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The Opportunity Cost of “Winning” a Real Estate Negotiation

New-Construction-Price-NegotiationAs a real estate broker, all too often I see some variation of this scenario play out: A buyer describes to me the ideal new home for them and their family.  We start our search, touring every available home and quickly touring all new homes as soon as they come on the market.  Eventually we find the perfect home and start negotiating the purchase, and that’s where the buyer’s priority shifts from “finding the perfect home” to “winning the negotiation.”  By winning I mean being the party that held out and made the other party agree to their price.  I think some of this comes from people wanting to get a good deal, and part of it comes from the competitive perception of home buying fostered by reality television.  Squeezing every penny out of a buyer or a seller makes for good television, but it is rarely how good deals are actually made.

This week I watched a $650,000 deal fall apart over $5,000 because both the buyer and the seller have given their “final price” and neither one wants to budge.  The buyer should consider at this point whether that additional $5,000 is worth it to them to have the perfect home for their family, which is what they really wanted when they started their home search.  The difference in payment for that additional $5,000 is less than $21 per month.  The seller should be considering whether $5,000 is worth being free of their old home to move on to their new home.  There are daily costs of owning a property such as the mortgage, insurance and property taxes that will eventually add up to that $5,000.  When you start a transaction off haggling over every little bit you have set the tone for the rest of the transaction and you leave no room for generosity.

Win-win solution in word tag cloud on whiteThis is where some people would say, “Of course you think your client should pay the extra $5,000 because your commission is based on the purchase price.”  To those people I would point out that if your Realtor’s advice is swayed by $150, you have hired the wrong Realtor.  I am not advocating overpaying and I’m not advising buyers and sellers not to negotiate.  What I am advising is not to get caught up with competition and feeling like you have to win, but instead to maintain your overall perspective of the deal in its entirety.  Don’t let an arbitrary price or position cause you to lose a home that is otherwise perfect.

Interestingly, I have seen sellers offer to leave expensive furniture and appliances when they felt like the buyer loved and appreciated their home.  Often times, the replacement cost of those items exceeded the small amount that the buyer would have gained earlier in the deal by “winning” the earlier negotiation over the price.

The true measure of whether or not you won when you purchased your new home is whether your family thrives there.  There are countless factors that have to be weighed when buying a new home and price is just one of them.  Is it close to where you work, and your children’s school?  Is it in a good school district?  Is it in an area that will be easy to resell?  Will the house require a lot of maintenance?  Does it have the kitchen that you want?  Is the yard big enough?

After you close on the house, nobody is going to remember who won or lost the negotiation.

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