Read an Excerpt
Be a Successful Negotiator in your Real Estate Deal
Excerpted from The Complete Book of Real Estate Contracts by Mark Warda ©2005
In some societies negotiation is a way of life and a joy. People get angry if you accept their first offer. They want you to complain and counteroffer. They love to haggle and to feel they have gotten the best deal they could out of you.
Not so in America. Most Americans hate haggling. Haggling means uncertainty and the possibility of rejection. We never know how high or how low to go and we always worry if we could have gotten a better deal. We would much rather know the bottom line so we can take it or leave it.
Since real estate is the most expensive purchase many people make in their lifetime, putting together a real estate deal is the most important negotiating a person will do. Most real estate is not priced on a take-it-or-leave-it basis, so it is usually necessary to do some negotiating to find the best available deal.
No matter how much you dislike negotiating you should consider that a little discomfort may result in a savings of thousands of dollars. When buying or selling a piece of property you should remember the rule, it can't hurt to ask. By using this as your motto you can considerably benefit.
If you really hate to negotiate, you can hire a buyer's broker or an attorney to negotiate for you. While a buyer's broker can often get paid out of funds the seller was expecting to pay as his or her commission, an attorney will charge you by the hour, at a rate of usually $100 or more.
If you want to get serious about negotiating, there are several good books on the market explaining all the techniques and nuances of negotiation. If a lot of money is involved you might want to get one of these or hire the services of an attorney or broker to negotiate for you. If not, you can just use the techniques in this chapter to gain a considerable advantage.
Know Your Range
To begin you should figure out what is the best deal you can hope for (your best supportable position) and what is the least that you would accept (your worst acceptable position). With these figures you have a range within which to aim. You will know immediately if the deal is worthwhile. Without this, you will negotiate aimlessly and may end up with a bad deal.
You should make a list of all the factors that support your best supportable position and use them to argue your case. Use your imagination and come up with as many reasons as possible. When people aim high, they often end up high. Asking a lot for something gives the other side the perception, correct or not, that it is worth a lot.
Another danger, if you ask too high and the other side accepts, is that they will be unable to fulfill the deal. If you, as the seller, demand too high a price for a property, the buyer may not be able to afford the payments and if you are holding the financing may have to foreclose and go through selling the property again. Of course, if you got a large deposit you may not mind, but there are other risks to consider such as the buyer filing bankruptcy and tying up the property for a long time, making it unavailable to resell.
Keep in mind that your worst acceptable position may change. If an offer is made that meets some of your other needs, one part of your position may be worth changing.
Example: If you need $100,000 net proceeds from a sale of property to invest for future income, you may be able to accept $90,000 or even $80,000 if you hold the mortgage and the buyer pays you higher interest than is otherwise available. But be sure it is worded carefully and considers all future contingencies. The buyer could offer to pay you 15% interest if you sell for $80,000 but then could refinance and pay you off a month or two later. To avoid this, you would need a prepayment penalty in the mortgage.
Focus on Need Over Position
One of the biggest mistakes in negotiation is to concentrate on your position and ignore your needs. Once people have stated a position, it often becomes a matter of pride to maintain that position. While saving face may be important, you must decide if you are more interested in saving face or making a good deal. You should analyze the situation, determine your needs, and concentrate on that.
Example: Your position may be that you want to put no more than $10,000 down on the property and that you must refuse a seller's offer that requires $12,000 down. But if the seller will take back a mortgage (which saves you closing costs) or will include extra appliances in the deal, you may be able to afford the extra $2,000. If you had concentrated on your position of not wanting to put more than $10,000 down, you might have lost a good deal.
Sometimes your goals may not be clear even to yourself. A $210,000 house may be cheaper than a $200,000 house if you consider taxes, transportation costs, and other variables. Examine your position, but decide exactly what needs are most important to you.
Understand the Other Side
You can negotiate much better if you understand the other side's position and the reasons for it. In other words, what are their needs? If a seller is demanding a large amount of money down, what are his or her real needs? Maybe he or she want to pay off a mortgage that you could assume?
Figure out the other side's bottom line and how that results in his or her position. Understand their interests and try to formulate your offer to fill their needs as well as yours.
Similarly, you should not let the other side know your needs. Otherwise, they will figure out your worst acceptable position and try to use it to their advantage. You should concentrate on your best supportable position and divert the other side away from factors that reveal your worst acceptable position.
Remember that the other side may feel it is important to save face. Make your offer in such a way as to make them happy to accept it. One way to do this is to make it look like you are making a big change in your position to accommodate them.
Act Like You Could Walk Away
The best negotiators are the ones who do not need the deal. They can walk away from the deal with no regrets. The worst ones are the ones who must have this deal, who are desperate, or who fell in love with the deal. If you are ready to walk away from the deal if you do not get what you want, and the other side feels it, you will do much better. On the other hand, if you have already decided that you must have this deal, you are easy pickings.
If you are also considering other properties or other buyers, you will not be pressed to take this one. Even if you do not have others in mind you should act like you do.
Do Not Make It Personal
Another mistake in negotiating is to get personally involved with your opponents. Once you have met them a few times, perhaps found out you are from the same hometown, and become cordial, you may feel awkward in not accepting whatever they offer. It is not easy to turn someone down, especially someone with whom you have just made friends.
Some people are soft negotiators and others hard. Some give in easily just to avoid disagreement and others hold out until they get everything they want. If you are the former you will easily be taken advantage of by the latter.
One way to avoid such a situation is to negotiate through an agent. It is easy for an agent to become best friends with the other side and to praise their position, but to explain that he or she has no control over your decision.
Good Guy/Bad Guy
Another variation is to use the good guy/bad guy approach. One party can do the negotiating and then blame his or her spouse or partner for not agreeing to the deal. The bad guy never meets personally with the other side, he or she just vetoes deals from the background.
Do not lock into a position or each change will be difficult. Keep in mind the worst acceptable result that you have already established and do not worry about the intermediate steps. Be open to all possible options and to any new suggestions the other side may have. There may be an alternative that you have not even considered.
Keep in mind that the other side may be taking his or her side personally. Do not criticize the other side personally or say anything that makes the other side more attached to his or her position.
State Your Supportable Position
Starting at your best supportable position may sound obvious, but some people give away their worst acceptable position right away. Keep in mind that it cannot hurt to ask and try your best supportable position. Many people have started with ridiculously high figures and been surprised to have them accepted.
You only get one chance to state your opening position and you usually cannot go higher. Suppose you list your vacant lot for sale at $20,000 and the day the listing is published, you get five offers at full price. Obviously, you started too low. It may now be too late to ask for more.
Turn the Tables
Whether you are the buyer or seller, when you enter negotiations on a property the other side will probably be expecting to be doing the screening. The seller wants to screen for the best price and the buyer wants to screen for the best property.
If you begin the negotiation by listing your needs and asking if the other side can meet them, then you have turned the tables. The other side will then be put in the position of wondering if they can meet your needs. Meeting your needs will then be the primary goal and their needs may be forgotten.
Example: The owner of an unusual, expensive property did not know if anyone would want such a property. So the ad for the property merely listed its best features without a photo or address and stated that the buyer must have at least $100,000 cash and a net worth of at least a million dollars. Dozens of people called to see if they could qualify for this exclusive offer and it sold at full asking price.
The Last Shot
Once you think you may be able to make a deal, why not ask for one last concession? You like the property, the price is acceptable, and the sellers have agreed to your terms. Try something like, "If you throw in the washer and dryer, I'll take it."