MBA – I Spit Hot Fire

At the end of 2018, I purchased a same-year Canyon Ultimate CF SLX with fewer than 500 miles, a month or two of usage, for a little over $3K, representing a discount of about 35% from its new retail price if you count sales tax. Originally, the seller was on eBay, but I noticed they lived in the same general area as me. I thought if I could safely move the transaction to a physical meetup, they’d be more open to discounting. I was able to do so, and here’s the main message I shared with the seller – I’ll break down each paragraph with commentary on the approach.

Original Message

“Thanks for the extra info. I’ve been tracking market prices for higher-end, lower usage second-hand bikes for a while – it feels like 30-45% off retail is the normal range, depreciation is really high. I admittedly could be wrong in this case – it’s not often Canyons go on sale.

$3,600 is about 20% off from original build retail. Your build is slightly different from stock, so it’s not a perfect comparison, but I find that the market does not value premium add-ons like wheels very well. It’s usually much better to piece them out. I think it’s because everything is so subjective based on the rider for things like wheels, handlebars, saddles. For example, I am familiar with the wheels and like them.

Selling in winter when there’s less demand (hard to get excited for a new bike if you’re in the snow) but more supply (lots of off-season sales) makes this more difficult as well.

My budget is $3K. Using the $3,600 as a starting point, with 10% of fees going to eBay, if we could do something direct with local pickup, there would still a difference of $240. To help bridge that gap, would it be of value if you kept the pedals and/or mount? I am not sure I can use the mount – I have a Wahoo Elemnt.

If you wanted more time to see how eBay reacts to the listing, I could wait over the weekend too. Open to your thoughts.

Thanks again for the consideration,

Michael

Breakdown and Analysis

Opening Gratitude and Market Reference:

Analysis: Starting with a thank you sets a cooperative tone. Mentioning market research establishes that my offer is informed and reasonable, setting the stage for a rational negotiation based on data rather than just haggling.

Acknowledgment of Uncertainty and Appeal to Fair Comparison:

“I admittedly could be wrong in this case – it’s not often Canyons go on sale.”

Analysis: By admitting potential error, I position myself as reasonable and open, which can encourage the seller to also be flexible and fair. It subtly invites the seller to correct me if I’m wrong, fostering a dialogue rather than a confrontation.

Pointing Out Specifics About the Bike and Market Valuation:

“$3,600 is about 20% off from original build retail. Your build is slightly different from stock, so it’s not a perfect comparison, but I find that the market does not value premium add-ons like wheels very well.”

Analysis: Here, I’m making a case for my proposed price by highlighting the differences in the bike’s configuration and how these are generally valued in the market. This educates the seller on why my offer is fair given these factors.

Seasonal Timing:

“Selling in winter when there’s less demand (hard to get excited for a new bike if you’re in the snow) but more supply (lots of off-season sales) makes this more difficult as well.”

Analysis: I leverage external factors such as seasonal demand, which are beyond our control, to justify a lower price, suggesting that waiting might not be in the seller’s best interest.

Direct Negotiation and Closing the Gap:

“My budget is $3K. Using the $3,600 as a starting point, with 10% of fees going to eBay, if we could do something direct with local pickup, there would still a difference of $240. To help bridge that gap, would it be of value if you kept the pedals and/or mount? I am not sure I can use the mount – I have a Wahoo Elemnt.”

Analysis: I present my budget transparently, showing how close I am to their asking price and suggesting practical ways to bridge this gap without affecting the perceived value of the offer. Offering to forgo accessories like the pedals and mount simplifies the negotiation by reducing complexities and potential objections.

Flexibility and Encouraging Decision Making:

“If you wanted more time to see how eBay reacts to the listing, I could wait over the weekend too. Open to your thoughts.”

Analysis: This shows flexibility and respects the seller’s autonomy, making it clear that I’m not pressuring for an immediate decision, which can build goodwill and increase the likelihood of them considering my offer seriously.

By dissecting this negotiation, you can see how combining empathy with a strategic approach creates a compelling case for your proposal. This method not only increases the chances of a favorable outcome but also maintains a positive relationship with the seller, regardless of the result.

“Expect home price appreciation to “fall further,” Mark Fleming, chief economist at First American and author of the report said, “as the hot sellers’ market of early 2022 turns in favor of buyers.” (Marketwatch, October 22, 2022)

There’s a home one minute walk from me that recently sold for $1.2M after 5 months on the market. A couple of weeks before they listed their house this past Spring, I had closed on my new house, reasonably identical, for $1.4M.

Seeing their house close for 11% below original asking and others’ thoughts about a buyer’s market, I had feelings of guilt that I had been made a fool. During the buying process, my agent had told me of another home, slightly larger, that just sold for 1.6M a few days prior. My price was supposed to have been a steal. But…

If I had waited six months, I’d be in a buyer’s market and look at the savings I could have had. I’ve screwed myself and my family for years.

I went deeper to understand the individual economics, and it turns out this is wrong. As I write this, mortgage rates today are around 7%. Someone who buys a house (standard 20% down, 30 year term) for $1.1M today is going to pay about the same in monthly costs that I did even though their price is 23% less (the difference in down payment is ~$60K). (Use Bankrate to see this for yourself)

Anyone who pays more than $1.1M is technically paying more than me for their house. To really see if I made a big mistake, I have to see if similar homes drop below $1.1M in the near future.

This isn’t what we’re taught however. The articles above, and even the agent who sold my house (more on that below), the story is prices drop = buyer’s market, prices rise = seller’s market.

What’s being missed is the actual cost to buyers and what rising costs mean to sellers.

For both buyers and sellers, agents should be comparing house prices based on costs, almost in deflationary / inflationary terms. Your targeted X monthly spend would buy you a home at $1.1M today, $1.5M 6 months ago, and $1.7M 12 months ago.

When I listed my previous house, my agent was very optimistic it would sell for over $1.2M. This was right at the beginning of the Ukraine/USA conflict and rising interest rates. Almost immediately, we (and everyone else in the local market) were dropping prices. It ended up selling 4.5 months later for just $870K. This was an incredibly deflating experience. My agent told me interest rates are rising, this is becoming a buyer’s market, etc.

Looking back on this, what she should have said is, when we went to market the typical buyer with $X spend would be able to afford $1.2M. What that spend looks like at this moment is only $1.1M. Should we change the price to match this?

Instead, it was more like, people think this is high, they can’t afford the same level of house, no one is selling in this market, we should lower. It was vague and reactionary.

If I had been given that information, it would have been very clear what to do, and to which target I needed to reach the same type of buyer.

To show you this, using the $870K price point:

7% = $5300/month
6% = $4838
5% = $4400
4% = $3983

Paying $1.2M at 4% rates (around the time we started to sell) would be $5219/month; buying my former house now for $870K would have been around the same monthly cost as buying it for $1.2M 6 months ago.

Does this imply a buyer’s market? I argue that this is neither a buyers nor sellers market.

If I had known what was about to happen (war, economy, inflation, interest rates) around the time I was make the decision to sell, I would not have put the house on the market. I ended up suffering an expectation loss of over $300K, nearly 30%. For new sellers, who already see these rising rates, why should they sell?

In other words, if I were to sell my new home right now I am totally screwed. We’ve seen that a buyer purchasing for $1.1M right now would have been able to afford $1.4M six months ago. I can’t expect more than 1.1M for it. I can’t afford to lose money on the transaction, so I hold off and wait. Even if I got a better job that required me to move, this impact of interest rates might make it impossible for me to do so in the coming years.

Over the long term, more sellers will hold off because they can’t get a worthwhile price, even though buyers will actually be paying the same amount in monthly costs. No one wins, buyers nor sellers.

The interest rate is a friction that prevents transactions and mobility around the nation. A hot real estate market is hot for both buyers and sellers. When sellers can benefit from selling, they’re more likely to do so. It doesn’t work for just one party, at least when it comes to mortgages.

Sellers need to understand changes in actual buyer cost and the affect on their selling price. Buyers need to understand their cost and how this relates to price in the market over time. (Is a house price rise of 20% fair? That depends on what the cost was at those moments in time)

Category: MBA

Navigating A Good Faith Bike Purchase Negotiation: A Personal Account