5 Negotiation Need-to-Knows

Reactions to the prospect of negotiating run the gamut, almost like a Rorschach of

people’s comfort levels when it comes to thinking, talking and asserting themselves about money matters. Some people get so excited about haggling they adopt an entirely new persona when the time comes to talk their way into saving even a few bucks here or there. Others cringe at the mere thought of trying to suss out what’s going on in the minds of those on the other side of the bargaining table in order to strike a deal, even when hundreds of thousands of dollars (and their own best interests) are at stake.

And in light of the current market, it can seem like every real estate pundit you’ve ever seen on TV, the old guys from the Fed, Suze Orman, Jim Cramer - even the President! - have each pulled a chair up to the table and chimed into your transaction, too! Trying to factor market dynamics into your personal negotiation equation only ups the complexity factor (and the fear factor to boot).

When it comes to buying or selling your home, there is a handful of negotiation need-to-knows that can go a long way toward protecting your best interests - and your cash! Here are five essential negotiation need-to-knows for savvy home buyers and sellers:

1. Work from a foundation of sound information. It’s essential that you amass an arsenal of information, and use that as the basis for your negotiation. You are in no position to negotiate, aggressively or otherwise, unless and until you are well acquainted with the real estate market immediately surrounding your home, including:

what have similar homes recently sold for;
how much above or below asking do they normally sell for;
how long do homes stay on the market, on average, compared with the home you’re buying or selling?

Not only will your agent help you understand these numbers and how they should relate to your own offer or response, your agent is also in a good position to reach out to the other agent and collect any available information about what is important to the other party: do they care more about moving quickly, getting top dollar, or certainty that the other side can close the deal? The other agent isn’t obligated to divulge any information but often will, in the interest of facilitating a deal that addresses their client’s priorities.

Finally, it’s uber-critical to know what your own priorities are. Ultimately, the bar for whether your negotiation for your home is successful is based on what the home and the terms of the contract are worth to you. Know your own bottom and top line for price, and what your own priorities are, before the negotiation begins.

2. Approach the negotiation as a problem-solving challenge. Today’s negotiations are really more like problem solving scenarios, when you take into account all the parties whose needs must be met for the transaction to move forward. Traditionally, negotiations were a two-way power struggle between the buyer and seller, based primarily on their wants and their respective bargaining leverage. But on today’s market, the bank - or banks on both sides -- often have their own guidelines and needs that impact the terms of the deal, whether it be the seller’s lender insisting on a certain price in a short sale, or the buyer’s lender and appraiser refusing to lend anything above a certain price.

Many a buyer has thought they were scoring a great deal by scoring a bargain basement price on a short sale, only to have the seller’s bank condition approval of the deal on a massive increase in the sale price. And the opposite is also true: a significant number of the deals that fall apart on today’s market do so because the home fails to appraise for the purchase price the buyer has agreed to pay. Ultimately, this is even the case when it comes to the buyer’s and seller’s needs: if the buyer can’t qualify for a high enough mortgage, or the seller can’t pay their mortgage balance off, at the price in the other party’s mind, there will be no deal, and the negotiation is inherently unsuccessful.

In this context, it’s more important than ever to approach your negotiation as an exercise in problem solving, with the aim of meeting the needs of as many parties involved as possible. If you get some of your wants met, too, you’re golden!

3. Manage your own mindset. You probably shouldn’t even try to buy a home that you don’t strongly like, or even love. It often makes sense to hone in on a specific offer price (within the range what is reasonable for a home) based on how much you want it, or how much you’d hate to lose it - especially in a multiple offer situation, where you may only have one chance to make an offer.

With that said, be aware that when it comes to negotiating, she who is the least emotionally attached to a particular outcome usually has the greater bargaining power. The more attached you are to a particular home or a particular price point or set of terms for your home, the more likely you are to panic, freak out, throw money at the situation or cave in on important points unnecessarily when you get even the faintest sense that your desires may be at risk.

When it comes to managing your own mindset and stamina through the course of a negotiation (uncertainty is tiring!), knowing what is and what isn’t within each party’s - control is key. Your agent can help you stay clear on this, which will help you avoid the emotional exhaustion that results from trying to negotiate things that are not really negotiable (e.g., the bank’s bottom line, cosmetic repairs on most foreclosures, etc.). On the flip side, knowing the full range of items that can be negotiated - which extends beyond price into areas like deposit amount, length of escrow, seller repairs, and whether the property is to be taken in as-is condition - empowers you to maximize how compelling your offer is to the other side, given the resources at your disposal.

4. Minimize time pressures. Over the years, I have seen many a buyer and seller make brow-raisingly questionable offers and counteroffers based solely on the fact that they have to move by a certain deadline. Because shelter is a basic human need, the prospect of having to move out, relocating to a new job or moving to a new town without having housing in place can cause even the most nimble among us to feel ungrounded.

Problem is, in the context of buying a home, moving deadlines can cost you thousands and thousands of dollars - and can even cause you to make needless compromises in terms of the actual property itself: compromises you might later (deeply) regret. If you are approaching a deadline for moving out or relocating, you’d do better to find a rental housing situation that will work for awhile or will work as a Plan B than to try to hurry your home’s purchase or sale to meet the deadline.

5. Act and react quickly - not impulsively. When you find ‘your’ place, make an offer. When you get an offer or counteroffer), respond to it. In real estate, time is always of the essence, and prolonged hesitation often results in lost opportunities. There’s nothing wrong with sleeping on a decision overnight, especially if the ‘right’ move is unclear. But you never know when another buyer or another property might show up on the scene and change the whole bargaining dynamic, costing you more money or wooing away your home’s buyer.

This is why it’s so important to be clear on the market data, your own budget and your own top and bottom lines from the start, so that you are positioned to act quickly, strategically and intelligently when the circumstances require it.

Buyers, sellers and agents: what negotiation insights have you gleaned from your own real estate experiences? P.S. - You should follow Trulia and Tara on Facebook!

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Comments

By Deborah Griffin, Wed Feb 15 2012, 05:05

Great tips!

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By Brenda Feria, Wed Feb 15 2012, 15:56

Great job of analyzing the negotiating part of real estate.

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By Rosemarie Cazzorla, Wed Feb 15 2012, 17:09

Some good info for all!

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By Benjamin Lang ABR,CDPE, SFR, Thu Feb 16 2012, 05:35

great blog! every realtor needs to master the art of negotiation!

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By Felipa Rubillar, Thu Feb 16 2012, 08:04

Great...thanks.

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By Katie Daire, Thu Feb 16 2012, 09:23

Think the time pressure issue is a biggie, not just from the financial point of view, but emotional, as well. Luckily our agent was a great advocate throughout negotiations and we were happy with our final deal, but having a firm deadline by which we had to be out of our old place added a TON of extra pressure to an already stressful process. Negotiating is stressful enough - no need to overly complicate things with stress headaches and lack of sleep!

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By Albert Burns, Thu Feb 16 2012, 09:29

took time to read this ..glad I did, thank you

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By Laura Feghali, Thu Feb 16 2012, 09:39

You've got some great tips here, Tara. Thank you!

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By Barbara Murphy, Thu Feb 16 2012, 09:47

Great Post, Tara. Especially the emphasis on knowledge. They say "Knowledge is Power" and that becomes evident quickly in today's complex real estate environment. Buyers and Sellers are wise to work with brokers and agents who understand the local market and can offer insights that are not always evident to the public.

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By Jack Macioce, Thu Feb 16 2012, 09:52

Good points. Definitely experienced some of these recently.

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By Dana Hollish Hill, Thu Feb 16 2012, 10:01

I particularly like the Managing your Own Mindset section. There are times when a buyer misses out on a home and then they are revving to buy. It is important for the buyer to stop and evaluate how much they like the next house or determine whenther it is the loss of the the last home that is making them feel the need to go "all in."

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By Househunter123, Thu Feb 16 2012, 10:16

Finally, a realtor who is realistic, pragmatic, and is probably very successful. Our approach to buying and selling real estate is much like Tara's (I do not know Tara). Four years ago from the buyer side as well as the seller side we used several of the negotiation pointers outlined in Tara's blog and you might have thought we were trying to convert real estate agents to a new religion. Only one realtor out of dozens clearly understood and agreed with our approach, but he was older with years of professional experience in real estate. Unless you approach every sale from many angles the property will sit dormant. In some cases you may have to walk away because one party has unrealistic expectations or demands. It is your duty to educate the consumer because most of them do not understand the dynamics of a sale. Remember most customers get their real estate updates from TV and news commentators. Tara has given realtors and their customers the secret recipe on how to successfully buy and sell real estate, but it does take extensive work to do the deal.

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By rayprescott68, Thu Feb 16 2012, 10:19

good to know. being from the UK it is good to understand how it works here. as regards the short sale issues I would ask the agent ahead of time to find out what the bank is looking for before wasting time negotiating.

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By Househunter123, Thu Feb 16 2012, 10:19

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By Heros Hagopian, Thu Feb 16 2012, 10:19

I like the word Suss out (British) you used which means to inspect,investigate to gain more knowledge... before you go for negotiation. Surprisingly Suss in Armenian means... to be quiet. Let the other party speak first.
Thank you Tara for great post.

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By Cmoneyspinner, Thu Feb 16 2012, 10:45

OK. I'm impressed. Le's connect.
Sent you a friend request via Facebook.
Link to my GOOGLE profile: https://plus.google.com/104416249503115298326/about

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By Stephanie, Thu Feb 16 2012, 10:52

I think something MOST important is to establish your budget BEFORE you ever walk into a house. One reason the market is so soft right now is that folks didn't establish their own limitations before they fell in love with a home. Draw the line in the sand. Do it according to the money you have in the bank and how much you make NOW, not on your future. It is always easier to live in somewhere smaller than what you originally planned and build equity and move up later than to get into something too large now and lose it later because you really couldn't afford it. =)

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By Bruce, Thu Feb 16 2012, 11:11

Just like in a love affair--the one who is the least emotionally involved sets the direction of the relationship.

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By Ellen Shapiro, Thu Feb 16 2012, 12:45

There is nothing better than an informed , educated buyer!

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By Russell Grether, Thu Feb 16 2012, 12:57

Great tips! Once again - another great post! http://www.malibuluxuryrealty.com

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By Stephen Kass Dre#01703361, Thu Feb 16 2012, 13:10

Tara,
Your columns are always informative and relevant.

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By Nancy Theys, Thu Feb 16 2012, 13:14

Thanks for this great article, Tara!

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By Jaime Fernandez-de-Castro, Thu Feb 16 2012, 13:24

Hi Tara,
I've always liked your blogs, but this one is one of the best you'd offered.
Thanks for the insights.
Jaime

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By Spirit Messingham, Thu Feb 16 2012, 13:26

Fantastic advice. Thanks.

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By Dianne Langston, Thu Feb 16 2012, 13:57

I think we all know these principles intrinsically, but you have stated them so eloquently. Thank you!

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By Bonnie Kelly, Thu Feb 16 2012, 14:07

Excellent advise for buyers , sellers, and agents!
Thank you!

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By Helen Oliveri, Thu Feb 16 2012, 14:10

Great tips Tara!

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By Tamy Bobbitt, Thu Feb 16 2012, 14:37

This is very well written! There is an art to negotiation. Information, skill and mind-set are key in working to bring a deal together.

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By Rose, Thu Feb 16 2012, 16:30

to rayprescott68, the realtor does not know what the bank will accept, nor will the bank begin to consider or communicate their bottom line for a short sale until the current owner accepts an offer and provides their bank with a signed purchase and sales agreement. After you have done your negotiations with the seller.
Then weeks, or months later the bank may agree, or may counter offer at some ridiculous inflated price. I waited over a year on a contract for a short sale only to hear from the bank that they would not accept my offer and countered for double the amount.
I found someplace else, and 1 year later that house was finally foreclosed and then came on the market for less than I was under contract to buy it for, and it sold for even less. Go figure, the bankers are the stupidest bunch out there right now.
Years ago they threw 110% financing at people with a proven track record of Not paying their bills and now even the most qualified person with perfect credit can hardly get a loan.
good luck out there.

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By Manisha Jain, Broker, Realtor, Thu Feb 16 2012, 16:39

Great post!

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By Jim Cramer - 717-830-5591, Thu Feb 16 2012, 17:57

Great Tips once again!!

Thanks, Tara

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By Ricardo Collado, Thu Feb 16 2012, 18:19

wow! these are great tips for a buyer like me. Thank you trulia.

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By Karen Steed, Thu Feb 16 2012, 18:41

If you find a house you really like, you should act quickly, and make a reasonable offer. Good properties in my area are going under contract very quickly, and many times for over list with multiple offers. Prices are still low, but bargains are snatched up quickly.

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By Dinamdouglas, Thu Feb 16 2012, 19:32

This was very helpful. I needed this.

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By Gwendolyn Sadler-realtor, Thu Feb 16 2012, 19:45

I love this business, and can always use information that will help me to service my clients.

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By romevp7, Thu Feb 16 2012, 20:46

All good info from Tara. For my point I would add. You need to understand, even if you "love" your agent it's you on the hook for 20-30 years for the home you're buying. You are in charge,!the realtor is there to serve you and make a commission. Once you establish the guild lines you must follow stock to it. The agents on both sides train to make deals work, including moving up within your qualification range. I get it they work hard and need to make a living but, better to wait and miss a deal than resent them later or worse.
PS: I do "love" my agent by the way, just think as a businessman and business owner, the order is non negotiable : )

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By Granville Mullings, Thu Feb 16 2012, 22:08

Great advice

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By Mike Hostetler, Fri Feb 17 2012, 05:41

Once again great tips Tara! I will be sharing these with my buyers. They seem to come with all kinds of "already thinking" in their minds about absolutely what they are or are not going to pay even before I can provide them a market analysis. Thanks for the tips!

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By Libby DeKorte, Fri Feb 17 2012, 10:09

Thank you for such a great article to share with my clients!

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By Phil Chiles, Fri Feb 17 2012, 10:41

Great post. Sometimes you just have to ask, "Whats it going to take?". Recently did that and avoided a multiple offer situation that would have cost my buyer more money and maybe cost them the deal.

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By Joseph, Fri Feb 17 2012, 11:18

you want that property but need some time.....sign on the dotted line and use a contingency .......

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By Wes Black, Fri Feb 17 2012, 13:38

Negotiation sometimes drives people crazy. I enjoy the challenge.

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By Gwen Janicki, Fri Feb 17 2012, 13:54

Negotiating can make Buyers and Sellers crazy but the one who is least attached to the outcome usually comes out the winner.

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By Kawain Payne, Fri Feb 17 2012, 23:11

Great advise.

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By Divya Lodaya, Sat Feb 18 2012, 05:12

Great negotiation tips. Thanks

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By John Crowe, Sat Feb 18 2012, 08:37

Seems the underlying theme is use common sense and good judgement while avoiding an emotional response. I do like the win-win in negotiating. Some buyers/sellers/agents feel the need to win and have the other party lose. In the long run, I think they don't do so well. Pick the battles, make some concessions as a trade (if necessary) and watch how quickly a deal will come together.

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By Frank Hamilton, Sat Feb 18 2012, 10:54

Always be negotiating for needs vs wants.

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By Adrian Rivera, Sat Feb 18 2012, 12:47

i'm gonna be on the market for a new home next year question when your approved for a loan.
how long do i have to bid on a home and if i've narrowed down my search to 3 homes can i place a bit on all 3???/

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By jszolna, Sat Feb 18 2012, 15:49

These were all great tips. Unfortunately I recently found myself in a situation where the seller was not willing to negotiate for whatever reason they continuously came back and said make another offer rather than negotiating the offer we had written. Does not seem to be a very common practice and was extremely frustrating knowing you were giving them the asking price they were looking for but were unwilling to negotiate any additional items.

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By Ronald Rosario (347) 352-9604, Sun Feb 19 2012, 08:08

Negotiations is one of the toughest parts of the business. Thanks for the blog it definitely helps.

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By Ron Peterson, Sun Feb 19 2012, 17:20

Adrian, don't do multiple bids. Pick the home that has the best value for your budget, and make a bid on that.

Look at what it costs to build a home, and discount for age.

You need to look at what meets your needs in terms of space, bedrooms, bathrooms, kitchen quality, and activity rooms such as storage, garage space, offices, hobby, and pets.

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By Darrell Bauguess, Mon Feb 20 2012, 09:06

Great post Tara...I read your post regularily and always come away with something of value. Situations are always fluid in any negotiating process and not all scenarios have answers that are mutually agreeable to all parties. Often we have to educate the other side in order for the process to move along but then again that requires the other side to be receptive to listening and not a lecturer. Sometimes we also have to be educated, too and having that openess and ability to receive new knowledge helps us move foward.

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By Valerie Alford, Tue Feb 21 2012, 10:12

Great post - let cool heads do the talking

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By Vashmir H. Pascal, Wed Feb 22 2012, 14:07

Thanks for sharing this information.

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By Jennifer Ratcliff, Wed Feb 22 2012, 17:08

Once again...great advice!!!

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By destonia, Fri Feb 24 2012, 01:35

As a first time buyer, I appreciate rhis sound and useful advice. It gives me a clear framework with which to appeoach what could otherwise be a daunting task. Thank you.

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By Mortgage Tech, Fri Feb 24 2012, 07:45

Great post. Here's another fab article on how to negotiate, but for real estate and housing pros: http://www.thenichereport.com/articles/the-art-of-negotiation-are-you-a-skilled-negotiator/

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By Patti Chapman, Fri Feb 24 2012, 17:38

Common sense, good judgement and keeping emotions out of the scenario as much as possible is the ticket!

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By Steven Lawrence, Sun Feb 26 2012, 00:23

This is a nice summary. For a more detailed approach the "Getting to Yes" book is quite good as well. (I have no affiiation).

http://www.stevenlawrencehomes.com

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By Tracy Santrock - ePro, CRS, ABR, SRES, CLHMS, Wed Feb 29 2012, 11:43

We write and negotiate offers but we never really get any training on how to negotiate. Most of it is natural but this is a great reminder!

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By Chris Schilling CRS: 832-607-8073, Sat Mar 3 2012, 23:29

Tara, great tips! It's amazing how time delays can kill the momentum of a deal. Buyers and sellers should make informed, yet timely decisions to keep the process moving forward. Keep up the good work @Trulia s