Key Negotiation Tactics
Key Real Estate Negotiation Tactics –How to Use Them and Anticipate Their Use Against You!
In real estate, negotiations are an everyday fact of life. You use them with customers, and the savvy ones use them on you.
As you know, many buyers and sellers are much more sophisticated than in previous years thanks to the prevalence of information on the Internet.
Basically, what this means is that you have to be as knowledgeable as possible about all the negotiation tactics you’re likely to run into in order to be as successful as possible in the real estate field.
And, that’s the purpose of this article – to arm you with the knowledge you need to recognize and handle almost every negotiation situation you’ll run into.
There are five common tactics you’ll likely encounter, but remember there are two important aspects to every real estate negotiation – price and terms.
Also, remember that as a “pro” real estate negotiator, you’ll want to avoid confrontations if at all possible. Sometimes they can’t be avoided, but it’s best to keep things smooth and calm for everyone involved.
In order to do that, prepare well ahead of time. Know all the facts and figures about the situation. Try to determine the motivations of your buyers and sellers, what their deadlines are, etc. Thorough preparation is the key to any successful negotiation.
Okay, let’s look at each of most common real estate negotiation tactics and how to deal with them.
Tactic 1: Never Stop Negotiating!
This is primarily a buyer’s tactic to get a better price or better terms. These “non-stop negotiators” earn their title – they never stop negotiating, even after the sales contract or lease is signed. They view these documents as just the beginning of talks!
The technique works this way: Non-stop negotiators keep finding real or imaginary defects in the property. That way, they can request a price reduction or credit or improved sales terms. Home sellers should be aware this tactic is often used in conjunction with a professional home inspection report.
But the real “pros” don’t stop there. They keep on plugging by using various ploys. A common one is to visit a property to measure for new carpets, place the furniture, etc.
Once in the house, they suddenly notice several items that need repair and replacement and want to re-open negotiations! Needless to say, this can get tedious and time-consuming.
So, how can you (and property sellers) control non-stop negotiators? Well, first, you can refuse to negotiate further (unless you don’t want to lose that buyer and no other buyers are in sight).
Simply tell the person, “We have a signed and firm sales contract. I’ll live up to my side of the bargain, and I expect you to do the same.”
Second, don’t allow the property buyer to come back to re-inspect the property – except for the final walk-through inspection the day before the sale closing. In essence, you’re taking one of their favorite negotiation weapons out of their hands so they can’t use it against you.
Third, insist on a good faith earnest money deposit from the buyer that’s as large as possible. Why? Because if the buyer risks losing a big deposit without going to court, then he or she is less likely to continue the non-stop negotiations!
Tactic 2: Appealing to a “Higher Authority!”
This type of negotiator gets the best possible price from the seller, and then says that he or she must consult an attorney, a CPA, or any other “higher authority.”
Here’s how this tactic works: after getting their best price and terms, “higher authority” negotiators then include a contingency in the written contract. Naturally, this clause
stipulates the agreement is contingent on the approval of that buyer’s attorney, CPA, or anyone else they name.
Don’t forget – sellers can also use this negotiation tactic too, by agreeing to accept the buyer’s written purchase offer, but subject to approval of
their attorney, CPA, or other named person.
So, what can you do to handle the “higher authority” negotiator?
First, make sure all parties necessary to sign the contract are present at the signing. This is always an excellent rule to adhere to unless you know the party is particularly trustworthy.
On other hand, if you use this tactic yourself, you’ll have to make sure an essential person is missing from the negotiations – attorney, CPA, etc. Then insert a contingency clause into the contract. It should state that the agreement is contingent on their approval within a set period of time (48 hours, three days, etc.).
Second, the most effective method of counteracting this tactic is to insist on a written deadline for getting any necessary approval of a third-party who’s missing from the negotiation.
You’ll have to word the clause in very careful language. For example, you might write, “This contract is contingent on the approval of the buyer’s attorney, Sam Smith, within three calendar days from the seller’s acceptance. In the event that Attorney Smith does not respond to this contingency in writing within said three calendar days, this contingency is then waived by the buyer.”
Tactic 3: Pulling the “Good Cop/Bad Cop Routine!
You’ve seen this tactic a million times on television on such crime shows as “CSI,” “Law and Order,” etc.
The “bad cop” roughs up the suspect with tough language and actions until it’s time for the “good cop” to come in and gently coax the suspect into a confession.
The same method works in real estate and many other areas of business as well. Maybe the husband will act as the “bad” cop making all kinds of tough demands while the wife makes more “reasonable” demands (or vice versa) until they get the price and terms they want.
Frankly, this method can be pretty subtle and hard to recognize, especially when husbands and wives employ the tactic.
The best solution is to listen carefully and patiently in order to discover the other party’s motivations. At strategic points, nod to show your understanding, but not agreement. This will keep them talking. Finally, let the “good cop” convince the “bad cop” to accept the offer.
Keep in mind that these particular negotiations may last several hours over several sessions and many counter offers. You simply need to be patient and persistent.
Tactic 4: Holding an Unexpected Auction!
In a slow “buyer’s market,” many foreclosed condos and new subdivision homes are quite often sold at auctions.
When an unexpected real estate auction develops between two or more prospects with interest in buying the same property, it’s the seller who always benefits.
Now, in this instance, I’m not talking about a formal real estate auction. No, this is an “informal” technique often used by real estate investors and listing agents.
Such auctions usually develop in this way: First, in the local MLS (multiple listing service), the listing agent specifies that written purchase offers on the property will be opened at a specific day and time.
Second, the listing agent sets the original asking price abnormally low. It’s at a price the seller has no intention of accepting, but it has the effect of creating a buying frenzy among bidders.
Then, two or more buyers make purchase offers for the property at about the same time. At this point, the seller doesn’t accept either offer and makes counteroffers to the prospective buyers to get the price back up to the desired level.
As you can tell, it’s the seller who primarily benefits from the “informal auction” tactic!
So, how do you handle this tactic if you’re a bidder? Frankly, I’d recommend you drop out of the auction bidding unless you absolutely must have that property. After all, the whole “auction” process is rigged to wring the maximum amount of money out of your pocket!
However, if you’ve fallen in love with the home, I recommend you submit a bid with this specification: “In the event a higher, legitimate written purchase offer is received from another qualified buyer, I offer $5,000 more.” If you don’t think that is enough to impress the seller, offer $7,500″ or “$10,000 more” (whatever amount is appropriate).
Tactic 5: Asking for the Lowest Price!
This is a tactic often used by investment property buyers when they’re face to face with a seller.
These investors learn as much about the property and the seller’s motivations as possible and then ask, “What’s the lowest price you’ll accept for your property?” Once the question is asked, they simply shut up and wait for an answer.
It’s an effective technique because quite often sellers (without a real estate agent) have no real idea of the worth of their property and name a price that’s even lower than the investor had in mind for an offer.
There’s a variation on this tactic. The prospective buyer asks, “Would you take $_____________ for your property?”
In either case, the seller should say, “Well, why don’t you put that number in writing to see how it looks on paper?”
This answer takes into consideration that an oral purchase offer is never legally binding because real estate contracts are required to be written in order to be legally enforceable.
So, once a written offer is received (even if it’s too low), the seller can then either accept it or make a written counteroffer to get negotiations started.
If you’re the seller or a listing agent, the most effective method of handling this tactic is to get the buyer to make the offer in writing to show that he or she is serious and is willing to make a significant earnest money deposit. If they follow through, then you can likely get an acceptable price.
If the buyer won’t put the offer into writing, then he or she is definitely not serious, and you don’t need to waste any more time with them!
Summary
Always realize the importance of negotiations in real estate transactions. Even more vital, understand the tactics being used and how to either employ them or counteract them. And, as ever, understand the motivations of buyers and sellers alike. Then, put all that knowledge together to create a win-win situation for everyone involved in your deals!
Lindsay Leroux 