When selling a home for sale by owner, you’ll need to know how to sell your house without a realtor – that is, how to prepare, market, show, sell, and close on your home. But you’ll also need to know how to negotiate the sale once you’ve attracted a buyer who is interested in buying a home for sale by owner.
It’s possible that you are agreeable to an offer just the way it’s submitted on your home for sale by owner. If so, then sign, date and return it to the buyer within the timeline noted in the contract and PRESTO – you have an executed contract. No negotiating necessary.
This is rare, though, so it’s best to be prepared for some degree of negotiating.
Many books, CDs, seminars, and webinars are available to teach you all kinds of techniques, strategies, skills, and tricks on how to get what you want out of a transaction or interaction of some type.
Mostly, though, it’s all about simply asking. Then listening closely. We have two ears and one mouth. Let’s go ahead and assume that means we should listen twice as much as we speak. As infants, we learn quickly that if we cry, we’ll get fed. As children, we learn that if we just keep asking (nagging?) either mom or dad, someone will eventually cave in and give us that candy bar or toy. As teenagers and adults, we learn that the “pretty girl” or “cute guy” won’t know we’re interested unless we speak up and ask them to the dance, out for dinner, or to join us for a cup of coffee.
Information is king
In any negotiation, information is king. That’s why reading and understanding the buyer’s offer and collecting all pertinent documentation and information is so important.
Step out of your shoes and into the buyer’s shoes as best you can. If you can figure out what the buyer wants, you may be able to give it to him. And perhaps without having to give up something that you want.
Example: a typical transaction requires 60 days from contract to settlement. The buyer’s offer includes a 60-day settlement because he thinks you need 60 days to move out. You learn, though, that he must be out of his apartment in 45 days and will need to arrange temporary housing and storage until the closing occurs in 60 days. You know you can be out in 30 days and his loan will be ready in 40 days. Counteroffer the buyer with a 40-day settlement for a slightly higher price. He agrees because he now doesn’t need to incur the expense of temporary housing and storage. You get more money for your home for sale by owner. You both win and you didn’t have to give up anything for your share of the win.
Another example: You learn that the buyer, a first-time homebuyer, is interested in buying a home in one of two condominium communities, yours and another community on the other side of town. Individual condo units in the two communities are comparable and sell for about the same price. The buyer has the income to qualify for a mortgage but doesn’t have much savings for a down payment and closing costs. In your research, you’ve learned that while your community qualifies for a US Department of Housing and Urban Development (HUD) FHA mortgage, the other community does not. The buyer will need a 5%-10% down conventional loan to buy a unit in the cross-town community, while a HUD FHA loan requires just 3.5% down. You point this out to him and structure a contract for your home for sale by owner at slightly above your asking price. You give the difference back to the buyer at settlement as a buyer credit to help with his closing costs. The buyer gets his condo and gets to become a homeowner. You get your home for sale by owner sold. And both of you are satisfied.
The 3 most important words in real estate
Everyone knows that the 3 most important words in real estate are location, location, location – right? Wrong! The 3 most important words in real estate are price, price, price! I have seen properties in what anyone would call a beautiful and perfect location not sell. Why? They were overpriced! I have seen properties in horrible locations – virtual war zones – that successfully sold. Why? They were dirt cheap! Of course, all else being equal, a home for sale by owner in a nice location will sell before one in a poor location. But price, not location, is what will ultimately drive a sale.
Having said all that, don’t let your negotiating ever come down to just price. If that happens – your absolute bottom line is, say, $325,000 and the buyer’s absolute highest is, say, $310,000 then that particular sale will not happen. Which happens sometimes. To avoid this, work hard to keep a few variables open during your negotiating. You can go to $310,000 but only if the buyer will let you rent back from her after settlement for, say, 3 months until you find and close on your next home. That might work for the buyer. Or, if she will come to your $325,000, you will make the repairs to the home that you had previously requested she handle after closing. You are willing to do this, for a $325,000 price, because you have handyperson skills and your good friend is a contractor. Together you can do the repair work for a fraction of the retail price the buyer would pay after settlement.
Another way to keep from locking in on just price (or any negotiable term) is to have a plausible explanation for your request. Most people understand logic. They may not like it, but they understand it.
Consider this: The buyer asks you to mill and resurface your asphalt driveway before settlement. Cost estimates range from $5000-$7000. You agree that your driveway could use some attention and you have estimates from 4 blacktop contractors who would all be happy to do the full resurface for $5000-$7000. But all 4 also said that they could make some spot repairs and then re-seal the entire driveway for under $1500. And each will provide a written warranty that you can transfer to your buyer. You show the 4 estimates to the buyer, tell her to pick the contractor she’d like you to use, and you’ll have the spot repairs and re-seal done before closing. And at your expense. The buyer would surely prefer the brand-new driveway, at your expense, of course. But she agrees to accept the spot repairs, re-seal and transferrable warranty and agrees to pay the $325,000 for your home for sale by owner.
Now consider this: The buyer says to you “My agent and I have researched comparable home sales in the past 3 months – here’s a copy of our report. There’s just no way that your home for sale by owner will appraise at $325,000. $310,000 is the market price and that’s what I’ll pay.” You don’t like it, but you know the report is accurate. You accept the logic and agree to $310,000.
In the first case, the negotiations never locked in on just one term. By establishing a friendly, give and take dialogue, and by using written facts and figures, you were able to reach an agreement and create a win-win outcome for you and the buyer.
In the second case, logic prevailed. You didn’t like settling for $310,000 but you accepted that your $325,000 was not a true market price – no buyer would pay it and no appraisal would support it.
If information is
king when it comes to negotiating, who, or what, is queen?
Why, time, of course! If the buyer’s offer gives you 3 days to consider and respond, don’t counteroffer back to her 3 hours after receiving the offer. And definitely don’t get back to her with your fully signed approval of her offer in 3 hours! Even if you’re thrilled to death with the offer, at least act a bit hard to get. Let the buyer think you needed to sleep on it… consult with friends and family… consider other offers on your home for sale by owner.
Think of the psychology here: if the buyer gets the sense that you jumped on her offer, she may just draw the conclusion that she overpaid for your home for sale by owner. That’ll make her nervous. And perhaps upset. And maybe she’ll come at you that much harder after she gets the results of her home inspection. And maybe she just plain wants out of the deal. Remove hurdles, don’t increase them. And the perfect buyer? Someone who wants to buy your home at least as much as you want to sell it. So, take your time when communicating during negotiations – time is queen.
Conversely, if you get the sense that your buyer “just has to have your home for sale by owner”, then naturally you’ll want to use that to your advantage. One way to get that sense – she responds quickly and eagerly to your communications during negotiations!
- Ask questions and gather information. Put yourself in the buyer’s shoes.
- Information is king, and time is queen.
- Don’t overthink it – keep things as simple as possible. And as friendly as possible. “Ease into” an agreement.
- Don’t expect to always just “get”. And if you position things correctly, you may be able to give something that wasn’t all that painful to give. Negotiating is a give and take process – a 2-way street.
- Don’t be afraid to simply ask for something. Sometimes that’s all it takes.
- Make every effort to keep a few variables in play. Don’t lock in on just one, especially price.
- And use logic to your advantage – in writing whenever possible. People may not like it, but they will generally accept it, allowing your home for sale by owner transaction to move forward.
For a complete step-by-step guide to selling your home for sale by owner see my ebook, FSBO It: A Broker’s Guide to Selling your Own Home.
The author, Rick Sheppard, is a licensed real estate broker in Collegeville PA and a 33 year veteran of the real estate trenches. He knows a lot because he’s seen a lot. If you have any questions about this or any real estate related topic, feel free to contact Rick at [email protected] and he’ll do his best to answer your questions.