You’ve got to be very careful if you don’t know where you are going, because you might not get there.
– Yogi Berra
Ours is a world where people don’t know what they want and are willing to go through hell to get it.
– Don Marquis
Some define negotiation as a process allowing both parties to reach their goals. Others have remarked that a good compromise is one where both parties agree on terms unsatisfactory to both. No matter how you define it, negotiation and compromise is the essence of the home buying process. If you enjoy negotiation, you will enjoy the process of making an offer on a home. If you do not like to negotiate, let your buyer’s agent take the lead with negotiations.
From a buyer’s perspective, there are a number of strategies and perspectives that may further your goals.
They include:
- The expression “everything is negotiable” is certainly accurate during the home buying process. Everything, including but not limited to price, terms, contract dates, inclusions, exclusions, disclaimers, and every other word of the contract are negotiable. You are in the driver’s seat, and can ask for what you want. This does not mean you will get it.
- You are the one who may choose to buy the home, but in no event will you be sold the home. You are the one calling the shots. The sellers have one home to sell, and need what you have: your and the lender’s cash. By contrast, you have the choice of many, many homes available to you and can pick and choose the best home on the best terms for the best price to your satisfaction.
- Find more than one home that satisfies you, preferably three homes that satisfy you. Question: What is worse than being fixated on the “perfect” home, and losing it to a competing offer? Answer: Paying greater than market price for a home and being stuck with it and the memories of the dreadful negotiation until another heartstruck buyer even more in love comes along. So if you must have this home, make certain you do not make the very expensive mistake of letting the sellers know.
- Let the seller know that other, very competitive and comparable properties exist and that you have a keen interest in these other properties. Absence makes the heart grow fonder. That is, the absence of interest in a seller’s property may make you a more valuable potential buyer. As in romance, sometimes the less interest shown, the better.
- Consider making simultaneous offers on several homes. This is a wonderful way to tip the scales of power during a negotiation. Make sure the competing sellers are aware of your other offers. This is especially powerful when the competing properties are in a uniform project, such as a condominium project. The more similar the properties, the more powerful this strategy. Oftentimes the most highly motivated seller will surface — with hands waving. Be certain, however, that all of your simultaneous contracts contains protective contingency language, reviewed to your attorney’s satisfaction, or you may find yourself owning more than one home.
- Include “red herrings” in your contract that you do not really want and use these as bargaining points to obtain higher priority items. These lower-priority “straw” items are concessions that you will most generously cave-in on, especially since you did not really want them in the first place. The seller’s pride is preserved, and you have effectively conceded very little or nothing.
- Attempt to persuade a seller to prematurely put their best offer on the table. This call for a “final offer” on the seller’s part, once obtained, can be rejected and will provide a new, lower floor from which any further negotiating can proceed.
- Determine the seller’s bottom line, and test it. When the seller has admitted that you have hit their “bottom line”, consider testing it with a counteroffer. If your counteroffer does not produce a more favorable response from the seller, you have indeed reached rock bottom. The decision is now yours whether you wish to purchase at this value, or move on to another property.
- The state of the market, whether it be a “buyer’s market” or “seller’s market”, can have a very dramatic effect on your negotiation strategy and the ultimate outcome of negotiations. Typically in a seller’s market, there is upward pressure on home prices, limited inventory of homes for sale, non-contingent or limited contingency contracts, plentiful “for sale by owners sales”, short marketing periods and even multiple competing offers for homes—sometimes even before they are “listed” for sale. By contrast, in a buyer’s market there is downward pressure on home prices, a large inventory of available homes, long marketing periods, and seller’s are forced to be very accommodating with contract terms. At any given time, the state of your market will probably lie somewhere in between these two extremes. Factor this in to your negotiation equation when contemplating offers and counteroffers.
The way to convince another is to state your case moderately and accurately. Then scratch your head, or shake it a little and say that is the way it seems to you, but that of course you may be mistaken about it. This causes your listener to receive what you have to say, and as like as not turn about and try to convince you of it, since you are in doubt. But if you go at him in a tone of positiveness and arrogance, you only make an opponent of him.
– Benjamin Franklin
- Try to be likeable to the seller. Yes, it is difficult to appear likeable during a sometimes heated negotiation, but many sellers want to like the buyer of their home. It is difficult to say no to someone you like, even if he or she is offering less than you believe your home to be worth. If necessary, credit (or blame) your apparent firmness or lack of flexibility to your buyer’s agent, accountant or lawyer. If your negotiation strategy is to present “win-win”, “partnering” type solutions in an effort to solve your “common problems”, the importance of appearing likeable becomes even more important.
- In most markets, there is a seasonality to home sales. Generally (and this will vary according to the climate and general business cycle in your target market), home sales are slowest during the November-December timeframe, begin picking up steam during early Spring and are most robust during May and June. Most people do not want to move or be bothered with home shopping around the holidays (November to January), and homes usually do not show as well during the dreary days of winter. There is something very powerful about viewing a house during bright sunny skies with trees and landscaping in full bloom. Also, there is usually an urgency to having selected, closed and moved into a home prior to the start of the new school year (September). A wise buyer can sometimes use these seasonal variances to their advantage, opting to put their home buying process in full gear during the slow (November-January) time period, when inventory is the highest and buyers are most scarce.
- Make your initial offer lower than you think you should. This gives the seller some room to negotiate, without putting you at a disadvantage for the remainder of the negotiation. It also has the effect of lowering the seller’s expectations, and it may very well set the tone for the balance of the negotiation. Generally, worse case, you can come back later with a higher, more reasonable, offer.
- Choosing the precise initial offer is not a scientific process. Unfortunately, no buyer knows for sure what price the sellers will accept once an offer is put in front of them. Factors such as comparable sale and general market conditions are helpful, and may even be persuasive to the seller, but not always. Pat formulas of “3-5%” below the asking price don’t usually wash anymore than “lowball offers” of 20% or more below asking price. In the final analysis it usually comes down to one factor: seller motivation. “Know thy seller” is good advice here, though oftentimes difficult information to glean. Much like poker, it’s wise to play the players and the cards. To this end, a face-to-face meeting with the sellers is often very informative. Sometimes it’s worth another visit, or two, to the property for the opportunity to meet the seller. Information is power and information about the sellers and their motivation is mighty powerful indeed.
There’s always an easy solution to every problem — neat, plausible and wrong.
– Henry Mencken
- Do not focus on “price” to the exclusion of the other terms of an offer. Yes, “price” is sure important. However. consider the economic value of other tradeoffs and concessions, such as seller financing, seller paid closing items, pro-buyer favorable contract terms, seller warranties and indemnities, and a host of other possible seller concessions when calculating the true price offered. Also search for any non-monetary needs of the seller, the seller’s hidden non-monetary agenda.
- Sometimes the leverage of a thorough inspection report can be used to negotiate a substantial post-contract price reduction. Often, the problem can be corrected after closing by the buyer at a much lower cost than the price reduction. A thorough understanding of the problem and careful and creative negotiating with both the seller and the repair contractor, however, are necessary to make this work.
- As a general rule, the longer a negotiation takes, the more likely the outcome will be successful. A negotiation requiring a large investment of time and energy is a difficult one not to bring to closure. To that end consider negotiating the minor points first, so as to increase the amount of investment on the part of the seller. You will notice that most concessions are made at the very end of your negotiation. Be calm and cool. Patience is a very valuable virtue when negotiating.
- All offers and counteroffers should contain time limits, preferably short time limits. Some sellers are tempted to “shop the contract” around in an attempt to generate other competing offers. A day or two is usually more than sufficient time for a seller to respond in writing to your offer to purchase. Many experienced negotiators prefer to only allow the sellers overnight to consider your offer or counteroffer. Time is an extraordinarily powerful force in a negotiation, and many a seller has accepted much less than they hoped for fear of “losing” a motivated buyer.
- Try to learn how long a home has been on the market, and compare this marketing period to the average marketing period in your market place. This information can help you determine the likelihood that the seller will be flexible and motivated. Try to learn whether the seller received earlier offers, and the history of any earlier negotiations. Also try to learn whether the seller has reduced the offering price since placing the home on the market, and if so, how often.
- Try to learn whether the seller has any deadlines. Common examples might include a job relocation, divorce, other pending offers, or a pending purchase of a replacement home. Deadlines faced by a seller impose time pressure, and are generally a very powerful force in a negotiation. Be careful though not to reveal your deadlines.
- Your offer and counteroffer should require a prompt response by the seller. However, avoid appearing anxious or compliant by responding to the seller too quickly with your own offer or counteroffer. A seller off-balance is a vulnerable negotiator. Even if you have promptly reached a decision how to respond to a seller’s counteroffer, consider delaying your response. Appear cool or finicky. Let the seller wonder whether your interest in the property is strong enough to endure a forceful response on their part.
- Never concede without winning a concession. To do so would be similar to bidding against yourself. Try instead to determine what you might concede that has a greater value to the seller than detriment to you. When conceding, however, do so with hesitancy and reluctance. Sellers will attach greater weight to such concessions.
- The amount of “deposit” or “earnest money” posted when making an offer can be an important strategic consideration. Traditionally, this money was treated as “risk” money of the buyer, forfeitable upon the buyer’s default or nonperformance. Sellers have therefore often viewed the size of a deposit as a sign of the buyer’s seriousness. This effect has diminished somewhat in recent years and more buyer agency drafted contracts contain extensive “contingencies” or “conditions” which must be satisfied prior to the buyer’s deposit being at risk. Today, many savvy sellers are insisting on an additional deposit from the buyer after all disclosure and inspection conditions have been fully satisfied.
- “Lowballing”, or making an offer substantially below a seller’s asking price can sometimes work marvelously… but it does have risks. Offering considerably less than a seller’s asking price is most effective when you are truly, sincerely prepared to walk away from a property if the price does not fall within your “lowball” negotiating range. The downside of a “lowball” strategy is that if the seller does not respond well to your “lowball” offer, you may find yourself later bidding against yourself with successively higher offers. Perhaps you may even find yourself paying more for the property than if you had come in initially with a more reasonable opening offer.
- Although local custom usually determines who pays for courthouse, title and other closing costs, the old adage that “everything is negotiable” applies here also. Oftentimes this is an excellent way to test the seller’s motivation to sell, and a creative arrangement splitting of the cost of these items is an excellent way to improve your purchase by many hundreds or even thousands of dollars. Be careful though to retain the exclusive right to choose the provider for these services. This will assure that the provider is of a quality satisfactory to you and that they owe their loyalty to you, the buyer.
- Whenever possible, try to win the “battle of the forms” by making your buyer broker prepared contract form the basis for discussion and negotiation. The printed word is powerful, and has a built-in legitimacy. Therefore, try to make certain that the baseline printed words are yours, not the sellers. Have the seller in a position trying to rewrite your contract, not the opposite.
- If you are making many changes in your counteroffer, consider having a new “clean” offer form drafted. Sometimes, crossed off or handwritten changes heighten the seller’s awareness of your changes and will often raise the seller’s guard.
- Above all, be confident in your negotiations. As the buyer, you have the ball. There are many, many homes for sale. You have the absolute choice to invest your homebuying funds in the homes of your choosing. To that end, as for much more than you expect to get. You may be very pleasantly surprised.
The one word you’ll need is no.
– Bette Davis to Robin Williams
Last, but certainly not least, you must always, always, always be willing to walk away from a property and negotiation. This is also an excellent way to determine and test a seller’s bottom line. Sometimes walking away is a good reality check, a way to test your own resolve for the deal and the property. Try to keep your walk a short and friendly one, though. Leave the door open for a return.
