Honing Your Negotiation Skills
EXAMPLE: This “rookie agent” was one of the youngest students in my college real estate classes. He was fresh out of high school and was highly-motivated to become a very successful sales agent. He had big dreams. Teachers love super-motivated students like that who stand out from the crowd. Knowing I was a buyer of fixer-upper houses, one day he (I will call him “John” because he has a unique first name which many local subscribers will recognize if I use it) phoned to tell me about a brand-new listing of another agent he thought met my requirements. He was right. The run-down house was exactly what I wanted to buy. Although I am a licensed real estate broker, I make it my locally well-known policy to never ask for part of the sales commissions from the listing or selling agent (to give them maximum financial incentive income to get me the best price and terms). Investors who have real estate licenses should adopt the same policy if they want the best deals brought to them by local realty agents. I made my purchase offer through new agent, John. The next day, he phoned to tell me he had successfully presented my purchase offer and obtained a counteroffer from the seller. But when John came over to my house, I was very disappointed because the counteroffer was practically the full asking price for this run-down house. So I made a new offer, only slightly better than my original offer. I explained how I arrived at my offer value, instructing John to convey this reasoning to the house seller. Again, the next day John phoned to tell me he had a new counteroffer. But it was not much better. At this point, I realized John was merely a “message bearer” who was not using any negotiation skills to get me, his buyer, a fair purchase offer (and to earn his first sales commission). Fortunately, John has survived in the tough real estate sales business to become a very successful broker. But the point of this example is to show you, or your real estate agent, should not become a mere “message bearer” who does not use any negotiation skills.
Negotiate with people who really want to negotiate.
Later, we will discuss the importance of negotiating with highly-motivated real estate sellers and buyers. If a property seller is just “testing the water” to see how high a sales price can be obtained, there will not be much serious negotiation because the seller is not motivated. Or, if the buyer is just making a “low ball” purchase offer to see if the seller will accept, it is often a waste of time if the buyer is not highly motivated to buy.
This negotiation principle of motivation applies to all fields. If you are a property seller, you want to deal with buyers who need to buy. However, this principle also applies to motivated buyers who must buy from sellers who are not highly motivated. In such situations, it is important to become “creative” with your negotiation strategies.
Sometimes it is even prudent to use a third-party negotiator when the situation stalls. I recently did that in the example below. This situation often occurs in real estate brokerage offices when a sales agent is unable to negotiate a transaction. A third-party negotiator, usually the office manager, is then brought in to join the negotiations to help move the situation along.
Recently, on behalf of a charitable group, I became involved in a “negotiation” for a $20,000 purchase. To the charity, it is a very highly-visible “big deal.” To the supplier, it apparently was just another sale (although I was negotiating with the president of the firm, so I could not go to a “higher authority”). We spent several hours together inspecting other installations of the product, measuring for installation, and even talking with the employee who will operate it. I did business with this company before in 1998 and knew they would again do a great job so I did not even want to consult competitors. As I left, when we shook hands, the company president promised to give us a “rock bottom bid” within a week (after he consulted the factory). But several weeks went by. No bid. It is very difficult “negotiating” by long distance. So I politely faxed him a handwritten note asking if he “forgot” our little transaction (he has several other profitable deals pending with the same group, but I have nothing to do with those). My fax gave me creative license to “fabricate” and ask for a (1) frequent buyer (we did business back in 1998), (2) senior citizen, and (3) “nice guy” discounts. I wanted to convey we needed a rock-bottom price. Although we had not discussed it, I then asked him for a “trade-in allowance” for the old, but now-outdated product purchased in 1998 which is in excellent condition. Still, no bid. Then I called on “Sally,” the superb part-time director of the charity. I told her of my negotiation failure and asked if she could phone to at least get a reasonable bid out of this supplier (so we would not have to go to a competitor). Within 24 hours, Sally obtained a bid which was about $2,000 below the $20,000 “target value” (including a very generous $2,500 trade-in allowance for the old product) and about $5,000 below the price the charity paid in 1998 for the old product which the supplier will probably be able to profitably resell elsewhere. By calling in “charming” Sally to phone the supplier, I used the old third-party negotiation strategy to politely convey urgency.
Let me emphasize (1) whenever possible, deal with highly-motivated buyers and sellers, and (2) if the other party is not motivated, maybe they are just “distracted” and really want to negotiate a good deal if you are persistent. In the example above, the seller obviously wanted to make the sale, and the buyer wanted to buy, but (who knows why) the seller did not bother to submit his bid promptly to a waiting eager buyer (although I tried not to act eager because I knew it would go up if I did). Maybe the seller misread the situation and thought we were not in a hurry. Wrong.
My friendly but creative fax motivated him to negotiate by offering a substantial trade-in allowance. The supplier did not have to give us any trade-in allowance so we were very happy to save a little and get rid of the old product (which the supplier will probably resell at a handsome profit). Yes, I probably could have negotiated a lower price in face-to-face discussion with the other party, but I know there is still plenty of profit margin for the supplier just in case there are any unexpected installation problems.
I have learned, especially when negotiating with contractors, if their first bid is acceptable, it does not pay to negotiate further because they will then usually cut the quality of their service. However, this rule does not apply if the negotiation topic is a standard product or service – such as a new automobile. That is a situation when negotiation strategies can pay off with big savings if the quality will not be reduced when the offer is cut.
Negotiation persistence pays off. I know real estate buyers who have “hounded” prospective sellers for years before they decided to sell that property to that buyer. It is amazing how, if you repeatedly express an interest in buying a specific property, the owner will eventually, someday, become a motivated seller.
For this reason, it pays to “keep in touch” as a negotiation strategy to buy without competition from other buyers. Real estate agents also use this strategy to get listings by keeping in touch with homeowners persistently, month after month, often for many years until the homeowner is eventually ready to sell.
Key questions to learn what the other party's true motivation is, but without revealing your own motivation
Learning the other party's true real estate motivation can lead to especially profitable negotiation. There is an old negotiation strategy which says that the first person to make an offer and terms loses the negotiation. But that is not always true.
A number of years ago, I wanted to sell my condominium so I could buy the house where I now live. Based on recent sales for condos in my area, my listing agent (the late, great Betsy White) suggested a $121,000 asking price. It was two or three thousand dollars above the last sale of a comparable unit, thus allowing room for negotiation. A week or two later, Betsy obtained a $114,000 purchase offer from a strong buyer. It was all-cash with no contingencies, not even a finance contingency. She advised me “I think this buyer will come up a few thousand dollars if you want to make a counteroffer.” Knowing I had only paid $70,000 for that condo, I had a nice built-in tax-free profit if I accepted that $114,000 all-cash offer. Perhaps I left a few thousand profit dollars on the table, but I did not want to lose that strong buyer because all-cash no contingency buyers do not come along every day. So I accepted that offer. That was a situation where the first person to present an offer (the buyer) won that negotiation by giving me what I wanted (a fair price and the cash I needed to buy my next home). As the saying goes, it was “win-win” for both parties because I did not get greedy and try to get the last dollar of profit but incurring the high risk of losing a strong buyer.
If you are the buyer, to help discover the seller's true motivation, find out how much the seller paid for the property. Although a few states do not record the purchase price of a property, in most states it is possible to easily determine from the public records or local MLS (multiple listing service) records how much a seller paid for the property. This is vital information for a buyer to know before starting negotiation.
The reason to find out the amount paid for the property is it lets the buyer know how much room the seller has to negotiate without taking a loss. Incidentally, this negotiation tactic is used by smart new car buyers who check the car books to learn the dealer's cost to determine how much room the dealer has to negotiate and still earn a modest profit.
To illustrate, in the example above I had a $44,000 gross profit. But the buyer did not know that (I doubt he researched my purchase price). If he had known, and if he had asked questions to learn my true motivation for selling (to buy another home), he might have offered a lower purchase price which I might have accepted.
However, if you (or your buyer's real estate agent) discover a home seller paid close to their asking price, then there is not much room for the seller to negotiate without taking a loss. When a property was purchased many years ago, the seller usually has lots of room to negotiate because the purchase price is far below today's market value (based on comparable recent sales of nearby similar properties). From a real estate buyer's viewpoint, the longer the seller has owned the property, the better purchase price the buyer can usually negotiate.
About four years ago, one of my neighbors decided to sell her house shortly after her divorce. She was moving to Palm Springs. As I recall, her original asking price for her house was about $1,300,000 (probably recommended by the listing Realtor based on comparable square footage of recent nearby home sales – a major mistake). The house did not sell for many months (it has a very odd floor plan, a lot without much open space for kids to play, and is located adjacent to a noisy, busy street). Eventually, a buyer offered $1,000,000. The seller eagerly accepted. Then the buyer had a professional inspection (as all smart home buyers should do) and discovered some water drainage problems. He then reduced his purchase offer to about $950,000. The seller quickly accepted the reduced offer and the house sold. I later learned that seller was so motivated to sell and move on with her life, she would have sold for practically any price because (1) she and her ex-husband only paid about $200,000 for that house many years earlier, (2) she got the house in the divorce, and (3) she was anxious to get settled in her new location. If only the buyer, or his buyer's agent, had researched the seller's purchase price, he could probably have purchased for even less from that highly-motivated seller.
Ask “Why is the seller selling?” to discover if the seller is highly motivated (if you are a seller, ask why the buyer wants to purchase your specific property). Smart buyers, whether purchasing a house, condo, or investment property, should always ask why is the seller selling? If it is the seller's home, the reason might be to earn a big tax-free profit (up to $250,000 for a qualified principal residence seller, or up to $500,000 for a qualified married couple selling their principal residence, thanks to Internal Revenue Code 121). Or, if it is a rental property, the seller might be making an Internal Revenue Code 1031 tax-deferred exchange for a larger investment property.
Other motivations for selling include divorce, marriage, illness, retirement, unemployment, death in the family, birth in the family, and job location change. The seller will not always tell the truth, but it will not hurt to always ask “Why is the seller selling this lovely home?”
Just because I asked “Why do you want to sell?” I bought two vacant rental houses for nothing down (except for the closing costs) from a motivated seller-investor who was having cash flow problems. He carried back my entire mortgage financing for me. But there was a condition: the sale had to close by the end of the month. I got a good deal on those two houses just because I asked “Why do you want to sell?” As a result of that transaction, years later I used that same technique to sell rental houses and carry back second mortgages for my lease-option buyers. I learned it is much easier and more fun to collect mortgage payments than to collect rent and have to be concerned about repair costs. Of course, this method works only after an investor or home seller has built up sufficient equity in the property being sold.
Just as smart buyers, and their real estate agents, should ask lots of questions of the sellers and the seller's listing agents, smart realty sellers should also ask lots of questions to learn about their prospective buyers, such as “Why is the buyer buying and why does the buyer want to purchase my property?”
To illustrate, if you are a home seller and you learn a prospective buyer is moving from out of town due to a job location change, that is probably a very highly-motivated buyer who wants to get settled as fast as possible (especially if children are involved). However, if you learn your buyer is moving up from a nearby smaller house, that buyer probably is not highly motivated to buy your home quickly unless the price is right and the terms are reasonable.
The other key components of any negotiation.
Although all the key negotiation components are important to every negotiation, now that we briefly discussed motivation of the parties, it is time to focus on the other key components of any negotiation (all these components apply to every negotiation, whether you are buying or selling real estate, a car a refrigerator, or anything else).
1) time deadlines
The time deadlines (if any) of each party to a negotiation are extremely important for a successful negotiation. However, in real estate negotiations, it pays to be aware some buyers and sellers have no deadlines. To illustrate, most of us have met homeowners who will sell if they can get their asking price. That is why unsolicited purchase offers at attractive values for real estate are often successful, especially for vacant land sales. Out-of-town absentee owners are often agreeable to accepting an unsolicited purchase offer because they have been thinking about selling but never quite get around to doing so. That almost happened to me a few months ago.
A neighbor phoned me about buying my highly-desirable condominium in Minnesota (which she knew I use only a few days each month). She was getting married, wanted a two-bedroom unit like mine, already lived in the complex in a one-bedroom unit, had a buyer for her condo, and wanted to move before the wedding. She was motivated by several time deadlines. But I, as a potential seller, was not motivated at all. If she had sent me a written purchase offer for top dollar, accompanied by a substantial deposit check, she would have had my undivided attention. As it turned out, she bought a less desirable two-bedroom unit across the hall from mine, but without the more attractive view I enjoy.
Whenever possible, try to find out the other party's time deadline, but without revealing your own deadline. This negotiation principle is not just limited to real estate.
I am in the market for a new refrigerator. Lately, the “warm temperature” light sometimes comes on for no explained reason. After I adjust the refrigerator control, however, the problem goes away. I am starting to shop around at dealers recommended by friends for a new refrigerator because, after 22 years, it is probably not worth repairing my current perfectly-satisfactory model. But I am not yet highly motivated to buy unless I can get a very good deal. However, if my refrigerator conks out completely, I will quickly become a highly motivated buyer with a very short time deadline to get a new refrigerator delivered as fast as possible. Negotiating a bargain price then will not be my key motivation. However, look at the situation from the refrigerator salesperson's viewpoint. Maybe he or she has a strong motivation, such as meeting a sales quota, or winning a dealer's or manufacturer's sales contest. That is why, for it is usually best to buy a new car or other consumer products toward the end of the month, or at the end of the quarter, or end of the year to negotiate the best price and terms.
2) information knowledge creates negotiation power.
Especially in real estate negotiations, successful negotiators (and their real estate agents) understand the importance of information knowledge of all the circumstances if they are to negotiate the best possible price and terms. Knowing local real estate conditions, such as whether there is a buyer's market (with more properties listed for sale than there are qualified buyers) or a seller's market (with more qualified buyers than properties available for sale) is an example of essential profitable information.
Even specific knowledge about a specific property is critical for a successful negotiation. To illustrate, the length of time a house has been listed for sale is essential knowledge for a prospective buyer who wants to negotiate a bargain purchase price. If a house just came on the market for sale last week in a local seller's market, the seller is probably anticipating a top dollar offer. For this reason, I have found it is usually best not to make a purchase offer immediately after a home is listed for sale (unless the local real estate market is very slow).
But when a house is listed during the first week of December, that probably indicates a highly-motivated seller who will listen to any reasonable purchase offer during the slowest sales season of the year. Of course, if you are a home buyer, you can probably negotiate your best price and terms if you purchase during the home sale slow season after Thanksgiving until New Year's Day (or even until Super Bowl Sunday) in most communities.
Other important knowledge information, depending on circumstances, might include local development proposals, re-zoning, city council actions, school district quality (good or bad), possible property tax increases, and special assessments for civic improvements.
Working with an experienced real estate agent who lives and works in the vicinity of the property can greatly improve odds of negotiation success. For this reason, I recommend buying and selling with long-time real estate agents who are among the top producer realty agents in their brokerage firms and in the local real estate association. The more awards and earned designations a real estate agent has on their business card, the better. Also, if a sales agent has been selling or leasing real estate more than five years but has not yet earned their real estate broker's license, that not a good sign. The educational classes required to become a broker, and pass the examination, in most states can not help but benefit an agent and their clients.
How savvy real estate buyers use a professional home inspection and other "due diligence" inspections to their negotiation advantage and how sellers can anticipate this tactic.
Most real estate agents now strongly recommend their buyers include in their written purchase offers, in addition to customary or required local inspections such as for termites (also called “pest control inspection”), radon, energy efficiency, building code
compliance, and building permit disclosure, a contingency clause for the buyer's approval of a professional home inspection report. An additional contingency clause most home buyers include, out of necessity, is for a satisfactory appraisal for at least the amount of the sale.
Smart home buyers and their buyer's agents always accompany their professional inspectors for the two or three hour inspection which should cost the buyer around $350. I recommend hiring a professional home inspector who belongs to the American Society of Home Inspectors (ASHI). The reason is ASHI members must have completed at least 200 home inspections, pass a tough exam, and keep updated with continuing education classes. Local ASHI members can be located at http://www.ashi.com or by phoning 1-800-743-2744.
There are several other professional home inspection state and nationwide organizations with similar high membership requirements. Some states now minimally regulate professional home inspectors. But that is not enough to assure hiring a competent inspector.
Home buyers should be especially wary of any inspector recommended by a real estate agent unless that inspector is also an ASHI member or has other professional qualifications. Realty agents are often prone to recommend “easy inspectors” who sometimes overlook or minimize serious home defects because the inspector does not want to become known as a “deal killer” among local realty agents (who are a prime source of referrals).
While the home buyer accompanies their professional home inspector, any defects discovered which the seller did not previously disclose to the buyer in writing should be discussed with the inspector. Often, what looks like a serious defect can be corrected at minimal expense. Or, a trivial-looking defect might be very expensive to repair.
After the buyer's professional inspection report is received from the buyer's inspector, usually within a day or two, the buyer should read it carefully to see if it contains any unexpected defects which would cause the buyer to “disapprove” the inspector's report.
If serious defects are revealed, the buyer has several negotiation choices:
(A) Cancel the sale and obtain an immediate full refund of the buyer's good faith earnest money deposit,
(B) Negotiate with the seller a reduction or a repair credit to fully or partially pay for the defect correction, and
(C) Go ahead with the purchase anyway if the seller refuses to negotiate any compensation for the undisclosed defect.
Property buyers should realize they might be unreasonable for expecting the seller to pay the entire cost of correcting a known problem. To illustrate, if the roof is 15 years old and will soon need replacement, expecting the seller to give a repair credit for the full cost of a new roof is probably unreasonable. But a 25 to 50 percent credit, in the form of a reduction from the negotiated sales price, would not be unreasonable if the buyer's professional inspection report reveals the roof is in worse condition than expected.
How property sellers should anticipate the buyer's professional inspection report negotiation tactic. Whether the property is a single-family house, an apartment building, or other type of structure, today's real estate sellers should anticipate and “thwart” professional inspection reports obtained by buyers.
That is why it is best for property sellers to obtain their own professional inspection reports before listing their properties for sale.
Then the seller can
(1) make repairs before putting the property on the market, or
(2) disclose the defect and sell the property “as is” (an “as is” sale means the seller must disclose the known defects but will not pay for any repairs).
These pre-sale disclosure reports prevent sales from “falling apart” later. To illustrate, most experienced real estate agents now recommend their home sellers have a professional termite inspection made before listing the home for sale and that any required repair work be completed before the house is placed on the market for sale.
My experience has been that buyers will often accept the seller's termite inspection and professional home inspection reports without obtaining their own inspections (which might delay the sale closing). However, as a property buyer, I recommend hiring your own inspectors as a double-check, just in case the seller's inspector missed a significant defect.
When dealing with termite inspection firms, I suggest hiring inspectors from one of the large nationwide inspection companies, rather than local “mom and pop” inspectors with small firms which might be inadequately capitalized, just in case a defect manifests later and warranty work becomes necessary. This happened to me and I was glad I had hired a reputable nationwide terminate inspection company which, although its inspector missed some termite damage, they stood behind their work and made the repairs at no cost to me.
The five key real estate negotiation tactics to use and anticipate will be used on you. Every real estate negotiation is unique.
With today's required and optional disclosures, there is so much paperwork involved in typical home and investment property sales, it is difficult to avoid having one or more of these negotiation tactics used on you. Or, you might want to use them on the other party to negotiate the best price and terms from your viewpoint.
Whenever possible, the best real estate negotiators try to avoid confrontational negotiations. But confrontations often can not be avoided. However, it is best to always remember there are two important parts to virtually every real estate negotiation – price and terms. As famous negotiator Herb Cohen says in the title of his great book (which I highly recommend) Everything is Negotiable.
Prepared with as much factual information knowledge about the situation as possible, and having inquired as to the motivations and time deadlines of the other party to the negotiation, next we must anticipate the key real estate negotiation tactics to use or to anticipate being used on you. There are many other negotiation tactics, but these five most often are used in real estate negotiations:
1) The non-stop negotiator who never quits "nibbling" to get a better price or better terms. Especially when a house or condo is vacant and easily accessible via a Realtor's lockbox on the door, this tactic is often used without the other party even realizing what is happening. The most successful real estate negotiators I have encountered use this tactic. But this is a buyer's negotiation tactic – I have never seen it used by a property seller.
A non-stop negotiator keeps negotiating even after the sales contract or lease is signed. These negotiators view the signing of the agreement to be just the beginning of negotiations. They reason that is the worst they can do – so they keep trying to improve on the initial terms.
Here is how the technique works: The non-stop negotiator keeps finding true or imagined defects in the property to justify a reduction or credit, or improved sales terms. Sellers should be aware when they notice this tactic being used by buyers.
The easiest way to use this negotiation method occurs when the buyer obtains a professional home inspection report and uses it to negotiate a lower sales price or better terms. But the experts then keep using this non-stop negotiation method to obtain further reductions or repair credits. A favorite ploy is to stop by the property to measure for new carpets or to determine where to place the furniture. Then the buyer notices something wrong with the property, thus justifying reopened negotiations.
How property sellers and realty agents can control non-stop negotiators:
(A) Refuse to negotiate further – unless you do not want to lose that buyer and no other buyers are in sight. Be ready to say “We have a firm sales contract. I will live up to my side of the agreement and I expect you to live up to yours also.”
(B) Do not allow the property buyer to come back to re-inspect the property except for the final walk-through inspection the day before the sale closing. Buyers should be aware that before the sale closes, the buyer has maximum leverage over the seller. After the sale closes, and the seller has the cash, the buyer loses leverage over the seller. Sellers should be prepared to stand their ground against “non-stop negotiators” – unless the buyer has a legitimate complaint, of course.
(C) Another way to minimize this tactic being used by a buyer against the seller is to insist on as large a good faith earnest money deposit from the buyer as possible. If the buyer risks losing a big deposit without going to court, chances of the buyer using this tactic are minimized.
2) The "higher authority" negotiator negotiates the best possible price and terms, and then says he must consult a "higher authority," such as an attorney or C.P.A.
Another name for this negotiation tactic is “two bites from the apple.” One negotiator negotiates their best price and terms, but then includes in the written contract a short clause stating the agreement is contingent on the approval of the buyer's attorney, CPA, Aunt Tillie, or whomever else they want. Sellers can also use this negotiation method by agreeing to accept the buyer's written purchase offer, subject to approval of the seller's attorney, CPA, partner, etc.
How to handle the “higher authority” two bites of the apple negotiator:
(A) Be sure all parties necessary to sign the contract are present. This is especially important in divorce situations. If all needed parties have not signed the contract, you do not have a legally binding agreement until all the necessary signatures are obtained. Sometimes, it pays to “take a chance” that the party who made the offer can obtain approval from the other necessary parties.
To illustrate, I once bought a probate property from a Catholic priest who said he represented his brother and sister who lived in distant towns. When Father Ward said he liked my offer for 10 percent down payment and 90 percent seller financing, I took a chance and trusted his word that he could deliver their signatures on the sales contract. Within a few days, he got their signatures and the sale closed successfully.
(B) If you use this tactic yourself, be sure someone essential is missing from the negotiations, such as your wife, husband, attorney, or CPA. Then include a contingency clause in the contract that the agreement is contingent on their approval within 48 hours (or other acceptable time limit).
(C) The best way to counteract this tactic is to insist on a written deadline for obtaining any necessary approval of a third-party who is missing from the negotiation. I have learned it is best to word the clause very carefully, such as “This contract is contingent on the approval of the buyer's attorney, John Jones, within five calendar days from the seller's acceptance; unless attorney Jones disapproves this contingency in writing within said five calendar days, this contingency is waived by the buyer.”
If you think the “higher authority” negotiation tactic does not work, consider virtually every labor union contract negotiation. After the labor union leaders and the employer management negotiate a new contract, it is always subject to ratification by the union members by a vote. When the labor negotiator recommends acceptance by the union members, if he or she is a strong leader, the contract is usually ratified by the “higher authority” union members.
3) the famous "bad guy good guy" negotiation tactic.
I know you have seen this tactic used on TV where it is called the “bad cop, good cop” method. Just a few nights ago, I saw this negotiation tactic skillfully used on CBS-TV “Cold Case Files.” The “bad guy” tough cop unsuccessfully tried to get a confession out of the suspect. Then the “good guy” cop, a female investigator, skillfully talked the suspect into confessing to two killings (although not the killing for which he was originally the suspect). The same method works in real estate.
Long-time subscribers will remember Elsie and Carl who used this tactic on me (although I did not realize it at the time). They had a vacant, free and clear rental house to sell. Every Sunday afternoon they put up their “for sale by owner” sign on the front lawn, set up their lawn chairs, and spent the day chatting with visitors who stopped by on the busy street. They are very nice people. Elsie (the “bad guy”) was tough. She said they wanted all-cash for the house. But it had a few defects which I quickly discovered and I wanted seller financing for 90 percent of my purchase price. Husband Carl played the “good guy” role. He just wanted to get the house sold so he could get back to his hobby of restoring Nash Rambler cars (he owned about ten). After repeated weekly visits each Sunday, Elsie and Carl eventually became realistic (at least by my standards). We eventually agreed on a 10 percent cash down payment and a 90 percent mortgage. Later, after many months of on-time payments, we became good friends. When Carl and Elsie retired and moved to Tucson, Arizona, they even loaned me $150,000 to buy a rental house they never saw. I paid off both loans long ago. I am sure they would loan me more money if I asked, but I really do not need it.
How to handle “bad guy good guy” negotiators: This method is very subtle. Often, like me, it is difficult to recognize when it is being used by the other negotiation party. Husband and wife “tag teams” are especially good using this tactic.
The best solution is to:
(A) Listen carefully and patiently to discover what motivates the other party,
(B) Nod your head to indicate understanding, but not agreement, and
(C) Let the “good guy” negotiator convince the “bad buy” to accept your offer. It may take hours, several negotiation sessions, and many counteroffers to wear down the bad guy.
4) the unexpected auction negotiation tactic. Most of us have attended an auction of artwork or antiques. Foreclosed condos and new subdivision homes are often sold at auctions, especially in a slow “buyer's market.” If you buy or sell on E-Bay, you know a lot about auctions.
Who benefits most from an auction? It is usually the seller. But buyers often think they are purchasing bargains. E-Bay sellers have discovered that is a neat way to get decent prices for objects which would otherwise be very difficult or impossible to sell to local buyers.
However, when an unexpected real estate auction develops between two or more prospects interested in buying the same property, it is always the seller who benefits. But please be aware we are not talking about a formal real estate auction.
Real estate auctions develop in three ways:
(A) The listing agent specifies in the local MLS (multiple listing service) that written purchase offers will be opened at a specific day and time,
(B) The listing agent uses this same method, but sets the original asking price abnormally low and the seller has no intention of accepting, thus creating a buying frenzy “auction” among bidders, or
(C) Two or more buyers make purchase offers for a property at about the same time, the seller accepts neither offer, and makes counteroffers to the prospective buyers. No matter how the real estate auction develops, whether intentional or accidental, it is the seller who primarily benefits.
How to handle a real estate auction negotiation: My strategy is to drop out of the auction bidding (unless I absolutely must buy that property). If you, or your spouse, has fallen in love with the property and absolutely must own it, the best way to win the auction is to submit a bid which specifies “In the event a higher, legitimate written purchase offer is received from another qualified buyer, I offer $5,000 more.” If you do not think that is enough to impress the seller, offer $10,000 more.
5) the "would you take" negotiation tactic.
This negotiation method is a bit difficult to implement because it requires a face-to-face meeting of the prospective buyer with the property seller (most realty agents try to keep their buyers and sellers from meeting), but it works best when the buyer and seller “bond” and like each other.
As an investment property buyer, when I can meet the seller I try to learn as much as possible about both the property and the seller's motivations for selling. Then, to the horror of the listing or selling agent who is usually present, I ask “What is the lowest price you will accept for this property?” Then I shut up. Realty agents often try to stop the seller from saying anything. But the seller will usually state a dollar value which is far lower than I was thinking of offering.
A variation of this tactic is for the prospective buyer to say “Would you take $____ for this property?” If you are the seller, even if it sounds very low, your correct answer is “Well, why do you not put that in writing to see how it looks on paper?”
As you know, an oral purchase offer is not legally binding because the Statute of Frauds requires real estate contracts to be written to be legally enforceable. Even if the buyer's tentative offer is far too low, once a written offer is received, the seller can either accept it or make a written counteroffer to get negotiations rolling.
How to handle the “would you take” real estate negotiation tactic: If you are the seller (or the listing agent), the best way to handle this tactic is to get the buyer to put the offer in writing to show that the buyer is serious and is willing to make a significant earnest money deposit. Then, a counteroffer can result at a price acceptable to the seller. If the buyer will not put the “would you take offer” into writing, he is not serious and is wasting your time.
The importance of not revealing confidential information.
I would love to write more about this ultra-important topic of real estate negotiation, but I am running out of space. Maybe I should write a book on this fascinating subject. But one very critical point to emphasize is both buyers and sellers should be extremely careful what they tell to their real estate agents. Although realty agents are supposed to be trained not to reveal confidential information to the other party to the negotiation, such as the lowest price the seller will accept or the highest price the buyer will pay, realty agents often slip up and let out this valuable information to the other party.
To prevent this from happening, do not reveal to your buyer's or seller's realty agent any information you do not want the other party to know. However, if the information is essential to the sale conditions, such as a foreclosure sale of your home has been scheduled by the lender for 30 days from today, be sure you tell your realty agent who then should communicate that vital fact so any serious buyer knows they must complete the sale before the property is lost by foreclosure.