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Negotiating the saleNegotiating the sale
Negotiating or “horse” trading in the purchase and sale of real estate property is as much a part of the purchase ritual as escrow and down payment.
The real estate negotiating ritual involves the seller establishing an offering price. This would be considered the (Ebay) “buy it now” price. The buyer’s objective is to purchase the property at the lowest possible price, while the seller wants to sell the property at the highest possible price. Similar to an online auction, buyers are competing against other buyers, and sellers are competing against other sellers.
Time is of the essence during the negotiation phase, and knowledge of local market conditions, property market values, and even buyer/seller motivation is critical in bringing the negotiation to a successful conclusion. Offering a price, which is too low, or declining an offer which is slightly below expectations, could cost you a buyer or you could lose the sale. My philosophy of “destiny” has always led me to believe that if a transaction is destined to occur, it will occur, but you must use common sense and market knowledge to your advantage. If a seller is using a “standing room only” closing technique and the offer seems too good to be true, it probably is. Never be afraid to stall or delay your bid acceptance or offer a price too low. You may be surprised at how many low offers are accepted. I remember when I purchased my second home, I submitted a bid that was about 30% below the asking price. My wife was angry and incensed with the thought that she may lose the beautiful home that she had fallen in love with. I refused to call the seller, after the offer was made, to check on their acceptance of the offer. It was the longest three days of my life with the wife applying plenty of pressure. On the fourth day the seller called with a counter offer, which I refused with an explanation that we were planning to make an offer on another property. The next day the seller called back and accepted our ridiculous offer.
Thinking “outside the box” may allow both the buyer and seller to save face during the negotiation stage. Negotiation grew from the old barter system, in which a farmer may trade eggs or milk to a shopkeeper for shoes or clothing. This barter exchange may work in real estate negotiation, as well. As long as you have something of value, you may negotiate price to as close as possible and look for something of value that the seller desires. This might be an old tractor, hot tub, automobile or any other item of interest. This payment-in-kind may allow a buyer to pay less and allow the seller to obtain something of equal value for consideration of a lower sale price. The key is to remain flexible until an agreement can be reached. Prepare for negotiation by evaluating your goals and objectives, scheduling an initial offer presentation, managing the offer presentation, and being prepared for the possibility of a revocation of the offer by the buyer/seller.
1. Evaluate Your Goals Evaluate your goals before you begin negotiations with prospective buyers or sellers. You have unique advantages when you understand the repercussions of each decision and make choices based on this preparation. There are several goals that you should consider before negotiations begin. These choices may include:
Evaluate Price and Terms Consider both the price and your acceptable terms before begin negotiation. Consider the following:
Seller
Contracts. Another significant principal is to understand the legalities of negotiations and the contract. A contract is reached when there is an offer and acceptance. A contract may be verbal in the form of a verbal commitment or handshake, but a verbal commitment carries far less weight in a court. The contract lays out in a formal structure the terms and conditions of the purchase. If either party is unhappy with a contract that has been offered, the disagreeing party should refuse to sign the contract with the expectation of correcting the agreement later. Once the agreement has been signed by both parties, the deal is done, unless all parties agree to a change.
Counteroffers. Most real estate professionals require a formal written offer or counteroffer as part of the negotiation process. When an offer is tendered, say from a prospective buyer to the seller, the seller may reject it outright. Alternatively, the seller may change one or several stipulations and sign it as amended, then return it to the prospective buyer. This is called a counteroffer and amounts to a rejection of the offer with a substitution of a new offer. The simplest change in one element constitutes a complete rejection of the entire offer. The counteroffer is made by the owner to the prospective buyer, who may either, accept, reject, or counter. A key to negotiations is to realize when to stop negotiating, either by accepting an offer, if adequate, or by breaking off communications when you feel agreement is not possible at the price and terms you want.
Expiration time. Many contract forms have a provision that the party receiving the offer has a certain period of time (for example, until midnight on the second day) to accept the offer or it expires automatically; however, the offer may be withdrawn by the presenting party anytime before it is accepted. If an offer has been accepted and the acceptance is en route back to the presenter, it is generally too late for the presenter to withdraw the offer. It is therefore wise to set a deadline for notifying the presenter, or at least attempted notification before the expiration time passes.
The broker’s role. A broker is usually actively involved in the negotiation phase of the sales process. Many people feel more comfortable dealing through a third party rather than face to face with the other party. This phase of the sales process is often where the real estate agent earns his/her share of the commission. A good broker brings the buyer and seller to an agreement.
In some areas the brokerage commission becomes part of the negotiations. A broker may actually lose compensation in trying to reach a conclusion to the sale. In some instances when the two parties are close to a deal, but can’t quite consummate the arrangement the parties may look to the broker to close the gap in price difference by surrendering part of the commission. For some brokers, however, the commission rate may be negotiable, but the degree of compromise is limited.
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