The counter offer is a vital part in the negotiating process of purchasing real estate. It can often determine if you get a good deal or a less favorable one. Ironically, most people (including most real estate professionals) never really have or use a strategy that makes counter offers work in their favor.
When dealing with counter offers the number one mistake most people make is not having a method to determine each counter offer’s anticipated purchase price. The problem is that when finding an anticipated purchase price for the next counter offer most people tend to just take the amount that is in the middle of the last two offers on the table (see table 1 below).
Table 1
Original asking price
Buyer’s offer
Seller’s counter offer
$100,000
$90,000
$95,000
A much more effective way of choosing a counter offer’s anticipated purchase price is to start with a predetermined group of percentages that decrease in value. For example: 55%, 40%, and 25%. Then when it is time to make a counter offer use the group of percentages to determine the counter offer’s anticipated purchase price. In this example: the first counter offer would be 55% of the in-between amount of the first two offers on the table, the second counter offer would be 40% of the in-between amount of the last two offers on the table, and the third counter offer would be 25% of the in-between amount of the last two offers on the table.
When dealing with counter offers using this technique will benefit whoever uses it (buyer or seller) in several ways:
*It will let the other party involved in the transaction (buyer or seller) know that the final offer is close to being made.
* It will help to make the negotiating process quicker by creating fewer counter offers.
* It will help increase the chances of an offer being accepted because the other party involved (buyer or seller) will anticipate the final offer being reached.
* It is important to remember that the percentages used in this technique can vary per individual person or deal. There is no strict formula for this technique except that you counter with a preset percentage of the in-between amount of the last two offers on the table and decrease the percentage used in the formula with each consecutive counter offer made.
Lastly, it is important to remember that the asking price is not the only thing that is negotiable in real estate transactions and that other elements of the contract such as down payment amount, closing terms, etc. can be used to help leverage the negotiation of the asking price.
Daniel Cobb, Chicago, Illinois
http://www.realtycapitalist.info
Daniel Cobb lives in Chicago, Illinois and is a former realtor who is now a real estate investor. He is also author of the e-book, “Complete Guide To Investing In Real Estate Through Government Scavenger Sales” – an informative e-book on how to purchase real estate through government auctions.
