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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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Should You Get A Second Appraisal?

Another Appraisal?

It’s a nightmare scenario. After brokering an excellent deal and receiving an offer right at or slightly above purchase price, the home sellers, buyers, and agents are simply waiting for the final details to fall into place, when the unthinkable occurs: an appraisal below purchase price.

Nothing can kill a real estate deal faster than an appraisal falling short of the agreed-upon purchase price because buyers can’t get a loan for more than an appraisal says the house is worth. The National Association of Realtors reports that about 10 percent of canceled sale contracts are due to low appraisals.

So what’s a real estate agent to do when this situation occurs? First, these are times when commission advance can help agents maintain cash flow to their real estate businesses while sellers, buyers and agents attempt to salvage the deal.

What Now?

So, should you seek a second appraisal? Here are a few things to consider.

It’s important to remember that an appraisal is simply the opinion of one appraiser. This means two different appraisers can conclude two different values for the same home. As a real estate agent, you have certain tools at your disposal to determine whether an appraiser’s opinion is accurate.

Most lenders have a process for challenging an appraisal, so savvy agents often start by pulling comparable properties that have recently sold and making a case to the buyer’s potential mortgage lender. Appraisers typically pull comparable sales information from multiple listing services, so if sales occurred outside of the listing service, point those out. Also, check if the comparables used by the appraiser were short sales or foreclosures. Short sales and homes in foreclosure usually sell for less than homes sold by owners in good financial standing with their lenders.

Find out the lender’s appraisal challenge process. Appraisals cost the buyer or the lender, so be prepared to give specifics about what the appraiser missed in valuing the property. In addition to providing comparable property sales, be prepared to show improvements to the home that an appraiser may have overlooked. If the appraisal shows two bathrooms when there are actually three, ensure that the lender or appraiser on a second pass knows the correct number of bathrooms and bedrooms and the correct square footage of the home.

Many times, these contracts that fall apart due to low appraisals can be salvaged, but it takes research and effort to get the job done. An express commission advance can keep the bills paid until a delayed deal closes.

Top Expenses of Real Estate Agents

Owning your own business comes with a roller coaster of highs and lows, both emotionally and financially. Real estate brokers and agents are not immune to these, and the costs of running a real estate business can add up quickly, especially considering how long transactions take (and they are only taking longer).

Here is a partial list of the cash it takes to be a real estate agent:

Before you stick that first “For Sale” sign in a yard, or show that first home to a potential buyer, you’ll need to spend between $1,500 and $2,000. You’ll need to enroll in a real estate class, typically from a state accredited provider. The costs will vary. In California, for example, courses range from $200 to $700. Once you’ve finished the course, you’ll need to take the licensing exam. In California, the licensing exam fee is $60. Many states also require fingerprinting and background checks, which range in cost.

Realtor Association Fees

You don’t have to join the local association of Realtors in your area, however, membership has its benefits. Members of the association sign a code of conduct, and typically, its board has a regulatory authority over its members. Your fees may include membership in a local organization as well as a state organization. If you live in a metropolitan area that bisects more than one state, you may have to pay membership fees to more than one state or locality. Your local Realtor association also hosts a multiple listing service, or MLS, allowing other agents to peruse the listings of their peers.  There is an annual membership fee to join the association. In most places, the fee costs between $200 and $500 per year. Real estate agents pay this fee once each year.

Multiple Listing Service Dues

You’ll have to be a member of the local association to use your area’s multiple listing service. In addition to the association membership fee, you’ll also need to pay an annual fee to subscribe to the MLS, As the listing service is linked to a geographic area, these fees vary by location.

Agency Fees

Real estate agents who are just starting out must either obtain a broker’s license themselves, or work underneath the supervision of an established brokerage. Many brokers will require that real estate agents contribute to office and franchising costs, and they do this in a variety of ways. The most common ways are to charge a monthly “desk” fee regardless of the agents production, or instead they’ll charge a % of each transactionthe real estate agent closes.

Equipment Costs

You’ll have some access to office equipment, but you’ll also need a top of the line mobile device and associated data plan. What’s more, you’ll also need a durable and efficient laptop, as well as a high end camera (nope, that one on your phone isn’t going to cut it) to take listing photos.   Yard signs, open house signs, lockboxes and lockbox keys also come with the territory.

Error and Omissions Insurance

This insurance protects you if a real estate contract or issue winds up in court. Costs vary per area and per brokerage.

Real estate agents typically spend $3,000+ to become licensed and start their business. Agentswill spend far more each year on marketing and general expenses to keep it going. Though costs vary from agent to agent and state to state, a commission advance service is one way to help fight the challenge of consistent expenses and, at least in the beginning, income that takes a while to become consistent.