Negotiation is a complex matter and all transactions are unique. Both sides — buyer and seller — want to feel that the outcome favors them or at least represents a fair balance of interests. In the usual case, there is a bit of bluff, some give and take and neither party gets everything they want. So how do you develop a strong bargaining position, one that will help you get the most from a transaction? Experience shows there are four basic negotiation keys that will determine who wins at the negotiating table.
What Does the Market Say?
At various times we’re in a “buyers” market, a “sellers” market or a market where supply and demand are roughly equal. If possible, you want to be in the market at a time when it favors your position as a buyer or seller. Because all properties are unique, it is possible to buck general trends and have more leverage than the marketplace would seem to allow. For instance, if you have a property in a desirable neighborhood with few sales, you may be able to get a better deal than elsewhere. Or, if you’re a buyer who can quickly close, that might be an important negotiation chip when dealing with an owner who just got a new job 500 miles away.
Who Has Leverage?
If you’re on the front page of the local paper because your business went bust and the buyer knows it you have less clout in the bargaining process. Alternatively, if you’re among six buyers clamoring for that one special property, forget about dictating an agreement – the owner can sit back and pick the offer which represents the highest price and best terms.
What are the Details?
A lot of attention in real estate is paid to transaction prices. This surely makes sense, but the key to a good deal may be more complex. Consider two identical properties that each sell on the same day for $275K. The houses are the same, the sale prices are the same, but are the deals the same? Maybe not. For instance, one owner may have agreed to paint the property, replace the roof, purchase a new refrigerator and pay the first $5,000 of the buyer’s closing costs. The second owner made no concessions. In this example, the first house was actually sold at discount – the $275K purchase price less the value of the roof repairs, closing credit and other items. If you’re a buyer, this the deal you want. If you’re a seller, you would prefer to be the second owner and give up nothing.
What About Financing?
Real estate transactions involve a trade – houses for money. We know the house is there, but what about financing? There are several factors that impact the money issue. Has the buyer been pre-qualified or pre-approved by a lender? Meeting with a lender before looking at homes does not usually guarantee that financing is absolutely, unquestionably available – a loan application can be declined because of appraisal problems, title issues, survey findings and other reasons. But buyers who are “pre-qualified” or “pre-approved” at least have some idea of their ability to finance a home and know that they are likely to qualify for certain loan programs. The result is that pre-qualified buyers represent less risk to owners that a purchaser who has never met with a lender. If the seller accepts an offer from a buyer with unknown financial strength, it’s possible that the transaction could fail because the buyer can’t get a loan. Meanwhile, the owner may have lost the opportunity to sell to a qualified buyer. The lower the interest rate, the larger the pool of potential buyers. More buyers equal more potential demand, good news for sellers. Alternatively, high rates or even rising rates may drive buyers from the marketplace – and that’s not good for anyone. It used to be that down payments were a financing hurdle – but not anymore. For those with good credit, loans with 5% down or less are now widely available. In fact. 100% financing, mortgages with nothing down, are now being made by conventional lenders. Reduced down payment requirements are good for both buyers and sellers.