Your goal is to negotiate the best deal in a real estate business whether you are purchasing or selling. In any real estate negotiation, buyers want the best deal while sellers want the highest price, but for the deal to close the two need to meet somewhere in the middle. In a buyers’ market, those in search of a property can simply walk away if the terms are not ok with them since they have so many homes they can choose from. A reason why good negotiation skills are very essential. A well-motivated seller in any market is less inclined to lengthy negotiations, but all they want is to get the deal well done. For all who are new in the real estate business, the negotiation eventually starts whenever a seller receives a written offer. Everything being negotiable, agents of the seller and buyer go back and forth in writing, their communication can be via email or signed forms. The main objective for all the writings is to make an agreement on the deal’s terms. The deal’s terms include price offer, contingences, timelines together with items that may convey with the property. There is always a constant negotiation until you completely close the deal.
Things you need to know about a real estate negotiation
In a real estate negotiation, both the buyer and seller are in struggle to reach a price which sounds best for both. Generally, the buyer gives the least price offer to pay while the seller wants the highest price. Usually they end up in an agreement,at a price which suits each party. Sellers are always trying to make sure the deal makes sense for their financial plan while the buyers are doing their best not to price themselves out of a resale in future.
All buyers must pay prepaid closing costs for their mortgage. This is money held by the mortgage lender in escrow for items like insurance and taxes. A buyer might possibly require a paid flat dollar amount towards closing cost from the seller.
Any seller can negotiate for speed if they need to get their capital out of the home as fast as they can. In such cases the closing date will affect the buyer’s monthly cash flow once they own the home.
So many transactions end up being cash, for this reason sellers do not tie up their property for 30 or 60 days which is what is the normal requirement when there is a financing contingency. Buyers who are competing with all cash offers are required to figure out if they can possibly drop the financing contingency which will shorten their closing time line. Any buyer can do this by simply having their mortgage fully approved prior to making an offer. The preapproval is one which shows that all their finances are in order and they can easily afford the property.
A seller can offer a home warranty or a buyer can ask for one. This is a protection plan which completely covers the home’s appliances and systems. This is for the event where things get broken or need repairs.
Moving in to a new home can be stressful and labour intensive. A seller might need a little extra time to move to their new home, in this case a buyer might offer a zero to cost rent back for 30 to 90 days to entice the seller accept the offer over others. It is very important to note that peace of mind is a valuable negotiating tactic.
When the rooms in the house need a lot of updating, this gives a larger field of negotiation to the buyers. In purchasing a home which is out of date with appliances which are non-functional, the buyer is better placed to ask for a lower price due to the cost he shall take on bringing back the house to today’s standard. Sellers also have the choice of sending out a notice, their house is being sold as ‘’it is’’ and there shall be no repairs involved.
6 Rules to boost your real estate negotiation skills
As generally observed negotiation skills are often minimized in most training and coaching programs for real estate professionals. Yet to be taken note of is the fact that negotiation is a dominant facet of any successful practitioner’s business. The following rules will help add confidence and strength to your negotiation techniques. They will completely make your business and life more satisfying, productive and less stressful.
At your presentation make sure you prepare the seller or buyer on how the negotiations will proceed.
At first encounter you can say something like this; ‘’Permeate me to go over to what generally happens when a buyer wants to purchase your home? Here is a copy of additional paper work that goes with it. I’d like to prepare you for the lot of items than just price that have to be negotiated. This preparation is to make sure you are more confident and comfortable when we shall take on the negotiations proper. I’d like to take a moment and go through the paperwork with you?’’ Carefully explain all the items that might be negotiated in your market as you review it. This is the same language to be used by the buyer when he meets with the seller.
Carefully prepare the seller or buyer for the worst case
This is the second rule aimed at boosting your real estate negotiation skills, it has to do with describing the worst-case and best-case scenarios. This can be done by suggesting that their experience would be somewhere in the middle but quite closer to the best of cases for you have always worked hard to help all parties get the most for them. Once you have already prepared your client this way, you have created their expectation for how the deal will go. After this is done, they develop a tremendous confidence and peace of mind in you. This also makes them much calm for what is normally a stressful period for them. It should be noted that if you do not prepare and make them have confidence in you, they will try to control how things will go when the negotiation begins. This will also make them less distrustful of your negotiation strategies. For this reason you are to research and pick up the words to use for negotiation, this will permeate you come home less stressful and make your business run smoothly.
Research, prepare and plan well
Research and pick up all information you can from everyone and anyone you can possibly meet. Also get information from your client, other agents, past multiple listing records and tax records. Make sure you collect information and answers to the following questions;
- Have seller’s had any offers?
- How long have they been on market?
- Have buyers seen many properties?
- Who is moving?
Be sure to respect ethics and laws when researching for the above information. Instruct your sellers and buyers to be very careful about all they say and do concerning where they are moving, this is to prevent them from putting themselves at a negotiating disadvantage.
With simple courtesy and integrity gain the respect of all parties
You are given additional influence in negotiation when people realise, you keep to your words. This entails;
- Calling when you say you will
- Doing what you say you will
- Showing up when you say you will
Being simple and pretty straight forward increases your real estate negotiating skills as people will turn to put their confidence in you. Yet this level of integrity is very uncommon. But you shall be set apart in the market place if you can accomplish your promises.
Maintaining integrity is one of the real estate negotiation skills which leads to success. Never talk about one party to the other except it is to say they are interested in the property or they are also interested in selling. Most of the times negotiations breakdown or fail because the practitioner has already shared inappropriate information about the other party or has given their own opinion. This also happens in cases where the buyer talks directly to the seller. At inappropriate times, do not bring the buyer and seller together. They may use offending words against each other.
Write an offer you believe is acceptable
Going back and forth more than twice gets the seller and buyer crazy. Make sure everything you think is important to get the deal together is written down. In your initial presentations, make sure you prepare buyer and seller for this.
Understanding how financing can affect your ability to negotiate for a real estate deal
When negotiating a real estate deal, the most important thing to understand if you are a seller or buyer is the financial aspect.
- Should it be that you are the seller, come up with what financing you will be willing to accept in the negotiation process. Make sure you have the evidence to support your claim. An example could be one who is only willing to negotiate with buyers who have been pre-approved for the particular mortgage capable of covering the price of your home. This minus any dawn payments which was effected by the buyers. Another person may only want to negotiate with potential buyers who have access to the loans and funds necessary to purchase the home.
- Being a buyer, you must understand most of the sellers accept deals based on your financing arrangements. With this said, if you have not yet prepared financing for the purchase you may not even reach the negotiating table. An example is a buyer who shows a seller a mortgage pre-approved letter which goes a long way securing a spot for negotiation on the table. The seller in this case might have trouble trusting your ability to pay if the only financing you have is a personal loan from a friend.
Negotiating as a Buyer
Negotiating a real estate deal as a buyer can be challenging but with this guide, you will be able to use the right negotiation techniques and negotiation strategies to reach the best price offer.
Research the Property
You need to know as much as possible about the property whether it is a residential or commercial deal. Make sure you get information about the basics of age, square footage, significant upgrades and layouts. The real estate listing should carry this information. If the estate listing is not carrying the information, simply ask the seller. If the seller can’t give you satisfactory responses move to the city or country building department to get a history of building permits issued for the property. If you consider taking a historical property, find out if it is registered on the federal historical register. If it is registered then you will be limited on the changes you can bring on the structure if you purchase it. In such cases you will have to wisely negotiate price. Such a building can be a plus or a minus depending on your goals.
Learn about the Neighbourhood
The comparative market analysis is much more important than the list price. If you are assisted by an agent, she can run a complete listing of the recent property sales together with listing of comparable properties around the neighbourhood. In other cases, an unrepresented buyer can pay a real estate agent for a report. But make sure you do not rely on the report alone. Drive around checking the properties which are similar to the property under negotiation. This prepares you for a better price offer. You should also use data from CMA report to evaluate if the property price is in line with the market price or not.
Keep financing in mind while creating a budget
It should be noted that when a buyer is in possession of cash at hand, he stands a better position to drive a harder bargain than another who is waiting on mortgage applications and forms before making a step. One of the real estate negotiation strategies is budgeting in advanced. All sellers search for a firm contract which comes with a quick closing date rather than remaining with their property on the market for months.
Set the Boundaries and tone
All sellers has an asking price. It’s left to you to use your CMA report to formulate a price offer. When this is done, the two end points of the negotiation have been set. What is for sure is that the selling price would fall somewhere in the middle.
- Do not insult the seller by proposing an unreasonable price offer. For if you do such, it will likely be interpreted that you are not serious about purchasing the property. It is preferable to negotiate price with him and not offend him.
- In a real estate negotiation, you can be honest about issues but not talking down the property in disrespectful terms such as worthless, ugly for this might end up with a refusal from the owner to continue with you. As a result, language stands out as one of the negotiation tools.
Close the deal
Once an appropriate offer price is reached and appreciated by both the deal is closed. Make sure all offers and counter-offers are put-down in writing. After negotiating, if a mutually agreeable offer price is reached, both parties should sign to indicate acceptance. Make sure you include details the sales price, allocation of closing costs, any credits for repair and a prospective closing date. This makes the basics of your sales contract. Retain a real estate attorney to handle the closing if you had not previously involved a real estate agent in the negotiation.
Negotiating as a seller
A seller should take on the following to make it a success with his real estate negotiation skills.
Price your property
As the one selling, you are to choose a price which is a combination of the comparative market analysis for your residing area, your gaols and your equity versus pay-off amount. If you do not necessarily need a quick sale, an investment property in a desirable neighbourhood can be listed for a higher price. Conversely, if you need to sell quickly and move to a new home, you’d have to price the lower end of the neighbourhood spectrum. Depending on whether you are in a need of the money or not in a lesser time, you will best negotiate price with the buyer.
Consider a pre-sale property inspection
It is not only on the behalf of the buyer to make a proper inspection. As a seller, investing in an inspection before you list the property can reveal little issues which can easily be repaid at a price far lower than that for more serious repairs factored into the listing.
Understand the buyer’s mind set
The buyer has a lot of choices unless they highly desire a particular neighbourhood. When a buyer has a very desirable property in a neighbourhood, he will look at stretching his budget as far as it goes. You should be ready to include your property upgrades in the negotiation. If you previously planned taking away the appliances and finds out that the buyer expresses interest for them, consider adding them to the deal. It is very important to know the mind-set of the buyer to better negotiate price with him.
Receive your offer
If the buyer gives a verbal price offer and you believe it is a serious offer, request he puts it in writing. A written offer shows that the buyer is serious about purchasing the home.
Prepare to make counter offers
In most cases the seller makes the first counter-offer price. Make sure you think about all the daily costs of owning the property after which you figure in your counter-offer. If buyers offer is insultingly low, keep your calm and not respond with anger. Simply make a response counter-offer to show your position. The buyer before you might be a serious one but a poor negotiator and calling him cheap or ridiculous might lose you a serious buyer. You can offer to split some of the closing costs.
Close the deal
Once the final offer is reached and both parties are ok with it, they should simply sign it even if it is an informal document you and the buyer both worked on. This will remain a strong basis for your sales contract. It is worthwhile hiring a real estate agent to prepare the final contract and closing document.
Negotiation techniques in real estate business
A skillful agent in a real estate business will never narrow negotiations down to one issue. Before going in to any negotiation process, make sure you have gathered enough information and have established criteria on the primary objectives and goals of the buyer and the seller. Buyers and sellers all need a qualified real estate agent for their negotiation skills. What makes real estate agents professionals is their ability to close up a deal from the first conversation with the other party. In addition, their ability to come up with agreements.
Nibbling is one of the negotiation strategies used by buyers in obtaining a majority of all what they are asking for by simply making the seller feel cheap. Just as the name reveals, the buyer simply nibbles a bit here and a bit there. By so doing they are slowly getting everything the desire from the seller. This is one of the best negotiation techniques highly used by professionals in the field of negotiation. The aim here is to nibble around with the seller’s profit without having to insult him in any way. This can be done through little questions or doubts about his home quality for modern standards. When this is applied it creates room to negotiate price again.
This is one of the negotiation strategies whereby a buyer expresses details about a difficulty they are facing that is keeping them from purchasing the home. By so doing the problem is thrown in the hands of the listing agent or seller to fix. Here the buyer’s challenges are all passed on to the buyer. Examples of issues to mention of could be; personal issues, financing, roadblocks and commissions. Most of the issues in a hot-potato scenario become the seller’s issue. Simply address the issue directly and logically and later hand it to the person responsible for it.
Good guy and bad guy
This is one of the negotiation strategies whereby in the relationship the agent is the good guy and the seller the bad guy or vice versa. The buyers’ and sellers’ interest can greatly be protected by hiring a professional real estate agent who is in possession of real estate negation skills needed for the deal amongst them.