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Negotiating for a Home in the Current Market, Why Your Offer Was Rejected

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Everything Real Estate in the San Fernando Valley
Friday December 4, 2020
Negotiating for a Home in the Current Market, Why Your Offer Was Rejected

Over the last few weeks, we have talked a lot about the current state of the housing market as it relates to the unexpected strength of the market despite an otherwise unstable economic backdrop. The reality is that sellers are in an extraordinarily strong position by virtue of equilibrium price and record low mortgage rates; demand is drastically outpacing supply, and banks are enabling purchasers to spend more on homes. The reality is that any house that is reasonably priced will receive multiple competitive offers in a short time frame, which oftentimes leaves the unselected offers scratching their heads as to why they were not selected. Rejection stings, regardless of the context; this article will briefly discuss the reasons why your offer may have been rejected, and what you can do to improve your chances in the future.

At this point in time, demand for homes is significantly higher than the actual supply of homes (“inventory”). When demand is higher than supply, the price of the item in question rises until the demand matches the supply (“equilibrium price”); homes have not hit that point yet. Thus, that massive offer you made on your dream home may not be high enough to get the seller’s attention; you are competing against other people who are willing to pay top-dollar as well. This is a long-winded way of saying your offer may have been rejected because it wasn’t high enough.
It is an unfortunate reality that buyers are negotiating from an inferior bargaining position, but it does dictate what “moves” you can use at the table. In normal times, the proper move is to submit an offer that is lower than your best; you can generally negotiate to a middle ground that is less than your maximum, and higher than the seller’s minimum. These are not normal times, and sellers are not currently obligated to come to the table in good faith; there is likely someone out there offering more than your negotiating-savvy offer. Thus, it is in your best effort to avoid “games,” and submit your best offer. This method has the added benefit of removing a negotiating tool from the seller; there is no more negotiating, it is a take-it-or-leave-it proposition.

Keeping in line with the avoiding gamesmanship when you don’t have a strong bargaining position, it’s a good idea to put a significant amount of money into your earnest money deposit (“EMD”); this is a deposit that tells the seller you plan on moving forward with the transaction. Everyone likes reliability, and sellers are no different. In most cases, the EMD goes to the seller if you back out of the transaction after removing all contingencies, so a larger deposit telegraphs how serious you are about the sale to the seller. When your EMD is below the standard 3%, it sets off alarms for the seller that you might back out of the or not have enough money to close the deal. Rational people don’t gamble when they don’t have to, and the current market means sellers do not need to gamble – there is always a sure thing right around the corner.

Finally, asking for long contingency periods complicates the process for sellers. Sure, some contingencies are necessary to protect your financial and legal interests, but they can become overbearing at a certain point. This circles back to the relative bargaining power of the buyer and seller in this market. Contingencies are a great negotiating tool and shortening them to a feasible but concise timeframe may make your offer stand above another with similar terms. Moreover, sellers with multiple offers are not under pressure to give their house to whoever makes an offer, if they associate you with uncertainty you won’t get the home.

At the Chernov Team we understand that knowledge is power, and knowledge of how to negotiate in situations where you don’t have the upper hand is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.

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