So Why Negotiate?
Buying or selling a home is a rare opportunity to significantly improve your situation quickly. Since homes are ‘big ticket’ items, negotiating your next transaction more effectively could significantly save you time, money and stress. Examples might include ‘trading up’ to a home that’s newer, bigger, or having a better location. Financially you may also benefit from lower monthly payments, or more cash in your pocket. Given these kinds of substantial upsides, it makes sense to negotiate your best.
Getting Your Best Deal
Various factors affect negotiating your best deal. However, not all of them are in your control. In fact, some of them aren’t, making these five secrets even more important. So whether buying or selling, here they are.
1. Know Your Market Before Negotiating
To a degree, your negotiating position depends on the kind of market you’re in. A shortage of homes helps sellers and an abundance of homes helps buyers. So it’s easier if you’re selling in a ‘seller’s market,’ or buying in a ‘buyer’s market,’ since in both of those scenarios, you have a built-in advantage. If you’re selling in a ‘buyer’s market,’ or buying in a ‘seller’s market,’ you have a built-in disadvantage. This doesn’t mean you can’t still get a good deal, but for issues beyond your control it’s helpful to understand potential minefields.
Homebuyers don’t have control over interest rates, seller motivation, or the number of competing buyers. But homesellers often don’t typically have all the control, either. This especially comes into play when housing inventory grows and sellers must more aggressively compete against each other. So buying or selling, the more factors in your favor, the greater your negotiating advantage.
2. Understand Your ‘Power Position’
Sometimes there’s a ‘balance of power’ and at other times, it’s lopsided. Determining your power position from the start helps set a realistic expectation. For example, expecting sellers to list at a ‘fire sale’ price during a hot real estate market isn’t realistic. That’s because sellers generally know the value of their property and if not, their agent will inform them. So while you might not get a ‘steal’ when buying, you can often get a fair deal. If you determine your ‘power position,’ you’ll know the difference.
For buyers, your power position isn’t always about offering the highest price. Sometimes price is secondary to a seller’s other big issues. Do you have cash for a property that won’t finance? That’s a power position which may allow you to negotiate to great advantage when dealing with a seller tired of constant mentions about the non-lendable condition of their property.
Can you close the sale quickly, since you’re pre-approved and have a large down payment? That’s another power position which places you ahead of certain buyers, especially to sellers hoping not to miss out on their next home purchase.
Are you able to let the seller stay in the house a few extra days, weeks, or longer? For sellers who need time to move out, that’s a power position that provides the seller with less anxiety and could put you at the top of their buyer list, with less focus on offered price alone. In that scenario, those sellers have surety of closing and use of their proceeds, with the added comfort of knowing they don’t have to be out in an unworkably short time. Each one of these power position examples shows how leveraging your advantages can make the difference in getting your offer accepted, even if the market isn’t in your favor.
Some Factors Affecting Your Power Position
Average market time (short favors sellers, longer favors buyers)
Housing inventory (buyer’s market, seller’s market, or at equilibrium)
Prices (rising, falling or static)
‘Buyer pool’ size (houses without foundations or those needing a new roof have a smaller buyer pool)
Home type (manufactured homes & log homes have a smaller buyer pool)
Don’t just look at general market conditions. Compare your home to competing listings.
Even in a sellers’ market, if your home needs more repairs than average or has a strange layout, the buyer may be in the power position. Conversely, if your home is staged beautifully, in great condition, has a normal floorplan and stands out as a desirable property in a buyers’ market, the seller may actually be in the stronger position. So similar to knowing your power position as a buyer, it helps to know your property’s position on the market as a seller.
Real Estate Rocket Fuel For Sellers
You may have a home to sell that doesn’t meet lender requirements. Yet are you able to offer seller financing? That’s a creative and often effective ‘end run’ around the issue of stringent loan underwriting requirements. Can you offer immediate possession upon closing, or perhaps pay the buyer’s closing costs or provide a credit for that carpet in need of replacement? The potential list is long, but those items that make it easier for buyers to say ‘yes’ are like real estate rocket fuel for your transaction.
3. Focus On Areas Open to Negotiation
Not every facet of a real estate transaction is entirely open to negotiation. For example, lenders routinely require properties to appraise at full value. That means unless an appraiser signs off on the value, neither buyer or seller can make a transaction work without meeting the appraiser’s requirements. That may include a reduced price or other workaround, like changing to a cash transaction. However, there are plenty of areas that are open to negotiation. A few such areas include reaching agreement on repairs, price, or closing costs. Start by building negotiating momentum where you can. A ‘win-win’ attitude helps remove roadblocks in the path of closing your transaction.
4. Leverage Your Position Wisely
Whether you’re negotiating as a buyer or seller, understanding your counterpart’s motivation and situation can sometimes help. A caution here is to consider learning more about the other party, but be careful how you leverage it. It also never hurts to be polite!
Here’s A Real Life Example:
While reviewing the merits of an offer on my seller client’s property, I learned my seller had researched the buyer online, which in some cases can be useful. This time, however, that tactic created a problem. Very soon my seller was eager to negotiate using ultimatums and a very hard line. I was told emphatically that the buyer was ‘loaded with money’ because of a recent glowing news article on the buyer’s successful business.
Complicating things further, the property was difficult to finance and required significant improvements. This reduced our buyer pool significantly. The buyer indeed appeared to be wealthy, but my seller’s approach backfired. The buyer rejected the seller’s response, walking away from the transaction. Due to the seller’s inflexibility, that buyer purchased a different property. As a result, my seller client ended up taking a lower offer later after a considerable wait for the next cash buyer willing to take on making those significant improvements.
Flexibility Is Your Strength
For some sellers, having plenty of time to move out after closing may override their concerns about getting the absolute highest price. Or if the sellers are currently in a contract for their next home purchase and they’re fearful of losing that next property, surety of closing may be their biggest factor and cause them to accept a lower price. So buyers with loan pre-approval and large down payment, (or even better) all cash, may be seen as the ‘sure thing’ they seek and create a ‘win-win’ scenario.
Cash homebuyers have an advantage in any market because if a seller’s home isn’t financeable, there are fewer competing buyers who can purchase that particular home. Also, if you’re homeselling and your home style is unconventional like a log home, fewer buyers will be interested and this also provides buyers open to that home style with an advantage, given less competition.
The Toughest Case of All
Among the toughest situations is negotiating with an unmotivated buyer or seller. If they don’t seem to care, your options are severely limited. In such circumstances, checking back later may be worthwhile in case the other party becomes more motivated.
5. The ‘Kick Yourself’ Test
One surefire way to calculate your best offer is to imagine the other party rejecting it. Would you ‘kick yourself’ for losing out on a transaction by not being more flexible? If so, reconsider what you’re willing to do. This means making a clear analysis of your boundaries. It also makes for less second guessing later in not feeling bad if the other party ends negotiations.
Beating Both ‘The House’ & Competing Players
There are different ways to look at real estate negotiation. That’s because like a game of poker, buyers and sellers each have their own set of ‘cards to play.’ For example, most buyers have a minimum price in mind and sellers have a maximum price. As both parties negotiate, similarities between Las Vegas and home negotiations don’t stop there. Depending on the scenario, homebuyers are frequently pitted against not only a dealer (called the ‘house’ in Vegas and for our purposes, the house seller), but also competing homebuyers, as well. This means it’s not enough to effectively compete against just one party. Applying the Vegas model to real estate, in a seller’s market you can make the best offer among multiple buyers but if the seller still doesn’t like it, no deal. You routinely must beat other competing parties AND meet the seller’s criteria, to boot.
Hold Or Fold?
In such an example, you have choices. Should you ‘sweeten’ your offer for the best chance to be accepted? Or is the game ‘getting a bit rich’ and it’s time to move on? As with the Kenny Rogers song ‘The Gambler,’ this is where it’s good to “Know when to hold ’em and know when to fold ’em.” To be forewarned is to be forearmed. Boundaries and knowledge are crucial. Not everyone has the exact same opportunity in every transaction, either, since some all-cash buyers have a built-in advantage. So during negotiations, a realistic perspective helps. Throughout the process, you’ll want an expert negotiator on your team who knows what’s usual and what’s unusual when dealing with your counterparts on the other side of the transaction.
Some Final Negotiation Nuggets
Real estate transactions are unique. Here are five additional time-honored suggestions to keep negotiations on an even keel:
1. Consolidate your list of true ‘needs’ and if necessary, consider modifying a few of the ‘wants.’
2. Avoid a ‘take it or leave it’ mindset. Think ‘big picture’ and seek a ‘win-win’ result.
3. Real estate negotiations are often more like a marathon and less like a sprint, so don’t expect a speedy resolution.
4. Remember the stock market adage: ‘Bulls can win and bears can win, but pigs get slaughtered.’
5. Sellers: One day you may wish to return ‘home’ to reminisce, or ask to retrieve a forgotten heirloom left in the attic. Be polite.
Selling Or Buying?
Contact Realtor Roy Widing with Certified Realty today for a free consultation. Roy has 35 years of real world negotiating experience on behalf of his many homebuyer and homeseller clients. To get started, call or text Roy at 971-258-4822, or email Roy@CertifiedRealty.com