Strategy to Negotiate a House Purchase in an Uncertain Economy

Question

My wife and I are interested in buying a house here in our town (near Chicago), which is usually a strong real estate market. We have a decent income and good credit. We are living in a two-unit building which we own, and we will keep it and rent it out when we move into a new home.

The asking price for this house is $589k; it just dropped from $600k. We don't want to pay more than $550k for it.

So how do we play it? Should we just make our $550k offer right away—or should we risk waiting for the price to drop again, so the buyer is hopefully more flexible?

For the last nine months we've seen houses fly off the market and sell above the asking price, sometimes with multiple offers. But lately houses have been sitting and sellers are making $20k reductions or more in order to sell.

Why do we set our limit to $550k, you ask? Well, it is nearly autumn of 2022. Besides the usual real estate slowdown at this time of year, the economy is looking a little shaky. And interest rates are up. We live in uncertain times; we don't want to pay top dollar for a home only to be have it be worth $520k five years from now.

This house we're interested in is great! Ostensibly, it is worth the $600k all day long. But there are some issues. The basement is unfinished. It's right next to a some condo buildings with rentals. So there's the question of what kind of neighbors you're going to live by. And there are 20 windows from these apartments overlooking the backyard; it's like a fishbowl. Furthermore, on the other side there is another house that's been on the market for years and it looks a little rundown. There are a couple more issues. It's not perfect.

Still, we like it. What should the strategy be for moving forward? Maybe the only thing we can do is sit and wait and see what happens.

P.S. So the market spoke, and the place went under contract two days after the price drop. I guess the lesson to me is: No matter the economic uncertainty blah blah blah; one can't expect prices to fall off a cliff in the span of a few weeks. Things take time. If one wants a place at what could be the tail end of bullish activity, one shouldn't expect to play it as if the bear has already arrived.

Answer 1

In my view, there's no good reason not to make an offer now at the price you want.

If you're coming in low it's best if you can add strength to your offer in other ways. For example you could offer a no-cost lease-back for a couple months and/or flexible closing date to make their transition easier. If you can swing a cash offer that is stronger as well.

If writing/talking to the sellers directly I just say that I'm interested in buying for $x and understand it's a bit lower than they are asking, I mention the strengths of my offer and I don't put a short deadline on the offer. I typically don't give them my reasons for offering less than asking.

If talking to seller's agent I am more likely to pitch my reasons for coming in under asking. I find agents typically respond better to that feedback than the owners and can communicate that to the sellers, the agent's primary interest is getting deals done quickly, not maximizing price.

If you feel uncertain about the market, then you shouldn't feel bad about them turning your offer down. If you sit around and wait to see if it goes lower then you might find it sells for even less than you were willing to pay.

Answer 2

Normally, when you come in under asking, the seller is going to counter and expect you to move up from your initial offer. You can't really purposefully come in much lower than $550k in this case as it would be borderline offensive. The fact that it just dropped is great news for you, but the biggest issue you have is the market has been so good for sellers until recently, that sellers probably aren't ready to admit defeat just yet with lowball offers.

That being said, if I were in your shoes, I'd consider offering your absolute max and make it clear that it's your final offer, in as nice a way as possible so to not sour a future relationship, say a month or two down the road. Most likely it will be turned down initially, but they may counter which would give you a lot more information. You'll need to turn down the counter (because as you stated, you must), but if it comes time to lower the price again, you just might be the first call they make.

Given that you're max is off by $39K in this case, I don't see any advantage to sitting and waiting for another drop. An additional drop may trigger more offers which you still couldn't beat.