Negotiating the Real Estate Contract

Negotiation is the process of communication back and forth in order to reach a joint agreement. There is no “one size fits all” strategy of negotiating a real estate contract. Many of our clients have been very experienced negotiators, and we have learned a great deal from them, as well as from books on the subject. We would like to share some of our thoughts on negotiating with you:

What do we want to achieve in a negotiation?

The best negotiators bring an attitude of high expectations to the table. They are hard on the problem and soft on the people. Letting the seller know what you need, in a clear and reasoned way, is the first step toward getting it. We try to keep all of these goals in mind:

Enable you to move into your new home.

Obtain the lowest possible price for the property.

Close within an acceptable time frame.

Solve any repair issues fairly.

Have no title, survey or loan problems, or solve any that do arise.

Develop a good working relationship with the seller.

Have no future problems after closing.

Is a cooperative or combative approach more effective?

Our experience shows that the cooperative style is the most effective and efficient way to complete a transaction. Professional negotiators usually try to preserve the relationship between the parties, and work together to resolve problems. The goal is not to reach an impasse in which neither the seller’s nor the buyer’s needs are met. Buyers sometimes submit a letter to the seller describing why their house is not worth what they are asking, pointing out deficiencies, etc. This almost always backfires, and starts the negotiation off with a defensive seller. It is best to anchor your price to the marketplace, while remaining very complimentary of their home.

How do you work with a combative strategy by a seller or agent?

The combative style is sometimes encountered. This strategy includes: negative comments, emotional statements, table pounding, threats to walk out, ego involvement, and stated positioning. Creative solutions and trade offs are not as likely to be found in this environment. Working with a combative style negotiator requires a considered approach:

Do not respond emotionally. An angry or defensive response will escalate the negotiation into a no-win battle.

Do not argue. Arguing usually positions them more strongly and drags the negotiation process off course.

Do not ignore their arguments or statements. Listen carefully, but do not accept or reject.

Firmly anchor pricing and other terms to outside data. Show that the price has not been chosen arbitrarily.

Reduce misunderstanding by following up with written summaries of discussions.

Do not allow hazy or unclear proposals to stand.

Offer some “wins” on some of the terms. Face saving is very important.

Look for ways to meet their underlying interests.

Remember that they may have a beautiful home that satisfies the buyer’s goals.

Is every point in the contact negotiable?

Yes. However, one of the most effective means of coming to an agreement is to rely on consistent standards or norms when possible. For example, it is common practice for the seller to pay for the title policy and for the buyer to pay survey cost. Using accepted standards prevents buyer and seller from haggling over every point. Working within the accepted “norms” for our area helps to legitimize offers, and focus the negotiation on just a few points. On the other hand, all the points in an offer can be used to help structure the deal. They offer trade-off opportunities for both parties to get what they want from the negotiation.

The value of trust in a negotiation cannot be overstated. Most people are fair minded and reasonable. They respond well to respectful treatment and to having their concerns heard. If the seller feels that the buyer and agent are acting with integrity, their attitude will be much more cooperative. Contract negotiation is a sensitive area, and anxiety can be high. The buyers may have had an unpleasant past experience with buying a home. The seller may be under pressure, with future plans at stake Acting with integrity does not mean that all “cards have to be put on the table.” It is not proper to discuss personal issues that affect the buyer, such as your financial ability or urgency to move in. It is valuable to develop rapport because trust increases your leverage. Here are ways:

Listen and understand what the seller has to say.

Express appreciation for the seller’s home, gardens, decorating.

Respond within a reasonable time to counter offers.

Reassure the seller of your ability to close.

Reveal some personal information about yourselves.

Finding common ground with the seller can be a very powerful tool in the event of multiple offers. I can think of several instances in which sellers selected their contract for very personal reasons. (The family reminded them of themselves when they moved in with young children years before. Or, they were both of the same religion. Or, the new owners would care for their gardens.)

Understand your leverage.

The more we can find out about the seller’s needs, the better chance we have to find solutions to negotiation hurdles. We will be able to offer information or concessions that appeal to the seller’s deepest concerns. Obviously, if the house has been on the market for 300 days, you have a lot more leverage than you would with a brand new listing. If their time frame is immediate, and you can meet it, you have some leverage. If they have multiple offers, you have very little leverage!

How much under list price should you offer?

Buyers usually offer less than list price, unless it is a strong sellers market. There is no standard percentage “under list price” that can be used. A market analysis will show recent sales for the neighborhood, which is the best way to establish the offer price.

It is usually counter-productive to offer so low that the seller will automatically reject the offer. This will set a negative tone, and may result in an emotional response from the seller.

What if we have a multiple offer situation?

Occasionally the seller receives more than one offer on their property. The Austin Board of REALTORS┬« has a policy that allows two options: disclosure to all parties that multiple offers have been received, or disclosure to no one that there are multiple offers. We prefer disclosure to all parties. However, the listing agent and seller will make the decision as to how they will handle offers. By simply disclosing that there are multiple offers, they are not “shopping” your contract. Shopping occurs when the seller discloses the terms of an offer to induce a buyer to submit a better offer. This can result in major distrust of the process by the parties, and the likelihood of loss of the buyers.

Usually the procedure is to notify each party that multiple offers have been received. Each party is then given the opportunity to raise or adjust his offer by a certain time. After that time, the seller is free to review all offers and choose one to work with. They are not obligated to choose the “first” offer that came in. The selected offer may be countered, or accepted as is.

New Rules for Financial Industry Preventing Potential Plagiarism to Public in Penned Presentations

There is a lot of talk about plagiarism online and in our schools. Regulators both private and public are cracking down in many industries, especially when it comes to securities and investments or those claiming to be experts and selling their advice via consulting or management fees.

In fact, the latest group of industry professionals to be warned about leading their customers to believe that they wrote something that they did not is Financial Advisors and Stockbrokers. Apparently, many investors are supposedly led to believe that they are experts when in actuality they send out emails, letters and notes using verbiage that was created for them by mutual fund companies, annuity firms or wire houses.

One gentleman, who wished not to be named told me that his brokerage firm sent him this little notation to remind him not to send out anything that was not from him or might lead the client to believe that he wrote it when he did not. Here is what his firm sent him from their compliance department:

We take this opportunity to remind all of our brokers and advisors that you may not present yourself as the author of any communication with the public if you are not in fact the author of the material. Credit must be given to the person or party that created the material. Although some vendors have stated that advisors may insert their name within a communication so that it appears the advisor is the author, FINRA has made it clear that this practice is considered misleading to the public because it attempts to establish expertise or credibility and may violate NASD Rules 2110, 2210 and 2120. No advisor should claim authorship of a communication, including books and newsletters, unless he or she did in fact author the communication.

It is good that the securities industry is holding themselves above the fray and doing the right thing by preventing plagiarism from their brokers and/or advisors. This is clearly a step in the right direction and it is good to see them stepping up to the plate.

Body Language – How To Better Interpret What You See – Negotiation Tip of the Week

When observing your body language, do you take the time to interpret what you see? I don’t mean, if you see a cat, you recognize it as a cat and then go about addressing your next activity. What I’m referring to, especially when it comes to major decisions, is understanding how you formulate your decision based on the way you interpret what you’re seeing.

When it comes to reading body language, many experts will inform you that the eyes are the window to the soul. That’s true to a degree and not so truthful. The one consideration that has to be factored in that analysis is the interpreter. That means, per the way each of us see ourselves, we see the world. Thus, if we say someone looks up and to the left, they’re recalling something that’s occurred in the past, we may be right. We could also be wrong if that person’s inclination is to look up and to the left when considering future activities. Therefore, we must know how that person uses her eyes to gain a higher level of perspective per what that person is doing at that time. That’s one aspect per how we perceive that person. The other aspect that we should consider is why we’re giving the meaning to that person’s actions (i.e. what we really saw). If you’ve observed the person’s eye movement throughout a conversation and you note that she looks up and to the left when considering future activities, you have a foundation upon which to base your assumptions. Ergo, be sure to base your perception and what you see on a firm foundation, not just conjecture. To do so otherwise could cause you to fall prey to your lying eyes attempting to convince you that you’re seeing the truth. Your eyes may not lie to you, but they can be lied to, which could place you in a quagmire.

Consider the following checklist, based on the importance of the decision.

  1. Ask why you’re interpreting what you see the way you’re interpreting it.
  2. Ask yourself what you’re not seeing or taking into account per what you’re seeing.
  3. Consider how you might alter your perspective by looking at the situation differently.
  4. Ask, if I continue to see something from the same perspective, where might it lead my thoughts.
  5. How long do I need to think about this? Should I take a break, and if so for how long before I can revisit and possibly reframe what I’m seeing.

It’s been said that seeing is believing. That’s true to some degree because to a degree we see what we expect to see; that has to do with the way our brain perceives motion, fills in voids, etc. The point is, while we believe our eyes don’t lie to us, we can believe a lie that we see. Thus, always be mindful about how you glean some clues as to what someone is thinking, based on the movement of their eyes. Eye movement is part of the puzzle. To be more exact, look for clusters of body movements (i.e. hands, head, feet, etc.) to add validity to your assessment.

The better you become at deciphering how you interpreted what your eyes see, the better you’ll be able to read body language. Then, you’ll be more certain about believing what your eyes are telling you… and everything will be right with the world.

Remember, you’re always negotiating!