Negotiating the Real Estate Contract
Negotiation is the process of communication back and forth in order to reach
a joint agreement. There is no "one size fits all" strategy of negotiating
a real estate contract. Many of our clients have been very experienced negotiators,
and we have learned a great deal from them, as well as from books on the subject.
We would like to share some of our thoughts on negotiating with you:
What do we want to achieve in a negotiation?
The best negotiators bring an attitude of high expectations to the table.
They are hard on the problem and soft on the people. Letting the seller know
what you need, in a clear and reasoned way, is the first step toward getting
it. We try to keep all of these goals in mind:
Enable you to move into your new home.
Obtain the lowest possible price for the property.
Close within an acceptable time frame.
Solve any repair issues fairly.
Have no title, survey or loan problems, or solve any that do arise.
Develop a good working relationship with the seller.
Have no future problems after closing.
Is a cooperative or combative approach more effective?
Our experience shows that the cooperative style is the most effective and
efficient way to complete a transaction. Professional negotiators usually try
to preserve the relationship between the parties, and work together to resolve
problems. The goal is not to reach an impasse in which neither the seller's
nor the buyer's needs are met. Buyers sometimes submit a letter to the seller
describing why their house is not worth what they are asking, pointing out
deficiencies, etc. This almost always backfires, and starts the negotiation
off with a defensive seller. It is best to anchor your price to the marketplace,
while remaining very complimentary of their home.
How do you work with a combative strategy by a seller or agent?
The combative style is sometimes encountered. This strategy includes: negative
comments, emotional statements, table pounding, threats to walk out, ego involvement,
and stated positioning. Creative solutions and trade offs are not as likely
to be found in this environment. Working with a combative style negotiator
requires a considered approach:
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.
Firmly anchor pricing and other terms to outside data. Show that the price
has not been chosen arbitrarily.
Reduce misunderstanding by following up with written summaries of discussions.
Do not allow hazy or unclear proposals to stand.
Offer some "wins" on some of the terms. Face saving is very important.
Look for ways to meet their underlying interests.
Remember that they may have a beautiful home that satisfies the buyer's 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 or norms when possible. For example, it is
common practice for the seller to pay for the title policy and for the buyer
to pay survey cost. Using accepted standards prevents buyer and seller from
haggling over every point. Working within the accepted "norms" for our area
helps to legitimize offers, and focus the negotiation on just a few points.
On the other hand, all the points in an offer can be used to help structure
the deal. They offer trade-off opportunities for both parties to get what they
want from the negotiation.
The value of trust in a negotiation cannot be overstated. 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. The buyers may have
had an unpleasant past experience with buying a home. The seller may be 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 personal
issues that affect the buyer, such as your financial ability or urgency to
move in. It is valuable to develop rapport because trust increases your leverage.
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. I can think of several instances in which sellers selected
their contract for very personal reasons. (The family reminded them of themselves
when they moved in with young children years before. Or, they were both of
the same religion. Or, the new owners would care for their gardens.)
Understand your leverage.
The more we can find out about the seller's needs, the better chance we have
to find solutions to negotiation hurdles. We will be able to offer information
or concessions that appeal to the seller's deepest concerns. Obviously, if
the house has been on the market for 300 days, you have a lot more leverage
than you would with a brand new listing. If their time frame is immediate,
and you can meet it, you have some leverage. If they have multiple offers,
you have very little leverage!
How much under list price should you offer?
Buyers usually offer less than list price, unless it is a strong sellers market.
There is no standard percentage "under list price" that can be used. A market
analysis will show recent sales for the neighborhood, which is the best way
to establish the offer price.
It is usually counter-productive to offer so low that the seller will automatically
reject the offer. This will set a negative tone, and may result in an emotional
response from the seller.
What if we have a multiple offer situation?
Occasionally the seller receives more than one offer on their property. The
Austin Board of REALTORS® has a policy that allows two options: disclosure
to all parties that multiple offers have been received, or disclosure to no
one that there are multiple offers. We prefer disclosure to all parties. However,
the listing agent and seller will make the decision as to how they will handle
offers. By simply disclosing that there are multiple offers, they are 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 major distrust
of the process by the parties, and the likelihood of loss of the buyers.
Usually the procedure is to notify each party that multiple offers have been
received. Each party is then given the opportunity to raise or adjust his offer
by a certain time. After that time, the seller is free to review all offers
and choose one to work with. They are not obligated to choose the "first" offer
that came in. The selected offer may be countered, or accepted as is.
About The Author
Roselind Hejl, CRS
Top 25 Residential Agents, Austin, Texas - Austin Business Journal Book of
Lists: roselind@weloveaustin.com
www.weloveaustin.com
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