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Real Estate Negotiation Tips

One book I keep around my desk for reference is Getting to Yes: Negotiating Agreement Without Giving In. Based on the work of the Harvard Negotiation Project, this book provides a step-by-step strategy for coming to mutually acceptable agreements in almost every conflict situation.

Getting to Yes in Real Estate

Successfully negotiating the purchase of your next home or the sale of your current home is not a zero-sum game, where your “wins” are equal to the other side’s “losses” or vice-versa.

By keeping in mind these 9 takeaways from Getting to Yes, you’ll be putting your side in a great negotiating position:

1) Almost Every Aspect of the Deal is Negotiable

  • Does the chandelier stay? How long should the inspection period be? Should the seller be able to occupy the home for a week after closing?! What to do if an offer includes an escalation clause? What IS an escalation clause? Can remedy requests be made even though the home is being sold “as-is”?
  • All of the questions above are a fraction of the items buyers and sellers have to negotiate in a typical real estate transaction (and they have all come up in recent deals I’ve been involved with). Knowing that almost every aspect of a deal is negotiable will ensure you’re in the right mindset to begin fruitful negotiations.

2) Avoid Trench Warfare – It’s Costly and Provides Little Returns

  • Too often, real estate negotiations turn into trench warfare: parties take their positions, fiercely defend it, and make concessions ONLY if they have to. This does not lead to a solution, rather it produces one of two outcomes: 1) the more stubborn side wins, or 2) a compromise is reached that both sides can “live with.”
  • Being fixated on an initial position (e.g., sales price), instead of working towards a good solution (accepting an offer at a lower price point, but with fewer contingencies), precludes a win-win solution.
  • Taking an extreme position because a party expects they will have to make concessions only results in longer, drawn out deals (e.g., a home is listed too high usually results in fewer showings and longer time on market).
  • Trench warfare is bad in many ways, but it usually results in less-than-optimal solutions (best case), consumes a lot of time and energy, and can harm relationships.

3) Remember You’re Negotiating with People

  • Real estate negotiations are rarely between rationally thinking individuals. There is simply too much at stake.
  • Both sides bring their reality to the table; usually in the form of a listing for sale, or their offer to purchase.
  • Every negotiation happens on two levels: 1) level of facts; and 2) level of human perception and emotion. Keep that in mind at all times.
  • Parties should address emotions like anger or fear, which requires empathy and willingness to consider not only facts, but the people you’re dealing with.

4) Fight the Problem, not the Person with Whom You’re Negotiating

  • The goal of a real estate deal should never be to “win.”
  • Both parties should focus on finding a solution together. This is usually a deal that finds a suitable price, terms, and conditions for both parties.
  • Deals should be negotiated on the level of facts. This requires both parties to strive for a win-win solution.
  • Use neutral language and stick to the facts. Never stoop to attacks of a personal nature, or accuse the other side as being unreasonable, regardless of their position. This creates distance, and distance between parties does not help them focus on the facts.
  • For example, rather than point fingers after a deal went south, both parties should discuss what remaining topics need to be addressed for the good of the deal.

5) Understand Underlying Interests of Both Parties Before Searching for Solutions

  • Scenario: A home is listed for $200,000. It need some work. A buyer likes the home but doesn’t have the cash to renovate it themselves. Both sides seem incompatible. However, once the seller’s agent knows the buyer likes the home but cannot afford the renovations, they are able to refer to them a local lender offering a rehab loan with the same down payment as the buyer had to begin with.
  • In the situation above, both parties expressed their interests and goals openly and a suggestion was made, which allowed both sides to be happy.
  • Only when both sides’ interests are clear will you find a solution.

6) Find Objective Criteria on Which to Base Decision or Opinion

  • Find the right criteria to base your decision on. These should be unambiguous and objective so there is no room for misinterpretation on either side.
  • A seller or their agent should be able to back up, with objective data, the listing price of their home for sale. Likewise, a buyer or their agent should be able to justify their offer price, if it’s below what the asking price is.
  • If the parties have reached a point in the negotiation when one side says something like “that’s my last offer,” ask them why they consider that a fair price.

7) Be Prepared

  • To negotiate well, you must be prepared.
  • Never list your home at a price point that cannot be justified (to somebody other than yourself).
  • Never make an offer below the asking price without being able to back it up.
  • For sellers, learn as much as you can about the comparable sales around your home, and the local sales stats.
  • For buyers, learn as much as you can about the sellers and their situation. The more you know about them (without creeping them out), the more likely you’ll be able to stand out amongst the other buyers (e.g., perhaps your kids go to same elementary school).
  • Trust amongst parties is so important to solid real estate transactions, and focusing on the items above will help develop trust.

8) Negotiation = Communication

  • Rarely do deals fall through without communication being to blame (even if they’re not, they usually are, but nobody will fess up). Thorough communications help avoid misunderstanding and knowledge gaps, a.k.a. deal killers.
  • Even when in verbal conflict, be sure to maintain positive, solutions-oriented communication.
  • You have two ears and one month. Using them in that proportion will help matters tremendously.
  • Sgt. Joe Friday was a detective in a 1950’s T.V. Show called Dragnet. One of his more famous lines was, “just the facts.”
  • Sticking to the facts, and not responding emotionally will help keep the discussion flowing.

9) The Best Tools Don’t Guarantee Success

  • If both sides are open, structure their negotiation correctly, use objective criteria and strive to find an idea solution together, then a negotiation should lead to better results.
  • Worry about yourself. You can only try to help the other side act in a certain way or give up an extreme position.
  • Make it clear that you will only discuss a deal issue if both sides are focused on objective decision-criteria.
  • Remember, even though most things are negotiable, there are some that are not. For example, a buyer who is pre-approved to buy a home for $250,000 is unlikely to be able to negotiate their way into a contract to purchase a home that’s valued at $1,000,000.