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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.
Agents
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
