How is Reducing the Price of a Home Viewed by Buyers, Sellers and Agents?

The sometimes brutal negotiations that precede the sale of a house can take a number of turns. The seller might not budge; the buyer might walk away; a slew of offers and counter-offers leading to a collapse; or, after all is said and done, a contract gets signed. Sometimes that desired result comes after the seller lowers the price of the property. This action, though hastening the final conveyance, has implications for many parties concerned. Sellers, buyers and realtors are all affected by this compromise. How each party responds to such a turn of events differs one from the other.

The Seller

Obviously, lowering the sales price leaves the seller with less money when all is said and done. Depending on other items worked out in negotiations -- e.g. closing cost coverage, repairs, etc. -- it could leave the seller with little or nothing to show for the sale. However, should the seller have little or no mortgage debt relative to the house, there may be room to maneuver while preserving a fair share of the proceeds. If there is a substantial lien to pay off, on the other hand, a price reduction might serve the neccessity of urgency even if it yields few financial assets.

The Buyer

Again, the effect on the buyer is self-evident: a lower down payment, a lower loan amount -- unless it is an all-cash deal -- and lower lender fees at settlement. As the old saying goes, however, don't count the chickens...What is bartered in exchange for a price cutback? Buyers can assume the financial responsibility for repairs that must be made, for example. These could be minor or significant. In other instances, the buyer can ask to purchase furniture and appliances, with the knocked-down home price as a kind of rebate.

The Agent

Realtors earn commissions. That is their bread and butter. Six percent of a high sales price beats six percent of a lower sales price every time. There is no way around it. The last thing a sane real estate agent wants the client to do is "cry uncle." In any event, though, a lower price still yields a commission whereas a dead deal means the agent was working for free. Even professionals know there is a time to retreat. When nobody is putting an offer in -- or even showing up to look at the house -- after a month on the market is likely a good time to reconsider the asking price. Another indicator is if the comparable properties in the vicinity are all listed lower. Thirdly, when new construction activity picks up, the agent may recommend a competitive re-price.

Real estate professionals may have to assent to a lower sales price but they should all know when not to do so. One scenario is if a bidder confesses to not having enough money for the down payment. Listing realtors should count that as the buyer's problem and not saddle the owner-client with it. Another rundown has the buyer making one little request after another. Accommodate up to a point but -- after all the "nibbling" -- the prospect requests a price reduction, the seller's agent will often recommend rejection.

Sales Prices versus Home Values

Market price and market value are two distinct animals. One reflects what people are willing to pay while the other is an estimate of what the property would sell for under competitive conditions. When demand is low, home values might have to give way to more reasonable sales prices. This is how home sales are closed.