From: mcb@derrida.postmodern.com (Michael C. Berch)
Newsgroups: ba.market.housing,misc.consumers.house,ba.general,ca.general
Subject: Re: Listing price of a home and a good offer
Date: 25 Jul 92 06:29:48 GMT
Organization: Postmodern Consulting, San Francisco, California USA

In the referenced article, davel@booboo.SanDiego.NCR.COM (David Lord) writes:
> mcb@derrida.postmodern.com (Michael C. Berch) writes:
> >[Making an initial offer just high enough the the offerror thinks
> >the seller will accept without haggling]
> >does not strike me as a particularly effective method of
> >negotiation, assuming your goal is to pay the lowest price.  (If your
> >goal is something other than this, such as to gain approval from the
> >seller, other agent, spouse, etc., to feel sorry for the seller,, or to
> >eliminate the small risk that the house may be sold to someone else
> >while you are negotiating, then it may be effective for that purpose.)
> 
> >The problem is that unless you have at least one offer rejected, you
> >have no idea how low the seller will go.  Your first offer should be
> >the minimum amount that will not disrupt negotiations, i.e., fatally
> >piss off the sellers or real estate agents who might think you "not a
> >serious buyer".  Anything more than that risks leaving money on the
> >table.
> 
> Ah, but where is that point? I based my strategy on what worked best
> against me when I was selling my house. In fact I probably could have
> gotten the house for a few thousand less but there were several things
> working against me, including the fact that the sellers had already
> found someone to lease the house and were about to un-list it. Also
> I was just leaving on vacation and didn't have time to screw around
> (a poor time to make an offer). The things that could've enabled me
> to get the price down further were that the house had been a rental
> and needed painting and a lot of cosmetic work.  Keep in mind though that
> part of my strategy in this case was to jump on a house that was already 
> a bargain.

There is no objective method of determining what the optimum opening
offer should be, but it should be low enough to be rejected.  Which is
to say that you should *intend* for it to be rejected.  Needless to
say, you will want to have the best negotiating position possible, so
having a time limit for negotiations, or having a firm date that
escrow *must* close by, etc., are drawbacks.

The strategy of "jump[ing] on a house that was already a bargain" is
fine, but you have to realize that there is no reason to believe that
a given seller actually knows that their property is a bargain.  
(By "bargain" I assume you mean "low asking price relative to
properties you value similarly").  This may be because the seller is
not well-advised as to market prices, or simply does not know why
*you* value the property similarly to others.  (Real estate
negotiation is an information game: if the seller knows you have
fallen in love with the charming gazebo in the backyard, you will not
get as good a deal.)

> [...]
> Having been a seller I can tell you that there is a real strong
> temptation to tell lowballers to simply go f**k themselves.
> Lowballing can be an effective strategy for getting a bargain
> but only if you are prepared to make offers on several houses
> before getting one. A friend of mine had several 85% offers flattly
> rejected (no counter) before finally working a deal on one.

Remember that my advice is to make an offer that is low enough to be
*rejected* (with or without counter), but not so low that the seller,
his/her agent, or your agent will refuse to deal with you.  It is fine
to be flatly rejected; you just make another (higher) offer.  You
might want to twiddle around with some non-price terms to avoid the
appearance of being a timewaster, and as you mention, it greatly
helps to assure the seller that you are a good loan risk: get a
prequalification letter for an amount in excess of what you plan to
spend (assuming you can) and be prepared to show it in negotiations.
(This may sound counterintuitive, since you will not be able to make
the argument during negotiations that "this is all you can afford."
However, such arguments are not very persuasive, and assuring the
seller that you are a good risk is much more important.)

--
Michael C. Berch  
mcb@postmodern.com