The Art of Negotiating

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Many real estate agents and clients think of negotiation as simply how they price their listing or their offer to buy. Maybe they include the concept of a counter offer in their bag of negotiation tools. The truth is that proper negotiation is much more than simply the price on a home or earnest deposit used in the offer. Herein find a few paragraphs regarding a few of the most common opportunities and / or mistakes seen when negotiating real estate transactions throughout the state. These are only included here to provide you some fodder for thought when you start thinking about how many different ways you could possibly improve the outcome of your real estate transaction. It’s only by being aware with these ideas, soon toe be tucked into the foremost part of your, that you can begin to identify many other unique opportunities that may pope up when negotiating your particular transaction.

Negotiation is Really an Art in Real Estate

Never take an adversarial or even aggressive posture in ANY of your interactions with real estate agents, buyers or sellers. Actually, just the opposite, you must be easy to get along with and easy to talk to. BUT NEVER FORGET that you are there for one reason; to solve your real estate needs whether you are buying or selling. This means that while you are negotiating the deal, every piece of information that you provide to “the other side” should be carefully released at just the right time, spoken in just the right way and designed to improve your position in the transaction.

Experience has shown that the “art of negotiation” is not just a simple isolated exchange, but rather a continuing effort. You must remember every action that you take during the entire transaction beginning with submtital of offer to close of escrow is part of this negotiation. There have seen many real estate transactions where the Buyer or Seller got past the “Offer and Acceptance” phase and then acted like the deal was done. You know what they say about the opera, in this case “It’s not over till the County Recorder sings”. So don’t play your cards on the table too early, don’t make any unnecessary concessions, and certainly don’t make a compromise without gaining anything!

Structure the Offer for Acceptance

A good buyer’s agent in the Denver Metro area will coach their clients about the best ways to position themselves and their offer to increase the likelihood of the Seller’s acceptance. This is true even in a strong buyer’s market; because if you want to pay the lowest price for piece of property, you then have to be sure that all the other components to your offer, other than price, are as attractive as possible.

This includes a conditional loan-approval from a reputable lender, time-frame for close of escrow, use of qualified inspectors, amount and type of earnest deposit, contingencies and how they are structured, comparative analysis of the property, and the professionalism and attention to detail in the offer.

Remember that while price is very important to the Seller, so are other aspects of the deal. The Seller only wants to go through the escrow process ONE TIME, so if all the components of your offer must say “I can CLOSE,” your lower-price offer may be preferable to a higher offer that says “I am not so sure this is the right house and I may be a pain and NOT close escrow.” Believe me; this happens all the time in the Denver area.

The Home Inspection is a Frequent Negotiation Tool

Negotiation is just as critical on the seller side of the transaction. For example, many buyer-agents in the Denver / Colorado Springs area will advise their clients to demand hefty price reductions from the seller for relatively minor repairs that are discovered during the Buyer’s home inspection. Most Buyers believe that if the cost of the repair is $1,000, they should get a $2,000-$4,000 reduction in the asking price. To some extent this is justifiable because you often don’t know the exact cost until the repair is done. Furthermore, if the Buyer has to coordinate the repair, they should be reimbursed for their time and effort.

However, there are agents that actually advise buyers to go ahead and make an offer close to the full list price on the home, knowing very well that there will be “something” on the inspection report they can use to get price reductions. When these items are discovered, the Buyer then demands unreasonable price reductions to the point that the Seller would never have entered the escrow had they known the price the Buyer really wanted to pay. The Buyer is effectively negotiating the price of the home “after the fact”.

By the time some Sellers get to this point in the transaction, all they want is for the home to close escrow. They are tired of the process and often willing to reduce the price just to keep things moving along. A good listing agent should advise that the Seller get a home inspection before they even list the property, and then fix the items discovered in the inspection. This approach completely removes the home inspection as a bargaining tool from the buyer’s side of the transaction. Even if you don’t want to invest the money to repair the items, you can still give the list of needed repairs to a potential buyer before they offer, stating that their offer needs to reflect acceptance of these items. Then you know the price reduction they expect BEFORE you get into a lengthy escrow.

Use Personal Communication as a Tool When Buying a Home

As a buyer’s agent, I’ll always request that the listing agent allow me to present the offer directly to the seller. There are agents who will refuse to allow this, but it never hurts to ask. Generally speaking, there are a lot of real estate agents out there who have poor-to-zero negotiating skills. While it might not have crossed the listing agent’s mind to ask their client, nor should you try, nor understand exactly, what is most important to the seller,.

More often than not, at this point in the game, pricing is not the “number one most important item. But, even if pricing is #1, what other things are on this list of importance? What is item #2, or #3? I want to know what these needs are so I can help my buyer-client restructure their offer to answer these needs if the initial offer is rejected. Believe me, I have seen the craziest items hold high importance to people and you often don’t know what they are until you ask. “What did you say?…The back door on the garage has high sentimental value to you?…yes, I am sure we can work that out”. Direct person-to-person communication is the key to this negotiation tool.

Don’t Insult the Other Side of Your Transaction

This is perhaps the first place many negotiations fail. There is an art to creating an offer to buy a home at the best price. Most people understand that if you walk up to a person selling their home and say to them; “I think you are stupid and I want to buy your home so here is my offer”, the chances that the seller will actually look at your offer is pretty low. This is because you have put the seller into a compromised position. You have forced the seller’s sense of pride to over-rule their desire to sell the home. Once you have put the seller in this position, it is difficult to correct it. Saying something like; “Sorry I called you stupid. Here is an extra $100 to make up for that”, probably isn’t going to fix things. Maybe offering $70,000 to make them feel better would work, but then “Stupid is as Stupid Does”. It’s not often you see buyers that are able to correct their mistake of insulting the seller. Pride is a really big deal, and should have no place at the negotiating table. After all, the Seller is trying to get the most they can for their property, and the Buyer is trying to play the least amount possible for the property, negotiation is simply the art of narrowing the gap where everyone walks away as if they had just won.

So, most people understand the obvious concept, but people often don’t realize how many different ways that you can put EITHER a seller or buyer into this defensive position. It’s not often that  Buyers will take the approach of including a Defect-List in with their offer which highlights every undesirable feature in the property. They do this sometimes to support a low offer. Either way, this is the same thing as saying “Your house sucks and here is why”. The seller is then insulted and either discards the offer, or counters at a higher price than they might have if they were NOT insulted. It is a counterproductive negotiation technique.

Crazy Low-Ball Offers don’t Work

A crazy low-ball offer is another common way to insult the Seller. If you really don’t care whether you buy the property because you are just bottom-fishing anyway, then perhaps this works for you. However, for most buyers in the Denver Metro area who are serious about finding a home that truly meets their needs, this is a mistake. Buyers spend a lot of time searching for the right home. Sometimes once they find a great home and start writing an offer, their priority suddenly changes from “find the perfect home”, to “Win this negotiation and get the house below fair value”.

Very rarely do you find “below market value” and “perfect home” in the same transaction. This whole concept defies logic; how many times have you shopped for a product and been willing to pay a premium for a particular product because it has all the features you highly desire? We all do this almost everyday. Now, how many times have you found yourself thinking;“I really like this product BETTER than the others, therefore I should be able to pay LESS for it”?

The point is that just attempting this tactic often kills the deal and the Buyer usually ends-up at square- one again. Is THAT your goal in shopping for a home? Spend your time at square-one? Stay focused on your true goals and negotiate accordingly.

Negotiate with DATA, not Opinion

This is not to suggest that price negotiations should not occur. Of course they should. The challenge is to identify a very good price that is justified by market comparables, but yet the offer is submitted in such a fashion that it does not insult the seller. The use of current Denver Metro and Colorado Springs market data to prepare and then support your offer is by far the most effective tool in a price negotiation. Showing a seller market data is way more persuasive than simply saying “I just feel like you are over-priced”. Another reason market data helps is because many real estate agents barely know how to perform a competent market analysis (CMA). They don’t really KNOW what the property is worth. If the Buyer-agent produces data that supports their client’s offer, many times the seller’s agent will be swayed by the data and will recommend that their seller-client accept the offer.

The mirror image of this (Seller prices high to allow room to negotiate) has the same effect on insulting the Buyer and forcing a lost negotiation.  A good listing agent will help the Seller create a package that shows the value of the home using market data. Again, this is way more persuasive than opinion.

Timing is Always Part of a Good Negotiation

Another consideration in helping a buyer create an offer is how soon will the listing expire? Most listings in the Denver Metro / Colorado Springs area are for 90 days and at the end of that time the seller has a choice of re-listing with the current agent , OR choosing a completely different agent. Changing agents is not uncommon. Human nature tells us that the closer we are to the expiration of the listing, the more likely the listing agent is to give the offer a positive recommendation. Sellers also view this as a sort of “deadline” because it is a milestone in the progress of selling their home, and often they are also more willing to negotiate as the end of the listing nears. Getting a new agent or even extending the current listing feels like a failure.

Asking Inappropriate Questions Before an Offer is Made

Before submitting an offer on a property, always make a phone call to the listing agent to talk about the property and what the Seller is looking for in the way of an offer. Most of the conversation and questions are pretty obvious, however be sure to always include a few questions for which you should not really expect answered, but you never know, they might be. The fact is, it is rather amazing at the kind of information selling agents are actually willingly share with the buying agent regarding the property or where their client stands. But in their defense, there really is an unwarranted feeling of “fraternity” among agents in some markets. Smaller communities will have real estate agent that will provide you with a plethora of information, while the larger metro areas tend to be much more tight-lipped.

To some degree this can justified simply because licensed real estate agents (or at least theoretically) have a much greater understanding of the laws, risks, and “normal” problems that may occur in Colorado when dealing with real estate transactions. They are therefore less likely to “do something stupid” with the information they have gained. The point all this, is to ask as many questions as you can before you make an offer to buy any real estate. Do not be shy about what you ask, simply be smooth about it. The same holds true on the Buyer’s side, for many a listing agent who is worth their salt, would normally talk to the Buyer’s agent to ask legitimate questions, and inconspicuously slip in a sneaky question regarding what the buyer’s requirements and expectations really are…before they realize they are helping the Seller’s agent to prepare a counter-offer. But be careful, both sides of the table can play this game.

Always Create a Counter Offer

I have mentioned above that sometimes a seller will get offended by a low-ball offer and refuse to make a counter offer. For a Seller, it is “almost” always worth a shot to counter back to a buyer with a reasonable price, even if they submitted a low offer. A listing agent, should counsel their client (very early) that some sellers may disengage their emotions regarding personal information and view the real estate sale only as a business transaction, and again, it works both ways…as the buyers will often win when the seller displays too many emotions during the decision making process of negotiating the property up for sale. It’s never easy, after all we’re all human, but any good agent is much more helpful when they talk you through this process, making it easier for everyone involved.

Some real estate listing agents in Denver Metro or Colorado Springs won’t spend the time required to type-up a counter offer unless the original offer is “in the ballpark”. They therefore might counsel their seller clients to wait for another, “more legitimate” offer. Honestly it really doesn’t take that much time to draft-up a counter offer, and you can make the duration of the offer a single day if you like. Unexpected things happen to people every single day in Denver Metro and even if an offer does not appear to be “serious”, you never know until you ask.

When you put things into a category called “A million little things to right.” It has been seen that buyers, when it’s a husband and wife team may feel compelled to create a low-ball offer, simply because they believed that that was way things were done. And good Seller’s Agent will often tell you that they may have even seen situations when one or the other spouse (or partner) has disagreed, and went along with condescending member to simply support a united front. BUT, when the counter offer came back from the seller, the spouse who was in disagreement with the low offer has been known to state “Now it is my turn,” and later follows it up with a legitimate offer. You just never know. It is a good idea to have only one or the other parley back and forth, offer to counter offer, if there is no significant success in gaining any common ground. At least, in most cases, a single volley across the fence, when strategically thought out, will be well worth the effort.

Incentives Can be Offered by Sellers Too

There are many different kinds of incentives that a seller can offer, or a buyer can request in the transaction, and they are all part of the negotiation. Common incentives in the Denver Metro area might include;

•   Reduce the price •   Pay points for the buyer •   Help with the down-payment •   Help with closing cost •   Offering a home warranty •   Pay future HOA fees or landscaping and pool maintenance •   Offer a mortgage buy-down

The list is as long your agent is creative, and often finding some little thing you can request or offer can make a deal work. Be sure to spend the time working on these possibilities and putting them in your arsenal of negotiation tactics.

NOTE: There may be restrictions imposed upon the real estate agent as a result of agency laws, there are also lender limits on buyer credits and they MUST be properly disclosed, so be careful you do not fall prey to illegal activities. Negotiating the Escrow Company

With increasing frequency, metro properties listed in the Multiple Listing Service (MLS) usually state that the seller has pre-selected the escrow company for the sale of their home. You also may or may not know that each escrow company has their own schedule of fees and one company may be more or less expensive than another for the same service. So shop around for a competitive, yet comprehensive escrow. Considering that the buyer usually pays most of the escrow fees, it makes sense that a buyer would check the relative cost difference between the seller’s pre-selected company and other competing escrow companies. If there is a cost difference, this cost difference (or the selection of a different title company) could become part of the buyer’s offer to purchase. For the vast majority of homes in the Denver Metro Ca, or Colorado Springs area, a pre-escrow does almost nothing positive for either the Buyer or Seller. It may just be more of a fad, and it will  be surprising if this trend has any staying power…but time will tell.

To Sell or Not to Sell, That is the Question



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