Negotiating the Real Estate Contract
Roselind Hejl
Negotiation is the process of communication back and forth in
order to reach a joint agreement. Clear communication is the
essense of negotiation. 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 always 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.
How does trust factor in a negotiation?
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 details 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. For example, 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.
Do you 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.
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