Real Estate Negotiation

Much is often made of being the best salesperson, or persuading the other party in a negotiation to conform to your every desire. However, not all negotiations are a zero sum game, requiring one party to lose exactly as much as the other party wins. In real estate negotiation, this is in fact very rarely the case. It is very uncommon for a lopsided negotiation the result of one intelligent and informed party persuading another intelligent and informed party to do something against their will. Much more common is the scenario in which a solution is created to solve a problem, and both parties come out ahead. That’s what we’ll be focusing on here.

There are 3 basic principles to adhere to when entering a real estate negotiation:
1: Know the problem
2: Ensure the other party commits to a structure first
3: Keep the negotiation alive

Know the Problem

All transactions take place because two parties wanted to change their status quo. Unlike financial markets though, the motivations for real estate transactions are not always as transparent. Buying at the lowest point and selling at the highest are not always the primary concern for transaction participants, there may be other things in play, such as the desire to live in a specific neighborhood or style of home. On the other side, the desire to sell a home may be driven by needing to pay off other expenses, increasing motivation beyond the desire to achieve the highest price. If this is the case, the driving factor in the negotiation is not price at all; it is a bill that needs to be paid. Finding out exactly how much that bill is, in a nice way, can go a long way towards getting the best result on the buyer side (the lowest price). Conversely, there might be a tax issue caused that either requires the buyer to close very quickly or the seller to prefer to take a deferred payment (carry back), having this flexibility as a buyer will allow the lowest possible price.

First Mover Disadvantage

There are, unsurprisingly, many schools of thought on negotiation. While it is true that as a seller, you have a list price which theoretically anchors the real estate negotiation, it is also the case that both buyer and seller can force the other party to commit to a structure first, and that there is an advantage in doing so. As a seller, this is easy. Simply let the buyer make an offer, and if you are not comfortable with the structure, require (via a counter offer) that the buyer restructure their offer on more suitable terms. Notice, that while price is one of the issues to figure out in a negotiation, it certainly isn’t the only one. Many times too much of a focus on price will adversely affect other terms, such as who pays for services such as escrow, title, or repairs. As a buyer, it is trickier to make the seller commit first, but can be done. The approach that works best is to come up with an offer that is low enough that the seller must counter, but not so low that the seller is offended and ignores it completely. Striking this balance can be challenging, but the rewards make it very much worth trying for.

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Keep the Real Esate Negotiation Going

This seems like a simple point, but it can often be difficult to remember during a contentious negotiation. No matter how badly you want something, and no matter how far apart you are from the other party, you are always closer to putting a deal together if talks remain open. It can be very tempting to respond with an emotional counter offer (taking only a nominal amount off the listing price, writing in all caps, etc), but anything that is done to antagonize the other party will usually come back in the form of a lost negotiation. So, whether you take the time to thoroughly respond to an offer you might think is frivolous, or call for clarification when there starts to be a disconnect as opposed to shutting of lines of communication, it can only help. This is one instance where a real estate negotiation is not a zero sum game, and everyone benefits if the negotiation continues.

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