At the end of Part 3 in this series, my clients finally found “the one” in the desirable Los Feliz real estate neighborhood. We were extremely excited, however, we now had to figure out a way to make the deal happen. Negotiating real estate prices in a rising market can be tricky.
I never tell my clients what to do (assuming they would listen anyway?), I prefer to discuss the various options and think about scenarios. We agreed that $3.5M would be too low an offer — they had learned enough to understand the fair market value of properties in the area. So it was clear from the start that if they wanted this house they would exceed their $3.5M max. We agreed that the lowest logical opening offer was $3.55M. You can do the math — this offer was $300,000 below the asking price, and we knew it was a bit of a low ball. That said, we were signaling the seller that we might be looking to do a deal at the midpoint of $3.7M. I felt pretty certain the fair market value of this property was somewhere around $3.8M, but in a rising market with low inventories, it could also have been as high as $4M. When the market is climbing, one must be careful about using yesterday’s prices to explain what a house is worth today. An agent also has to consider what the price may be tomorrow.
In the meantime, Josh Flagg’s listing that went into escrow the day we saw it, closed at $3.1M. This was the Art Deco-inspired Mediterranean that was asking $3.495M. I told my clients at the time it was worth between $3.1M and $3.2M. So I was very accurate (which I admit is simply not always the case), and this built up my client’s confidence in my ability to really assess true market value. Now, I had to extrapolate that into success with negotiating real estate in Los Feliz.
I presented my client’s offer of $3.55M, and within 24 hours the seller’s countered us at $3.785M with a 30-day leaseback for $1. The leaseback was probably worth $15,000 to the seller, but meaningless to my clients, as they were not intending to occupy the house right away. Our next move was critical…we could come up the same $65K the sellers came down, or make a more decisive move. Choosing the latter course, my clients authorized me to counter back at $3.66M, raising our bid by $110,000. That is a very significant increase, and tends to do a couple of things. When you make a low offer, the seller may not really feel there is much probability of closing the deal. So they come down a small bit, as they did in this case, but they are not really motivated. Then, when you make a much bigger jump up, it can surprise them. This can slightly throw them off balance when they suddenly see a realistic number — negotiating real estate can, then, become more serious. This is precisely what happened.
The seller cam back to us with what was essentially a take it or leave it offer — $3.735M — with the one month leaseback for $1 — a further $50,000 drop. This offer seemed to me to be a “win-win” for both buyer and seller. It was $65,000 below what I felt was a legitimate fair market value, and since it had a leaseback component worth $15,000 to the seller, it felt more like $3.75M to them, pretty close to that $3.8M number. Now it was time for my clients to pull the trigger. My advice was that if they accepted, of course they had the house. On the other hand, if they presented a counter offer, the standing counter offer from the sellers is made null and void, and any other offers could be considered. The price was right, and we had another very valuable data point to work with. There had been another house that my client’s never saw because, like Vermont, it went into escrow before we had the chance to see it. As we were considering the final seller counter offer, my clients knew that other house sold for $3.75M, and it was the perfect comp. It was a 5,350SF Mediterranean on a 13,228SF lot, with pool and amazing views, but no guesthouse.
My clients really did not want to spend as much as it was going to take to get this house, but feeling very confident that they were getting value for the extra dollars, and not overpaying, made them feel much better about the purchase. So they agreed, and they bought the house.
To be continued…
David Lubell is a Licensed California Real Estate Agent (BRE# 01928231) with Keller Williams. Learn more about David by reading his bio. Reach out to him via email or call him directly at 323-272-3222.