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Negotiating the Purchase of Your Home
Negotiating a successful real estate contract requires
communication skills and the ability to create a environment of
cooperation. Many of our real estate clients have been very
experienced negotiators, and from them we have learned that the
goal is to reach a "good agreement" - one in which the
underlying interests of both buyer and seller are met. The
results of a poor agreement may come back to haunt the parties
after closing. Here are some thoughts for you to consider as you
prepare to negotiate for the purchase of your home:
What do you want to achieve in the negotiation?
For most people the primary focus is the price they will pay for
the property, and this is certainly an important consideration.
But, there are other needs that you should think through.
Distinguish between the "must haves" and the "would likes". A
market analysis will help you establish an appropriate offering
price. Setting a price range allows you to balance the price
with other underlying interests. Knowing your range allows you
to balance the price with other underlying interests. Letting
the seller know what you need, in a clear and reasoned way, is
the first step toward getting it. Your interests might include:
Buying at the lowest price possible. Leaving your current home
at the right time.
Setting the closing to meet your travel, school or work time
frame.
Resolving repair issues fairly.
Having your concerns addressed.
Locking in your mortgage loan rate.
Having no title or survey issues.
Completing your relocation process.
Getting settled into a home and neighborhood.
Forging a good working relationship with the seller.
Having no future problems after closing.
Is an adversarial or cooperative approach more effective?
There is nothing more destructive to the negotiation process
than the combative style. Professional negotiators try to
preserve the relationship between the parties. The goal is not
to reach an impasse in which neither buyer's nor seller's needs
are met. The contract negotiation process usually begins with
some degree of distrust between buyer and seller. The goal is to
move in the direction of trust as quickly as possible.
Buyers sometimes submit a letter to the seller describing why
their house is not worth what they are asking, pointing out
deficiencies, etc. This will backfire and start the negotiation
with a defensive seller. Folks who have enjoyed their homes,
made the curtains, laid the tile and painted the walls will have
a negative reaction to a critical buyer. It is best to anchor
your price to the marketplace, while remaining very
complimentary of their home.
How do you work with a adversarial strategy by a seller or agent?
Sometimes you have no choice but to work with a combative seller
or agent. Their strategy includes: emotional statements, snide
remarks, defensive arguments, threats to terminate, ego
involvement, and stated positioning. Creative solutions are not
likely to be found in this environment. Working with a combative
style negotiator requires good control of your own emotions.
Here are some pointers:
Do not respond emotionally. An angry or defensive response will
escalate the negotiation into a no-win battle.
Do not argue. Arguing usually positions them more strongly and
drags the negotiation process off course.
Do not ignore their arguments or statements. Listen carefully,
but do not accept or reject.
Acknowledge the fact that certain emotions are present, without
responding in kind. Strong emotions arouse emotions in others,
including fear and anger. Their anger may have a source outside
the contract, or it may be a negotiation tactic.
The agent may have an "us against them" strategy. Try writing
cover memos with your responses to the seller in order to break
down the barrier.
Firmly anchor pricing, repair requests and other points to
outside data. Show that the proposals have not been made
unreasonably.
Do not allow hazy proposals to stand. Put everything in writing.
An emotional negotiator will usually produce an unclear
agreement.
Offer some "wins" on some of the terms. Face saving is
important. Make your offer as attractive to the seller as
possible. Look for ways to meet their underlying interests.
Remember that they may have a beautiful home that satisfies your
goals.
Is every point in the contact negotiable?
Yes. However, one of the most effective means of coming to an
agreement is to rely on consistent standards when possible. For
example, it is common practice in our area for the seller to buy
the title policy and buyer to pay survey cost. Using accepted
standards prevents buyer and seller from haggling over every
point. On the other hand,
all the points in an offer can be used
to help structure the deal. They offer trade-offs for both
parties to get what they want. How do you move in the direction
of "trust"?
Most people are fair minded and reasonable. They respond well to
respectful treatment and to having their concerns heard. If the
seller feels that the buyer and agent are acting with integrity,
their attitude will be much more cooperative. Contract
negotiation is a sensitive area, and anxiety can be high. Both
buyer and seller are under pressure, with future plans at stake.
Acting with integrity does not mean that all cards have to be
put on the table. It is not proper to discuss your price range,
financial details or urgency to move. It is valuable to develop
trust because trust raises the level of cooperation between the
parties and forwards the negotiation. Here are ways:
Listen and understand what the seller has to say.
Express appreciation for the seller's home, gardens, decorating.
Respond within a reasonable time to counter offers.
Reassure the seller of your ability to close.
Reveal some personal information about yourselves.
Finding common ground with the seller can be a very powerful
tool in the event of multiple offers. Often sellers select their
contract for personal reasons: The family reminded them of
themselves when they moved in with young children. Or, they were
of the same religion. Or, the new owners would care for their
gardens or feed the birds.
How much leverage do you have?
Knowing the type of real estate market is crucial to your
strategy for negotiating your offer. You must know the
underlying market condition. If you are in a seller's market you
will need to act quickly and be willing to offer at the top of
the range. This is especially true if the home is in a hot area
and has great appeal. If they have multiple offers, you must
make your very best offer up front.
In a buyer's market you may be offering on a house that has been
for sale for many months. Or the house may have a small buyer
pool due to poor condition or updating needs. Here you have a
lot more leverage than you would with a new listing. Knowing the
seller's needs will help you improve your leverage. They may
want to move immediately, or prefer a long close time. If you
can meet their secondary needs you have some leverage for a
better price.
Make your offer as simple and as straightforward as possible.
Contingencies will reduce your leverage for a better price in a
buyer's market, or for any consideration in a seller's market.
Be proactive about reassuring the seller of your desire and
ability to close. Here are some possible contingencies:
Contingent on sale of your home: The seller will not usually
accept this contingency unless you have a contract on your home.
Attach a copy of the contract and status report. Contingent on
inspections: In our area this is covered by an "option period".
Keep the option time within accepted norms.
Contingent on financing: Always be credit approved by a mortgage
lender and include their letter with your offer. This improves
your leverage, and is crucial in multiple offers. If you are
making a cash offer, have a letter from your banker stating that
the resources are available.
How much under list price should you offer?
Buyers usually offer less than list price, unless it is a strong
seller's market. The best way to establish the price is by a
market analysis. It is usually counter-productive to offer so
low that the seller will reject the offer. This will set a
negative tone and will not move you in the direction of
establishing trust. In a recent deal the seller responded to a
low offer with an "over list price" counter.
How are multiple offers handled?
Sometimes the seller receives more than one offer. The listing
agent and seller will decide how they will handle multiple
offers. They may choose to disclosure to all parties, or
disclosure to none, that multiple offers have been received. By
disclosing that there are multiple offers, the seller is not
"shopping" your contract. Shopping occurs when the seller
discloses the terms of an offer to induce a buyer to submit a
better offer. This can result in serious distrust of the process
by the parties, and possible loss of the buyers. Usually the
procedure is to notify each party that there are multiple
offers, and give each a chance to raise his offer by a certain
time. After that, the seller will review all offers and choose
one to work with.
About the author:
Roselind Hejl, CRS, is a Realtor with Coldwell Banker United in
Austin, Texas. Her website: www.weloveaustin.com offers homes
for sale, search MLS, buyer and seller guides. "Let Roselind
help you make your move to Austin." Top 25 Residential Agents -
Austin Business Journal
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