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Wednesday, February 10, 2010

Seller's Comp's vs. Buyer's Comp's

"East is East and West is West"

From experience, here are two good rules of real estate negotiation:

Rule #1. Never argue the "comp's" with the other side.

A comp, or comparable sold property, is a similar, nearby home that has sold recently.

To determine fair market value, Realtors and appraisers alike typically look for three good ones, then go through a "compare-and-contrast" process with the subject home to arrive at an adjusted value.

The first person to do the comp's is the listing agent, in the course of preparing a "market," or Comparative Market Analysis, for the homeowner.

Subsequently, the prospective Buyer's agent will also scrutinize the comp's.

Then, once there's a deal and the Inspection Contingency has been removed, so will the appraiser hired by the Buyer's lender (unless it's a cash deal).

In almost nine years of selling real estate, I've yet to encounter a situation where the Buyer's agent, in the course of negotiating an offer, made the case that the Seller's comp's were unrealistically low.

Nor have I seen an instance where the Listing agent, representing the Seller, readily conceded that their comp's were too high ("You got me! What was I thinking!?!").

In fact, the agendas of each side are so manifestly clear and self-serving -- not to mention transparent -- that it's almost always a waste of breath to engage on this.

Rule #2. If you're going to break Rule #1, you'd better make sure that you know the comp's -- or comp, if there's one in particular that looms large -- better than your negotiating counterpart.

I recently had a deal where the other agent was adamant that, "based on the comp's," my Seller's asking price was out of line.

He placed particular significance on one property in particular.

It turns out that the other agent had never been in the home.

Guess who had?

In fact, I'd shown the home to 3(!) clients, and knew every square foot of the house by heart.

So, I knew that the flattering Kitchen shots masked what was easily $100k in needed updating; the floor plan was off; and that the master bath was tiny -- and couldn't be expanded.

The upshot?

The Buyer significantly raised their offer, and ultimately reached agreement with my client.

P.S.: Trial lawyers have a saying, "never ask a witness on cross-examination a question that you don't already know the answer to." Good advice for Realtors "debating" the virtues of various comp's!

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