6 Elements Of A Smart Real Estate Negotiation Strategy
How can you get more of what you really want when it comes to negotiating your next real estate transaction?
How well your hopes of your next real estate transaction pan out will depend on how well you negotiate. Everything else beforehand will mean little if you don’t negotiate well. This is where horrible, decade long regrets or amazing and enriching experiences are separated. Having a good negotiator (i.e. a Realtor, partner or real estate attorney) in your corner can help a lot. But most professionals you’ll encounter aren’t on your side, or aren’t strong negotiators either. They want to facilitate a deal so that they get paid. They won’t always be as strategic and firm as you need them to be, unless you know how to coach them.
Remember these six steps to win your next real estate negotiation:
1. Decide What’s Really Important
Know what is most important to you (and not) when going into negotiations. Write it down. List them in order of importance. What are your top 1, 2, and 3 priorities? For buyers, they may be:
- Securing a home within 30 minutes of kids’ schools
- Having at least 3 bedrooms and 2 bathrooms
- A monthly payment of less than $2,000
For a seller, they may be:
- Closing within 30 days to avoid more holding costs
- Not having to make any repairs
- Netting at least $30,000 for a down payment on a new home
- Lock Up Your Emotions
2. Get to Know Your Opposition
Who is on the other side of the table? What do they want? What don’t they want? Don’t assume; find out. Maybe the buyer has lost deposits on multiple properties and that is their biggest fear. Or maybe they have a lease which isn’t up for 8 months, and the earlier they close is more expensive for them. Maybe the seller is afraid of a long close because they know rates and condo association fees are going up and fear the buyer may walk late in the deal. Perhaps they need to make a tax deadline, or would rather collect premium seasonal rents for the next 2 months. Communicate. Find out their fears, goals, and drivers.
3. Offer Expecting a Counteroffer
Whether setting your home listing terms or making a first offer on a home for sale, expect the other side to counter. Everyone wants a deal, and expects that you expect to be countered. They don’t expect most people to put their best and final deal out there first. So if local homes are selling for 97% of asking price, your listing should be 3% higher. As a buyer, offer 3% under the asking price.
4. Strategically Structure Your Terms
Knowing the seller, you should know enough to strategically structure your offer to get more of what is important to you, without really jeopardizing the deal. Supposing ease is the most important thing to the seller, and a long closing date is most important to you, make your initial offer include a closing date that is two weeks longer than you really want. Use a standard contract with repairs, and ask for 3% in seller contributions. When they push back, accept an AS-IS contract, and reel in your closing date, back to where you really want it. If that doesn’t stick, ask the Realtors to pitch in their commission to fund your closing costs. This is just one example of course, but you should get the idea.
5. Don’t Be Afraid to Walk Away
If the other side refuses to give in to your most important items, don’t be afraid to walk away. For example, if the seller insists on a 2 week closing and a $10,0000 deposit, but your loan might take 45 days to close, that may be too big of a risk for you to take. Live to take down another deal.
6. Don’t Walk Away
Don’t walk away when the real math tells you otherwise, even if the terms are not ideal. If pulling out of this deal means you’ll be stuck paying hundreds more a month in rent, then try to make it work. For sellers, it is often smarter to bend a little for a great buyer and even take a few thousand less, rather than to hope to find another buyer in the future, especially when that money difference will certainly be eaten up in holding costs. Leave your ego on the bench, do the math, and try to make it work.