Realtors® need to show the buyers the comps so they understand what the house is worth, and then ‘reduce to the ridiculous’ the difference between what they want to offer versus what they should offer. For example, a $20,000 difference in price comes to $800 a year, or $68 per month, $17 a week or $2 a day.”

Leader also recommends that agents “build value” in the minds of buyers, discussing with them the reasons they picked one house over another and asking if it is worth spending $2 more per day to get the house they want versus another one that may not meet their needs.

“If the buyers still won’t make a reasonable offer, then the agent can ask them what else they might be able to give back to the seller so that the seller is more willing to negotiate,” says Leader. “A negotiation brings two people together. Anything less than that is counter intuitive.”

Leader says that buyer agents need to understand that their role is not only to get the buyers the best deal, but also to bring buyers and sellers together to sell the house. “Realtors® need to be really knowledgeable about the market so they can say to buyers ‘this house is priced really well,’ ” says Moffett. “There’s a tipping point on price when something is so well-priced that you don’t want the buyer to offer too little. You need to look at the selling price versus the list price in neighborhoods to really know where the value is.”

It May Take a Village to Sell a House

When Stone represents buyers, he contacts the listing agent to ask about whether there are competing offers. Even in this market, he finds that when a home is the best buy in a particular price range, other buyers have also found it.

“Even if there’s no competition or the home is a short sale or a foreclosure, I still tell my buyers to make a good offer if they really want the house,” says Stone. Kaufhold says that in order to get to the settlement table agents need to work together to negotiate a deal that is best for both the buyer and  the seller.

“It’s important to build relationships to make sure everyone feels they get a fair deal,” says Kaufhold. “I try to meet with the other agent over coffee and make myself available to the buyers if they want to get into the house. It’s important to understand where the sellers are coming from personally and financially and to know what they paid and what they spent on upgrades. It’s nice to make the connection between the buyers and sellers on how they will live in the house, talking about things like the kids playing in the family room at different times of day.”

Kaufhold sometimes holds an open house or a wine and cheese reception for the neighbors when she lists a home and asks the neighbors for their contact information and if they might be willing to talk with prospective buyers. She arranges tours of the schools for buyers, too. All of these activities are meant to build the relationships between the buyers and sellers and agents to make for smoother negotiations.

“When I’m working with buyers I try to make sure they understand that they are buying a home and a neighborhood,” says Kaufhold. “Some buyers are still stubborn about price but it depends on whether they are testing the waters or they really love the house.”

When presenting an offer, Kaufhold always takes the time to give full information to the other agent as to how the buyers came up with the offer. She says it is vital for agents not to get emotional with each other, which is easier when the offer is reasonable.

Now that buyers have the upper hand in the market, some Realtors® have dropped the idea of including a cover letter with an offer that describes why the buyers love the home, but Kaufhold continues to encourage her buyers to do this as a way of establishing an emotional connection between the two sides.

“There’s a lot of emotion on both sides of the transaction, so Realtors® need to really build their listening skills, their empathy, compassion and understanding and be patient,” says Moffett. “They need these skills to work with clients and they also need to be professional and courteous with other agents.”

Working cooperatively, agents can achieve good results for their clients in even the toughest of markets. Preparation, patience and persuasiveness will pave the way for agents no matter which side they are representing.