In This Chapter

Buyer behavior patterns are predictable. They behave one way when prices are up (which we discuss in the next chapter) and another way when prices are down. Psychology is a major factor in selling real estate. When you truly understand how a falling market affects a buyer’s actions—how he thinks and what motivates him—it’s amazing how much more effective you will be, and as a result, how much money you can make on the sale. On the other hand, if you do not understand buyers, it can cost you tens or even hundreds of thousands of dollars. We discuss buyer behavior patterns in detail in this chapter. Use the knowledge you gain here to your advantage—you will come out way ahead financially.

If you understand the mindset of the buyers, you will target and attract the best and most qualified among them. When you attract them to your home—getting them to physically walk through it—the odds of getting an offer go up. Once you have an offer (even a lowball offer), we will show you how to be a more strategic negotiator. And when you finally accept an offer, you will be able to anticipate and defuse problems, which will result in a smoother, cleaner transaction.

Let’s begin with what buyers believe in a down market:

The irony of this mindset is that it prevents many buyers from buying at a good time because in a falling market, most homeowners are open to negotiating. As a seller, however, don’t make the mistake of believing that if you negotiate, you are making a bad deal or “underselling” your home. When done right, you can successfully negotiate with a cycle-one buyer and still outperform the local real estate market.

Many buyers shopping in a falling market are somewhat tortured by the idea that, while they need or want to buy now, they may be looking at the wrong time. They wonder about waiting and finding something cheaper. They have no urgency, experiencing a form of “analysis paralysis”—emotionally bouncing back and forth between their desire to buy and their fear of it. It affects the way they shop and, if they make an offer, it continues to affect them while negotiating.

Your goal is to target the one segment of the buyer pool that is not plagued with a low sense of urgency. That group is the cycle-one buyer group, or the “hunters,” as we discussed in detail in Chapter 9. These buyers have a very highly developed sense of urgency. They are people who need to buy and have been shopping for quite some time. Cycle-one buyers have seen many homes before walking into yours. They understand value, know what they like, know what they can reasonably afford, and are growing weary of searching. Cycle-one buyers are poised and ready to make an offer the moment they find the right home—in any type of market.

The universal fear among most buyers in a down market is that they will overpay. If they make an offer and it gets accepted, they immediately fret, believing they probably could have negotiated a better deal. Their thinking is that, if the seller was so willing to accept the offer, they must have overpaid. Many buyers confess to waking up in the middle of the night and asking, “What have I done?”

The best way to reassure a buyer that he’s not paying too much for your home is to validate his choice to buy it. While most buyers would not admit it, they all need validation. Psychologically, it confirms their desire, helps to escalate the sense of urgency, and removes the fear of overpaying.

Give buyers validation with the following methods:

The number-one question from sellers whose homes are overpriced and not selling is, “Why won’t anyone make an offer?” It’s not that the seller expects full price. He is aware that his home is priced too high but he is ready to negotiate. He is wondering why no one comes forward with any offer, even a lowball offer.

The reason a buyer will not make an offer, even when she knows that you are ready to negotiate, is because of the overall perception of the home. It goes back to validation. “There must be something wrong with it if no one else wants it; therefore, I don’t want it either.” The buyer knows that she can negotiate down, yet she still doesn’t want to. She doesn’t want it at any price because no one else does.

Many people refer to a home that’s been on the market a long time as having grown “stale.” We actually think the situation is more serious than that. The home actually becomes stigmatized; it is labeled by the real estate community and buyers as a property that is somehow flawed. It doesn’t matter how beautiful or well maintained the home is. This negative perception is powerful and can attach itself to any home that sits for an extended period of time without offers.

When a buyer sees a home that nobody else wants, he cannot help but ask, “What’s wrong with it?” It’s only natural. The buyer’s Realtor will have a hard time convincing him that the only thing wrong with the property is that it is priced too high. The buyer still doesn’t want to make an offer. The negative perception is just too strong. Again, the irony is that a home with no offers is actually a golden opportunity where the buyer can negotiate one on one with the seller, and without competition from other buyers.

Fighting the “what’s wrong with it?” stigma is also a hard thing for a seller to do because it means that she has to recognize and acknowledge the fact that her home is worth substantially less than she thought it was. This is a jagged pill to swallow and she really only has two options to reverse the perception.

There are buyers out there who will see it as an opportunity when your home is priced too high and will submit a lowball offer. They see value in your home, but only if they can get it for a great price—a “steal.” This type of buyer figures that he has nothing to lose by making the offer in the remote chance that you will accept it.

Every seller will have a different definition or perception of what a lowball offer is. Some think that a few thousand dollars under the list price is “lowballing” it. Others think that it’s an offer that is at least 10 percent below the list price. It also depends on what the trend is in your community or region. In some locations, the average home may sell for about 95 percent of the asking price, while another area may have their homes sell at about 90 percent of the asking price. If a buyer offers you 80 percent of asking, it would be fair to categorize that offer as lowball based on local trends. While it is very difficult to define, one thing is for sure: the person who has labeled it as a lowball offer thinks that it is far below the actual value.

Lowball offers can be perceived as a great insult. Some sellers reject them out of hand or do not respond to them at all. We recommend that you respond to them, always. The main reason is that you never know how far the buyer will come up in dollars unless you engage her in a negotiation.

It’s true that some buyers who make lowball offers cannot be negotiated with and adopt a take-it-or-leave-it approach. They can be very cocky and unattractive to do business with. If you (and your Realtor) are sure that her offer is completely unrealistic and that you can do better, then you are right to reject her.

But no matter how infuriating this person’s initial approach may be, don’t close the door until you have at least made a verbal counteroffer. If she does not respond, then you have lost nothing. If she does respond with a realistic number, then you may be about to negotiate a real sale.

After responding to the initial lowball offer, the goal now is to keep the negotiation alive. Never lose sight of the cost of a failed negotiation. If you fail, you have not only lost a potential buyer but your home may not sell for several more months, costing you thousands or tens of thousands of dollars more. Talk over your approach with your Realtor, who has undoubtedly been involved in many negotiations.

Negotiating is easy for some people, but others seem to shoot themselves in the foot the very minute that negotiations begin. The latter is usually a person who becomes a victim of his own emotions. The perceived insult of the lowball offer makes him angry and causes a knee-jerk reaction where he either refuses to negotiate at all or begins the negotiation on the wrong foot. This kind of negotiator thinks it’s a sign of weakness if he doesn’t express outrage over the dollar figure. However, he is actually in a much stronger position if he avoids emotion and keeps the dialogue going and the buyer at the negotiating table.

It’s sort of a game, really—but with very high stakes. It involves some good old-fashioned psychology, some number crunching, and an ability to keep your eye on the goal posts—of getting a signed contract. This last skill may be the most important when negotiating real estate.

The offer. Let’s say that your home is listed for $400,000 and has been on the market for a long time without any offers. A buyer comes along and has no intention of paying your list price. He makes an offer for $355,000 (secretly knowing that he might go up as high as $375,000). That’s more than 10 percent below the list price and it may immediately sour you on this buyer. While your home may be worth more than that, you are probably aware that it’s not worth $400,000 if it’s had no offers over a long period. So where is the value? What do you do?

The counteroffer. Respond with a counteroffer that is at least meaningful—perhaps $10,000, depending on what is going on with similar homes on the market in your area. If you respond swiftly (usually within 24 hours), then you have sent a message to this buyer that, while you have no intention of giving your home away at a bargain basement price, you are realistic and open to negotiating. Now both parties have an elevated heartbeat. There is a chance that, if this negotiation stays alive, there could be a deal.

If you had responded with a tiny counteroffer, at perhaps $398,000, the buyer would have probably walked away, thinking that you are in denial about the market conditions, unrealistic, and not open to negotiating in a meaningful way.

The second counteroffer. Here is the turning point in the negotiation—the second meaningful counteroffer. If the buyer walks away without countering back, there’s not much you can do about it. It was over quickly; you found out that he wasn’t serious, and you didn’t expend much energy. No harm; no foul. However, if he stays and gives you a counteroffer, you have got him. There absolutely should be a deal at this point. He’s invested in the dialogue and he has tipped his hand to show that he will come up quite a bit because if he weren’t, he would have walked away by now.

If he comes up $10,000 more, to $365,000 and then stops, you may think that if you take it, you have lost $35,000 on the value of your home. But you have not. Even at this point in the negotiation, you may have already outperformed the market! At $365,000, you’re now within 9 percent of your original list price. If the market in your area has fallen 12 percent, you are ahead of the curve. You will sell your property for approximately 3 percent more than other similar homes on the market.

This is the moment we referred to previously, the moment where you have kept your eye on the goal posts. Many sellers will, instead, focus on that $35,000 and miss the point that they actually outperformed the market.

If this negotiation was one of the truly great ones, the counteroffers would have continued up to an agreed sale price of $375,000—the amount that the buyer was always prepared to pay. It’s a great negotiation because both sides won. The buyer felt from the beginning that $375,000 was a fair price and the seller got a sale price that is within 7 percent of his original list price. Even better, he outperformed the market by 5 percent. Not bad for a deal that began as an “insult.”

One of the worst mistakes that you can make when your home has no offers is to miscalculate the demand among buyers, and instead believe the idea that “nobody’s buying right now.” It may be a fact that the market has slowed down, but it’s not because the demand isn’t there; it’s always there. Cycle-one buyers will buy in any type of market.

When prices are down and homes aren’t selling, everyone is asking, “Where are the buyers?” Believe it or not, they are still there. Not only have they not gone away, but they are poised and ready to make offers. When you wonder what a buyer is doing in a down market, think of a lion sitting under a tree on the plains of Africa. He may appear to be resting, bored, or disinterested, but he’s not at all. The minute that prey comes into his field of vision, he will launch into action in a split second to pursue his goal.

Just when you think that buyers are not paying attention, they are actually at their most aggressive. They have so much experience shopping for a home that they are now nearly fearless and will pounce the minute they find a home that is priced properly and has a perception of value.

Cycle-one buyers’ best talent is that they are trained to spot value. In fact, they are better at it than you are. For months now, they have physically walked through dozens of homes in your community. They have the most experience in local real estate values (and each specific home) than anybody, with the exception of the Realtors themselves. What we mean by “spotting value” in a down market is that, amid a sea of overpriced properties that aren’t selling, cycle-one buyers can find the diamond in the rough. Cycle-one buyers are smart. No matter how bad the real estate market gets, they will find, recognize, and buy that one home that a seller has priced properly and that has been given a perception of value.