Negotiating a Lower Price on an Overpriced Home in the Bay Area

The path to owning a home is filled with numerous challenges, and one of the most daunting hurdles is dealing with an overpriced property. Making a reasonable offer on such a house is a delicate process, requiring a strategic approach and a keen understanding of real estate market dynamics. This guide provides a comprehensive roadmap to navigate this complex process and provides valuable insights on negotiating a lower price on an overpriced home in the Bay Area.

Understanding the Overpriced Home Phenomenon

An overpriced home is a property that is listed at a price significantly above its actual market value. The reasons behind overpricing vary, ranging from the seller’s emotional attachment to the property, lack of understanding of the current market conditions, the “need” to net a certain amount of money at close, lack of genuine motivation to sell, or simply greed. It’s essential for buyers to recognize such properties and be equipped with strategies to handle these situations effectively.

Implications of Overpricing

Overpricing can lead to several consequences for both buyers and sellers. For sellers, an overpriced home may languish on the market for a long time, potentially leading to a lower final selling price. For buyers, seeing an overpriced home will be frustrating – because in many cases, buyers would be willing to pay fair market value, but won’t be comfortable paying much if anything above what they feel the home is worth. Buyers will look at an overpriced home and usually avoid making an offer, for fear of insulting the seller, creating a lose-lose situation for everyone.

Identifying an Overpriced Home

The first step in identifying an overpriced home is conducting thorough market research. This involves understanding the current market conditions, analyzing comparable sales (known as “comps”) in the area, and considering the unique features and flaws of the house. Often times, it is difficult to understand the list price for a home without first getting in to see the home in person. Paying a visit to a home may shed light on why it isn’t selling for list price – but it may also show that the price really isn’t that far off from what you’d be willing to pay, which increases the likelihood that a deal may be struck.

Using Professional Help

To ensure accurate determination of the property’s fair market value, consider hiring a professional real estate agent. An experienced agent can provide a detailed Comparative Market Analysis (CMA), present reliable real estate comps, and offer valuable insights based on their expertise and understanding of the market. Remember that an agent – even the best REALTOR – is not a magician and they don’t have powers of mind control to persuade the seller to get real with their pricing. But you are certainly more likely to make a deal with a skilled negotiator on your side.

Moving to Silicon Valley?

CTA Ultimate Guide to Living in SV

Making an Offer on an Overpriced Home

Contrary to what some might think, making an offer on an overpriced home does not necessarily mean presenting a lowball offer. Instead, buyers should aim to make a reasonable offer based on the fair market value determined from their research and analysis.  Of course, the seller may view your offer as a lowball and get offended, even if what you’re offering is fair, or more than fair – so you’ll want to take care with the manner in which the offer is presented.

Talk to the Listing Agent

When making an offer – any kind of offer – on a home in the Bay Area, you would be well advised to make sure that your real estate agent has been in communication with the listing agent.  Ideally, your agent will have had several conversations – actual phone conversations, not emails or text messages – with the listing agent.  Your agent should be feeling out the listing agent to understand the seller’s situation and level of motivation. Your agent should be working to build a level of trust and rapport with the listing agent, so that s/he knows you are seriously interested in the home and will work in good faith to make a win-win sale for both parties.

Mastering the Art of Negotiation of an Overpriced Home

Hiring an Experienced Agent

One of the best ways to increase your chances of getting an overpriced home at a reasonable price is by hiring an experienced buyer’s agent. An expert agent can negotiate effectively on your behalf, potentially resulting in a more favorable outcome. When shopping for an agent, it’s important to understand that not all agents are the same.  Look for an agent that has a long and successful track record of working with buyers in your area. The longer the agent has been in business, the more homes the agent has sold, means that your agent has credibility in the brokerage community, and that credibility extends to you when an agent like that is your representative.

Building Rapport with the Seller

Establishing a cordial relationship with the seller (through their listing agent, unless of course they are selling by owner) can be extremely beneficial in the negotiation process. This can involve understanding the seller’s motivations, being respectful in your communication, and demonstrating your seriousness as a buyer. Remember, you are in the position to solve a problem for the seller, even if the price you’re willing to offer to do so isn’t quite what they’d been hoping for when they put their home on the market.  You can’t help set their initial expectations, but you can guide them to a more realistic set of expectations with the way your offer is structured, presented, and negotiated.

Offering More than Just Price

While the price is a critical component of an offer, it’s not the only factor that can sway a seller. Offering additional benefits such as a larger earnest money deposit, fewer contingencies, or flexibility with the closing date can make your offer more appealing.  Also, offering the seller serious perks like a free rent back for 1-2 months after closing, and allowing them to leave behind whatever belongings (including trash and debris) they don’t want to take with them can grease the wheels to a considerable extent as well.

Persistence and Patience

Negotiations may involve a series of offers and counteroffers before an agreement is reached. Being patient and persistent can bear fruitful results.  In fact, you may find that you’ll need weeks or even months to successfully negotiate a lower price on an overpriced home.  You may need to make an offer, get rebuffed, and then make subsequent offers over the coming days, weeks, and even months. The seller may just need more time to get into a mental and emotional state where they are willing to accept what the market has been telling them all along:  their home is worth less than they thought it was.

Being Prepared to Walk Away

One of the most important aspects of negotiating an overpriced home is the willingness to walk away if the negotiation doesn’t yield the desired results. It’s crucial to maintain a balance between your desire to own the house and the need to make a sound financial decision. It’s quite likely that the seller just isn’t ready – or able – to sell the home for what you’re willing to pay for it, simple as that.  After all, something like 10-20% of homes which are listed for sale never end up actually selling within years of coming on the market, even in a hot market like the Bay Area.

Hey Buyers, It’s Rough out There!

Avoid Playing the Comps Game

One thing that I strongly recommend you avoid doing in any negotiation with a seller is what I call playing the comps game.  This is a game that buyers and their agents play, using recent, “comparable” sales to show the seller why the price they’re asking is wrong. Nobody likes to be told or shown why they are wrong, and I have found that discussing “the comps” with sellers of overpriced homes is often unproductive or even counter-productive.

The thing about “the comps” is that they are very subjective.  It is rare in the Bay Area that any two homes are exactly the same – there are usually many subtle differences, even between homes that are in the same subdivision of similar age and size. Debating the relative value of these differences between the comps and the property you want to buy is almost always a waste of time.  The seller will have their opinion, and you will have yours.  Both are subjective, both are valid, but reconciling the two through a discussion of the comps rarely moves the needle in negotiation.

Don’t Shame the Seller

I have found that a lot of buyers attempt to shame the seller in some way.  Most commonly this is by telling the seller that their home is in really bad shape, and it’s not worth as much as other homes which are selling in the neighborhood.  No seller likes to hear that their home isn’t up to scratch – even if that is unquestionably true, they don’t like to hear it.  To them, their home is their castle, and even if it may need some work, they will feel that any buyer who harps on this is a buyer that just doesn’t love the home, and isn’t serious about buying it.  After all, why would you want to buy a home that you feel you really don’t like that much?

Justifying your Lower Price to the Seller

So if you shouldn’t play “the comps game,” and you shouldn’t harp on the poor condition of the seller’s home as reasons why you’re offering so much less, how do you justify a lower offer to the seller?  The truth is, you don’t need to.  Honestly, it’s the real estate market that’s doing the talking for you – because yours will probably be the only offer on the table.

My advice is not to be too specific with any justification, because that just creates space for the seller to debate your points with you. I’m all for debate, but in these cases, the seller is probably not being objective, and thus incapable of an honest debate.  The message to the seller should be, simply, that this is the price that works for you.  In your view, this is what the home is worth, so it’s a fair offer in your opinion.

Conclusion

Navigating through the process of making an offer on an overpriced home can be daunting. However, with the right strategies and a professional approach, it’s possible to negotiate a fair deal. By conducting thorough market research, crafting a reasonable offer backed by evidence, employing effective negotiation strategies, and being prepared to walk away, buyers can turn an overpriced property into a dream home.

Time to talk to a REALTOR?

Wonderful San Jose Homes for Sale