Here’s a hint about the magic number – are you ready?
It’s best to not have one.
Everyone buying or selling real estate has a number in their head – they won’t go higher than X to purchase the house and they won’t go lower than X to sell the house.
This number makes people feel comfortable. This number helps them make sense of a confusing situation. This number creates a happy feeling in the buyer – they got the house they wanted at the price they wanted! That number assures a seller that they’re not giving anything away! Yahoo!
Except when it doesn’t work out that way.
A few months ago I sold a house I had listed. It was initially put on the market in November of 2011 at $208,000. The seller had purchased it for $200,369 a scant 17 months earlier. So was $208,000 too high a price? Yes. Four percent appreciation in 17 months is too much to expect, but it wasn’t a crazy price. Prospective buyers still toured it, feedback was generally positive. And yet no offers. About three months in to the listing period the seller told me, “By the way, Cari, I’m just not interested in selling it for less than asking price.” As a Realtor, I have to present all offers, anyway, so I told her that any offer that was given to me I’d still tell her about it, even if it was less than asking. She understood but simply wanted to make it clear to me that she would not be taking an offer for less than asking price. That was her magic number.
Six months later with no offers, but continued low-level interest, our contract expired. She renewed the listing with me and lowered the price to $204,000. She had received a lay-off notice and her magic number had changed.
Seven weeks later, we lowered the price to $199,000, hoping to get some people we’d heard were interested off the fence, and/or to just get the place sold. She had a new life lined up back East, and needed to get there. The house here had become a burden.
Less than a week later I received an e-mail from my client. She asked me what I knew about short sales.
I spoke with her and she told me that she owed more money on the house than she would be able to bring in with even a full price offer, after taxes and fees were subtracted. She was already into the short sale process with her lender and had applied for consideration but we needed an offer for the next step.
And blessedly, miraculously, one came in that very day. But it was for $185,000. CASH.
Now, normally a cash offer means nothing significant to the seller. But in this case it did. He wouldn’t be using a lender and his sale could close immediately, which meant that the usually interminable short sale process would be expedited. Only the Seller’s lender would need to be negotiated with. There would be no other bank involved.
We countered and laid all our cards on the table – he could buy it CASH, for $197,000, and she had enough money to cover the difference from her savings. OR, he could probably get a screaming hot deal from the bank and they’d likely take less, but it would take a lot of time.
The Buyer’s agent (also the Buyer’s son), said the Buyer wouldn’t pay more than $190,000. That’s all the Buyer felt it was worth. He, too, had a magic number, you see.
The other agent and I ran the numbers and found that if we both drastically reduced our commissions, the Seller could afford to sell it for $192,000.
The Buyer still wouldn’t budge. So, his son, his agent, very kindly stepped out of the transaction, handed me both sides of the sale for a tiny commission for me only, and we put the deal together at $190,000.
If the Seller had not had a magic number in the beginning, would she have reduced it earlier, bringing a buyer sooner? If the Buyer had not had his magic number at the end, would his son have been paid?
That’s why it’s best to have a more nebulous number in your head. The Buyer thinks, “I can afford X, so I’ll pay X if I must”. “I could sell it for X, if necessary”, says the Seller. Guess what? if you want to move, it’s necessary now. If there’s another offer on the table, you must pay X to ensure you secure the house you want.
Would you rather get a screaming hot deal on a house you’re lukewarm about, or pay market value for the house of your dreams? Would you rather wait around for a higher offer that may not come, shelling out money every month in carrying costs, or cut your losses sooner and move on with your life with the house that has become a burden no longer on your back?
Most people will still have a magic number. It’s human nature. However, the sooner you’re willing to move off your magic number, the sooner you can truly move into or out of your house.