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Negotiation


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2007 Mar 22, 2:02pm   19,165 views  288 comments

by Peter P   ➕follow (2)   💰tip   ignore  

Let's talk about negotiation. When it is time to make your home-buying offer, how will you approach the game? What techniques will you use? What will you do to close the deal in your favor?

Some say that win-win is not only possible, it is preferable. However, when it comes to a financial transaction, it is hard for everyone to be happy realistically. Someone must lose something. Or that someone must not have full information. Or that someone is self-delusional. What is your take on this?

What are the best ways to breakdown your opponents within the bounds of law? What mind games are the best?

Be creative! But please respect the law.

Peter P

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1   astrid   2007 Mar 22, 2:20pm  

I prefer to wait for a good macro situation. Negotiation can typically only take you so far before it becomes unethical or illegal. Lots of home buyers get fixated on getting $5,000 worth of furniture or $10,000 towards closing. Focus on the big picture, make sure what you're buying fits into your overall budget.

But...play a lot of poker. Learn to cut your losses, don't get attached, don't get angry, don't feel for the other side unless it is to your advantage to emote with them. Don't let bargain seeking behavior get out of bound, sometimes it really is worth giving the other side a few small concessions to get into the right house.

2   Peter P   2007 Mar 22, 2:25pm  

Negotiation can typically only take you so far before it becomes unethical or illegal.

This is why we need lawyers. :)

3   Peter P   2007 Mar 22, 2:27pm  

Don’t let bargain seeking behavior get out of bound, sometimes it really is worth giving the other side a few small concessions to get into the right house.

True.

In order to capture, one must let loose.
-- Sun Tzu

4   astrid   2007 Mar 22, 2:32pm  

There are too many lawyers in this country but still too few people who understand the law.

5   Peter P   2007 Mar 22, 2:33pm  

There are too many lawyers in this country but still too few people who understand the law.

The law, the meaning of law, or the true meaning of law?

6   astrid   2007 Mar 22, 2:35pm  

All of the above.

7   Peter P   2007 Mar 22, 2:40pm  

How about the natural law?

8   astrid   2007 Mar 22, 2:41pm  

A discredited 19th Century notion.

9   FormerAptBroker   2007 Mar 22, 2:46pm  

Peter P. wrote:

> Let’s talk about negotiation. When it is time to make
> your home-buying offer, how will you approach the
> game? What techniques will you use? What will you
> do to close the deal in your favor?

Everyone wants to get a “good deal”, but when buying a house to actually live in I think it is more important to find a house you really like (even if you pay a little more)…

As I have said many times the best way to get a good deal (and actually get the home you want) is to work with the listing broker…

10   FormerAptBroker   2007 Mar 22, 2:46pm  

SFWoman Says:

> OK, I saw the weirdest foreclosure on propertyshark.com.
> 269 271 Collins St, SF
> in foreclosure now with $2,312,831.14 unpaid.

The Duplex at 269-271 Collins is just south of Geary in the Shadow of Lone Mountain. The Duplex last sold in 1996 for $275,500. It looks like they pulled out a lot of cash (and fixed the place up) over the years.

It was recently on the market for $3.5mm (and makes the $4.25mm duplex on Euclid a few blocks north (in a much better neighborhood) seem like a good deal
http://tinyurl.com/yttrzs

I was helping a friend who bought a duplex in Jordan Park back in 1996 (he bought for just over $400K and sold for just over $1mm when he moved to the Peninsula in 2001) so when I saw that Anne Herrera (the wife of the DA) had a duplex on Euclid (just east of Arguello) listed for $4.25mm in early 2006 I actually laughed out loud. After a year on the market the place recently sold for $1.8mm…

11   astrid   2007 Mar 22, 2:58pm  

The best bargains will be picked up in an extremely illiquid market. If the average DOM is 11 months and there are few other buyers on the market, you have a good chance to get a desperate seller to lower prices

12   sfbubblebuyer   2007 Mar 22, 3:27pm  

My bargaining plan is to wait as long as my wife can stand before we buy. I figure the longer I wait, the better deal I'll get in general. I don't believe I'll get her to wait until bottom, let alone until prices start going up. I'll assess the market at that point and either lowball like crazy on a lot of properties that are acceptable, or put in a decent bid on a place we really like. Repeat until we get a house.

13   B.A.C.A.H.   2007 Mar 22, 3:36pm  

When the property is in a neighborhood that I'm familiar with, and is a sound investment, I will have a lawyer contact the seller to make the offer.

The sound investment has been true in Santa Clara County before, and after we get a correction, it will be true again,except for the elite Asian enclaves that seem to follow fundamentals that I don't understand.

14   sfbubblebuyer   2007 Mar 22, 3:53pm  

Personally, I hope to find a nice property along Skyline that feeds into the Woodside/Portolla Valley schools.

15   OO   2007 Mar 22, 3:57pm  

It is better to figure out how long you should wait.

Speaking from my experience, until you see more than 1/4 REO homes listed on market, don't do anything, if bottom fishing is your goal.

The easiest thing is to negotiate with the bank (too bad that banks don't have that many REO lots), because bankers have no emotion attached to the homes whatsoever, they just want their money back. Also, some distressed FB deadbeats may damage the home before turning over the key and disappear for good, it is a difficult situation for you as a buyer to get out. So you want them to take their grievance and frustration out on the banks first, so that you can decide later whether you want to sarbotaged place from the bank or not. If you still want it, you can at least get it for a cheaper price.

Unless you really really love that home owned by the FB who must sell, wait for him to foreclose and go get your REO home from the bank directly. At least in Hong Kong, the REO homes always set the record on the way down.

16   Bruce   2007 Mar 22, 4:00pm  

I hope to build when materials and builders' confidence are low. So probably a year or so before market bottom.

The technical/chart-driven types say residential RE pricing follows builders' confidence index by about a year, and that the correlation has been very strong in the past. I've looked at it, and it looks useful for identifying turning points only.

17   OO   2007 Mar 22, 4:01pm  

SFBB,

there is a big problem with Skyline, I checked out some lots there before.
1) Lots, I mean LOTS of motorbikes on weekend. There was a man slaughter a couple of years ago near Skyline / Portola Valley because a resident owner couldn't stand the noise of the motorbikes, pretty bizarre story.
2) Extremely fast car speed, it is like the autobahn all the time, I am worried about getting whacked at night if I am not careful
3) Very, I mean, VERY cold at night. I drove there at night to see how cold it could get, it was freezing. I think the heating bill will be huge.

18   sfbubblebuyer   2007 Mar 22, 4:06pm  

1) I, and my wife ride motorcycles.
2) We want to be OFF skyline, one one of the side roads. Living directly on Skyline would be kind of lame.
3) I grew up in Montana. I love it cold, especially at night. Proper insulation works magic on heating (and cooling) bills. I'd ideally like to be able to install a thermal pump!

19   OO   2007 Mar 22, 4:06pm  

As I started off with one problem, the noise, I couldn't contain myself and started elaborating on the other issues of Skyline. Sorry about that.

20   OO   2007 Mar 22, 4:09pm  

SFBB,

then it sound like a heaven just made for you.

If you want a good deal, and don't mind the motorbikes, since you are bikers yourself, the Skyline portion of Los Gatos and Cupertino offer even better deals than Portola Valley, they both feed into the LG and Cupertino schools. With Skyline portion of LG, you can go really deep into the south but still stay within the school system, and they have very good elementary and middle school up at the Summit area.

The only thing to watch out is earthquake fault, try not to buy anything sitting right on top of the fault.

21   sfbubblebuyer   2007 Mar 22, 4:14pm  

OO,

My dad would disown me if I bought directly on a fault. He's a geologist.

We went up there shopping for homes, and MAN... I just loved the smell of the redwoods... and the high pitched annoying scream of the motorcycles in the distance...

I'll take a look down there and see what's up. Given that our jobs are in PA and MV, we were hoping to minimize actual commute time by staying in the San Mat area of skyline.

I've got a feeling that skyline may tumble before the rest of the PA/MV/CUP/SV/etc fortress.

22   OO   2007 Mar 22, 5:09pm  

SFBB,

You are right, the Skyline part will tumble first. I love the view there as well, one of the lots I looked at could see almost all the way to the ocean.

Since you work in MV/PA, then it may not justify moving further south. However, the drive on 9 is absolutely breathtaking and highly recommended, if you haven't already biked down there. Once you get up to Skyline @ Page Mill above Los Trancos (assuming this is your current target area), since there's almost no traffic, it takes only another 10-15 minutes to get to 9. Saratoga is not feasible for you, because it has no schools situated that high. Los Gatos however has very good elementary and middle schools located above the Lexington Reservoir serving the Loma Prieta and Summit area. Just check them out as a reference. I go for a weekend drive along 9 all the time.

23   e   2007 Mar 22, 5:10pm  

http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=712427&type=property&name=

Ok... what's up with this house?

318 AMERICA AV
Sunnyvale, CA 94085

Currently it's on the market for $529,000.

Last October it was on the market for $450,000.

But then Zillow says this:
Sale History
02/09/2007: $505,187
01/26/2006: $580,000
07/07/2005: $475,000

So... the guy who bought it on 1/26/2006 took $74k loss... after the house sold for $55k over asking 3 months after it was listed.

And is now for sale again?

What the heck is going on here?

24   astrid   2007 Mar 22, 11:07pm  

Changing terms at the last minute and blackmail may be illegal actions. The other side, if they're angry enough, can take you to court.

It's also bad karma. Life is too short for you to be an asshole just because you can be one.

25   DinOR   2007 Mar 22, 11:14pm  

Wow! What a difference since the last time we ran a similar thread!

Back then subprime was alive and well and setting the market by enabling marginal buyers. Ahem, since we no longer have to compete with those that have no skin in the game it sure changes things considerably.

What has additionally changed is that builders have made every effort to subvert the natural process of a correction by throwing in every incentive, including the proverbial upgraded kitchen sink!

When they're offering you 100K OFF! (and the option of *not raking leaves so they can just blow into your "old" neighbors lawn) along with 50K in upgrades, 5K toward closing AND no HOA's for a year it kind of takes the fun out of negotiating now doesn't it? Well that's certainly how it's intended. I mean, c'mon what more do you want! This marketing ploy was carefully crafted to net knife catchers that needed help in the form of "remedial negotiating".

26   astrid   2007 Mar 22, 11:24pm  

I want to chart the utility function for trolls?

Do trolls dream? Do they appreciate sushi? What would they do if they had 24 hours with Liv Tyler?

27   DinOR   2007 Mar 22, 11:26pm  

John D,

"Lumber prices have already dropped 50%"

And yes, they have. As others have noted, Katrina (a one time event) artificially drove "lumber" prices through the roof! God love Ben Jones b/c he really tracks all the mill closings and lay-offs. This is what builders are contending w/right now. They over bid on land options, and they paid through the teeth for bldg. materials. Hence the incentives to quickly reduce existing inventories and re-establish a new, lower and more realistic cost basis from which they can hopefully recover.

The reason for the "lumber" snub is b/c most homes today are sheathed w/OSB (TM). Oriented Strand Board. Builders will readily tell you that there's no difference between OSB and good 'ol plywood. See, that's funny b/c I'm something of a boatbuilder and I haven't seen any homebuilt plans that advocate the use of OSB for a boat?

28   Bruce   2007 Mar 23, 12:39am  

John D and DinOR:

I'm afraid it is concrete I must watch, and not lumber. The design I have is mostly precast and stone, and probably wouldn't burn if you soaked it in gasoline.

I am told Asia has become irrationally exuberant where concrete is concerned - that my future 'dream' is in a losing competition with an overpass in Beijing - though I'm not quite sure I believe that.

Anyway, no glue-and-chips-under-pressure will go into the new place unless someone sneaks it in while I'm not looking.

29   DinOR   2007 Mar 23, 12:59am  

"glue-and-chips-under-pressure"

You sure Bruce? It's all the rage? I especially like the "glue-lam" beams they're using. Basically glue'n chips with "c" channels to nail into. (How hard is it to imagine those sagging in 3-5 years). Oh, that's right, most end user/flippers plan to be long gone before that becomes an issue.

30   Claire   2007 Mar 23, 1:00am  

Can anyone confirm? When a house is reposssed is that recorded as a sale? Does this affect the existing home sales?

31   lunarpark   2007 Mar 23, 1:00am  

"The price of a median home sold last month dropped to $212,800, down by 1.3 percent from the same month in 2006. It marked a record seven straight months that the median home prime has fallen compared to the same period a year ago."

"Sales of existing homes were up 3.9 percent in the Midwest and 1.6 percent in the South, while sales were unchanged in the West. Lereah said the reluctance of sellers in the West to trim prices was holding back a rebound in that region."

32   Bruce   2007 Mar 23, 1:14am  

DinOR:

Of course I am extremely fond of that saggy fake beam, cottage in the Isle of Wight look and all the rising damp and Black Watch beetles which come along with it.

But also a raging reactionary and an engineer's son. It will cost me, I'm sure, but the karma's good.

33   Malcolm   2007 Mar 23, 1:50am  

Can anyone confirm? When a house is reposssed is that recorded as a sale? Does this affect the existing home sales?

No and no.

34   Claire   2007 Mar 23, 1:51am  

Apparently that sales increase in exisitng homes is a comparison of Jan 07 to Feb 07,
YOY i.e. Feb 06 to Feb 07 they are down.

They spin and they spin and they spin.........

35   Malcolm   2007 Mar 23, 1:52am  

TheOtherSide
1- It looks like you guys miss me so much that even when I have a few busy days at work and don’t post anything on Patrick.net, you really can not get me out of your mind…

I like you.

36   Malcolm   2007 Mar 23, 1:55am  

Year over year is most important. You are right Claire, the spin is the normal seasonal increase being played as a rebound.

37   DinOR   2007 Mar 23, 2:01am  

PAR,

Can you believe that stuff? Gee that's funny since realtwhores and lenders sleep in the same bed? The realtwhore was getting a kickback from the MB for steering business their way you'd THINK they'd know, right?

And you're right, the constant REIC msg. from the late 90's on was, you can't AFFORD not to get it! (Regardless of the cost).

38   speedingpullet   2007 Mar 23, 2:12am  

Bap33 Says:

my plan: Take in the zillow page of the home, show them on the graph what the home cost is 1999, offer that amount and not one penny more

A person after my own heart! Although, I'm kinder than you, as I add 5% compound interest per annum to my projected lowball. Even with the interest, the price is still roughly half of what the asking price is, here in Los Angeles.

39   Bruce   2007 Mar 23, 2:23am  

Existing home sales are tabulated at close of escrow. There should be a fair number of pre-subprime meltdown sales from dec-jan in those figures, according to Calculated Risk this morning.

40   DinOR   2007 Mar 23, 2:26am  

speedingpullet,

As are you dear! That's been my battle cry all along. Pre-bubble pricing, then add back CPI plus a point two (as Robert Schiller assures us has been the case since the signing of the Declaration). This is what sane offers are based on.

Saying "I'll give you 1929 prices for your 2029 401K" is beyond stupid. Especially given that many of the companies that made up the Dow at the time are no longer in existence and legions have come and gone. Who KNOWS where technology will take us over the next TWO decades (but a house.... is still.... just a house) :(

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