Shopping is one of life’s little pleasures. “Retail therapy” can soothe the soul - and who doesn’t like a bargain? The fun stops for most of us when it comes to negotiating big ticket items. Think of your last experience buying a car. The salesperson may have been really nice and helpful, but trust was not part of the equation. Who actually enjoys paying those tricky games, especially with someone who might take advantage of you?
Now add an extra zero or two to the sticker price, and you are in the league of real estate negotiations. Tossing around really big numbers - like a half million dollars or more - is intimidating for most people.
Is This Really Necessary??
The idea of negotiating is distasteful to many of us. It can feel rude to bargain for a lower price, whether you are shopping at a garage sale or looking at jewelry or furniture. But the fact remains that bargaining works and may save you big bucks on real estate.
Many cultures consider it a point of pride to negotiate on the price of most purchases. Even store prices in some parts of the world (not to mention Honolulu’s own Chinatown or Duke’s Lane in Waikiki) are often just a starting point.
Learning a few tips could be well worth going outside your comfort zone. People who are uncomfortable with the back-and-forth nature of real estate bargaining may end up paying too much. Others give up all together after a couple of passes.
Let’s Play Ball!
Negotiating can be viewed as a contest. When it results in a sale, both parties have won. The stronger or smarter negotiator will make fewer and less costly concessions. Most real estate negotiating takes place under the guidance of a Realtor to represent each side. The Realtors have a legal position for their clients to help them attain the best price (high or low, depending on whom they represent). An experienced professional can also suggest terms and conditions, not just price. Bargaining on your behalf is an important part of your Realtor’s job, so why not outsource it?
Your negotiations will be more productive, go smoother, and be less stressful if you follow a few “rules of engagement”.Rule #1: Be Prepared
The basis for a successful negotiation is knowledge. Don’t guess or make assumptions. Your Realtor can provide the basic information you should have at hand before you start negotiating on a property such as:
- MLS printout - if the property is listed, read and understand all of the data
- Listing brochure – may add details about the property
- Listing history – has the property been previously listed? How long on the market? Has the price been reduced? When and how much?
- Neighborhood sales & listings, or “comps”- study the recent listings and sales in the neighborhood to see how similar they are to yours
- Statistical market data – what is the “Big Picture” of the current market? In a stagnant or falling market, time is on your side if you are buying but will work against you if you are a seller. Understand the leading statistics such as “months of inventory remaining” and “absorption rate”.
- Public Records Information –this includes the basic property details used by the city property tax assessor’s office.
- Ownership Data – is the Seller a foreign corporation, mainland investor, or owner-occupant, a bank, private trust or charitable organization?Conveyance History – when was the property last sold and for how much?
- Mortgages and liens – do they exceed the value of the property and if so how will they get paid off?
If you are a seller, these documents were probably used to list your home and price it. For buyers, these set the groundwork so you can decide if the listing price is high, low, or about right.
Rule #2: Be InformedStart with a careful viewing of the property preferably twice at different times of the day. Valuable information can be obtained from the seller, which is why I advise sellers not to be present when a property is being shown. Savvy buyer’s agents have mastered the art of gently prying information out of friendly but unsuspecting sellers. These details about the seller’s future plans can be used to the buyer’s advantage. Sellers may disclose that they need to be out by Thanksgiving, or that they have already found another home. Some Realtors will even let it slip out that the seller is desperate, which is just like giving their clients money over to the buyer.
Buyers might disclose details such as a home that must be sold first, or a need to be moved in within 30 days. Even neighbors can give you useful information so don’t hesitate to knock on a few doors to see what you can learn.
Rule #3: Be NiceAlways be polite, considerate, and good mannered. This shows confidence and will get you further towards your goal. Rudeness can indicate a weak position which is further eroded by strong language or emotional responses. It also might hint at difficult personalities that could make the process unpleasant at best. If you have to negotiate with a difficult personality, try to take the high road. Remember the old saying that “You catch more flies with honey than with vinegar!” Buying or selling puts people under pressure that can intensify their reactions, and anyone can have a bad day.
Rule #4: CommunicateTo make a winning offer it is essential to know what is important to the other party. It’s also wise to find out if they already have several offers so you can decide if you want to jump into the competition, or that they are out of town and need a week to respond. It is not just about the money.
You also might learn, for example, that they can’t move out for 60 days or that the enclosed lanai has no building permits. Ask about disclosures - some properties have a history of issues that could be deal breakers such as a violent crime committed on the property or that there is an impending future assessment. Is the property a short sale, or is a foreclosure action pending? This will affect the purchase process and timing.
I’m always amazed when buyers or their agent present an offer without discussing it first with the seller’s agent. Until you have asked the big questions, why spend all that time deciding if you can live with the color of the carpet.
Rule #5: Get It In Writing
After the property is viewed carefully and all the background information analyzed, you are ready to make an offer. All real estate offers must be in writing to have any binding legal status. Once given, your offer might be accepted exactly as written, rejected entirely, or countered. A counter-offer changes certain terms of the original offer while accepting everything else. Either buyer or seller can make a counter-offer, and several counter-offers may be made before a final agreement is reached. Remember that each counter-offer nullifies the previous ones.
Realtors vary in their skill at contract details, so be sure your professional has this expertise which is essential for success in the business.
Rule #6: Be Smart
Know what you want to get out of it. Even in our slower market, there are often multiple bids for the best properties. So in the case of competition, you may have to make this decision: Do you want the cheapest price, or the best house? Your goal will determine the process. Don’t shy away from the competition. Do you only want a home that no one else wants? Think about it…
Look at it this way: which would you regret more: paying a few thousand dollars more, or losing the property? Many buyers realize after they make a too-low offer that they would have been happy to pay a bit more to have the one they really want. But if it’s an investment, you might want to look strictly at the dollars. Another property might meet the same needs for a lower price.
Rule #7: Be Fair
Set the tone for a win-win outcome for your negotiations. Expect to give a little to get a little even if market conditions favor you. Remember that in an environment of cooperation, minor differences can usually be worked out. Act in good faith, and assume the other side is acting in good faith even if you don’t care for their methods. Some examples of fairness might include allowing a realistic time for decisions and deadlines, providing accurate property information, and responding to offers in a timely fashion.
Rule #8: Be Patient
Even in a rush-rush environment, it’s wise to proceed with caution. Understand what you want to accomplish and go about it deliberately. Decide what the property is worth to you. If a home is priced at about what the other similar homes have sold for, is the price in line with the direction of the market? What are your chances of finding a similar one for less money? Don’t necessarily make your best offer first, but choose your offer price based on facts you can justify. If price is your main goal, be prepared to walk away from the deal – that can be a powerful tool. You may be able to come back later.
Rule #9: Keep the Big Picture
It’s no secret that in the current economic climate, the buyer holds the most power. Buyers may be able to pick and choose from a selection of homes, and make demands that seem unreasonable. When you are a seller, this is very frustrating. Price is a big issue but sellers can use other strategies to succeed – like making the property look better than the competition. If you are a buyer, prioritize your needs and be realistic. Don’t let little details cloud your vision like the paint color in the bathroom or a missing appliance.
Rule #10: Have a Plan
Have a rationale for your offer if it is low. When you have to make a concession, try to get something in return, using the knowledge of the other side’s priorities as your guide. Make a list of small negotiable items such as an appliance or cleaning fees. If you are firm on one point, find another issue to give in on, no matter how small. This creates an atmosphere of cooperation and will bring you closer to a deal.
Remember that what matters is what you have to pay and what you get, not how much the other side gave away! You could pay over asking price and still be getting a great deal if the list price is low. Likewise, a big discount off an inflated price might still be too much.
Red Flags
Here are a few situations to avoid:
- An unmotivated seller who will only sell if he can get an unrealistic price or terms
- A buyer who has not been pre-approved by a reputable lender
- Unusual financing terms or vague contingencies or requests
- Low deposits or checks that are “in the mail”
- “Under the table” deal or any agreement not signed by both sides
- “For Sale by Owners” who will not cooperate with buyer’s Realtor – or any sale without some sort of professional advising and guiding the process, like an attorney
- Sellers who discourage buyers from being represented by their own Realtor
Don’t Do The Following!Avoid these costly negotiating errors:
- Don’t be overly critical of the property to try lower the price
- Don’t give up – you won’t get what you don’t ask for
- Don’t express a firm position – keep it to yourself until you get a response
- Don’t make a low offer or counter offer expecting that the other side will simply “split the difference”
- Don’t decide on an offer price based on a particular discount you expect off the list price. Your discount is irrelevant - it’s the final price that matters whether it is above or below asking price
- Don’t make accusations or contradict the other party
- Don’t expect a one-sided deal– even if the market is in your favor!
- Don’t make emotional pleas or accusations
- Don’t use intimidation - it will backfire on you
- Don’t get personal! It’s not about you, it’s about the house.
- Don’t be discouraged!
If your negotiations are successful, that’s great. If not, you will have learned something you can apply to the next one. Sometimes you have to negotiate with people who are difficult and unreasonable. Realize that you can’t control the responses of others, and some individuals or situations are best left alone. Get past the personalities and focus on your own goals. That’s what you will be living in (or depositing in the bank, if you are a seller) when the sale is over!
Copyright 2009 Stephanie Gieseler, Honolulu, Hawaii. All rights reserved. No part of this may be reproduced without permission of the author. Inquire at mailto:stephanieg@remax.net
