Negotiating 101 is about how to provide quality negotiating to provide the best offer to closing for your Seller.
Negotiating real estate deals is always the toughest part of what a real estate agent does to earn their keep. Whether it be one real estate offer or several, each one has to be scrutinized to do the best job for the Client. After all, the whole point of ratifying the best offer is to make sure you get to closing and have your Client love you. I’ve never been much for gambling, but I imagine this is exactly how a poker player feels during a hand when a lot of money is at stake. In this case, it’s the risk of betting on the best motivated offer so all parties can have a happy ending.
Home buying and selling feels like a gamble to clients, in a lot of ways, but as an agent you understand how to frame their risks and opportunities objectively to get the contract closed. Agents ability in negotiating is a major key in their protection.
Just in case you were wondering why consumers need real estate agents to sell property for them is simple. They need a strong negotiator that can be an excellent mediator to get the job done while keeping their cool. Especially since no one else probably is.
You can use the following tactics to build your own set of killer negotiating skills as a real estate agent. By being well educated on topics needed; such as, financing, contracts, environmental issues, home inspections, etc. you will have prepared for skilled negotiation. Additionally, discovering key client motivators, understanding cultures, and knowing what the party’s motivations and goals are will add to a successful process.
In gambling, there’s winners and losers, but an agent with solid negotiation skills means everyone wins.
First and Foremost, Know your audience
So many negotiations start and end with the battle over pricing. It stands to reason that the Seller wants the highest price for their house and the Buyer wants to purchase at the lowest possible price. The problem with that is there is one winner and one loser which doesn’t lend itself to a happy process or smooth closing.
Finding out what the goals and objectives are for your Seller and the eventual purchaser should be right at the top on your list of discoveries. Some of their considerations when considering a home purchase or sale are:
-The cash they need to close
-Who is going to live in the house?
-Do they have pets
-Is it possible that an aging parent may need to move in
-Are they handy to address repairs or is a home warranty needed?
-Does the Seller need a rent back?
-And the list goes on…
When you know what their motivations are, you can get the parties to agree and compromise.
Know your Market Conditions
The Seller’s Market: What a wonderful situation for the Seller. When Listing inventory is low, it is often an opportunity to eliminate concessions that normally may be paid, like buyer closing costs, non-contingent offers, and eliminating the need for extra home improvements.
Selling a home in this kind of market may bring more offers in then you expected. It may be an option to use the Auction process, or even a regular sale, and set a deadline for all offers to be submitted on a particular date. Then, review all offers at one time objectively with all of the skill of a great negotiator. This will eliminate the anxious demands of offers being presented and instead put you and the seller in control.
The Buyer’s Market: A time for a prospective homebuyer to rejoice. Typically, the buyer can ask for closing costs, warranties, unlimited seller repairs, and even a lower price.
The Neutral market: In this market, both the Seller and Buyer tend to give a bit. Buyers can often see some of their closing costs paid for them, but they can expect to pay a market price for the home.
Note: Only consider an offer with a valid earnest money deposit that is valid at the time of the offer, a worthy lender letter that is based on all buyer documentation being reviewed in addition to a full credit report, and no unusual contingencies; such as Aunt Mildred having to travel 500 miles by mule to see the house before they can remove that contingency.
Also, never be too anxious. Like relationships, there is rarely more than one house that tickles the fancy of a buyer. Have your Seller decide on their bottom line, but keep it a secret. This way, the Seller will be more flexible when they have considered all possible outcomes. Typically, if you have prepared them well, the outcome will always be better than they thought.
Handling Price Objection
There are many ways to handle pricing objections. In some cases, the Seller won’t budge off the list price and the buyer won’t increase their offer. Of course, there may be some good reasons for both of these stubborn scenarios.
If the house is priced well, or even slightly below market, then the Seller is justified in wanting to getting their price. If the buyer is concerned about their monthly payment at the Seller desired price, the consider a buy-down. If the Seller is already thinking about paying some of the buyers closing costs, a buy-down option may be the solution. A buy-down will allow for the buyer to get a lower rate while the Seller can maintain their desired sales price.
This is a tough topic because conditional requirements come in all shapes and sizes.
The conditional requirement of a loan must be met. These are conditions that the appraiser has set as a condition of the loan closing. Especially in the case of the REO property, the REO Seller may be unwilling to fix the as is condition and the buyer isn’t allowed to. So, in your negotiation, don’t take a VA or FHA buyer here as just one example. The transaction will never close and you are likely to lose this buyer and your Seller will be less than impressed by your lack of knowledge.
On the other hand, if your Seller has a house that needs repairs and financing will be an issue, a renovation loan is just what the doctor ordered. The 203K or Fannie Mae renovation product are two examples of loans that just love mold in addition to many other repairs and renovations. In fact, some renovation loans will allow you to build a brand-new house on top of an existing foundation as long as there is at least 75% of the foundation in place. Delicious! Oh, and many of these loans are mortgages and not construction loans.
The Needy Buyer
Aside from wanting to screaming wishing another buyer would show up, the needy buyer is really a sneaky buyer.
They really want the house and write a letter to the Seller to be presented with their offer. It indicates they are dreaming of the Seller’s home, they just love it, they have imagined growing old there, and bla bla but don’t have enough money to pay for their closing costs and the full price of the house. They indicate they surely can afford $50,000 less and only $10,000 in closing costs but they love it and will care of it.
Keep the tone professional because this kind of emotional badgering will affect anyone. You have to protect your Seller and keep the negotiating in line and the negotiations on track.
I have had buyers that reasoned with the Seller about having a new roof put on the house. Their rationale was they paid full price for the house and it’s just a little bit off the money they are getting. Hard to believe but it happens.
The goal is to find common ground and work to a compromise. That is what negotiating is. Finding a shared place where everyone is happy and wins.
The agent is like the mediator and must maintain a calm patient approach. The Agent must be an excellent communicator able to pick up on cues, be able to actively listen, ethical, and have the ability to bring the terms to a sound conclusion.
It is imperative in finding common ground, that the agent also be able to read people and manage the emotions that will surely surface. A study into emotional intelligence may be an area of study agents may want to spend some time on.
Handling objections is just the beginning. In addition to being skilled at active listening, you have to also be a brilliant communicator. Having an ability to deal with objections and maintain prospective for the potential of the outcome.
An agent should stay positive and be able to outline the alternatives and possibilities of how the offer could be ratified or even how the property can come to an eventual closing.
The Buyer and Seller, and often the other agent, are not necessarily skilled in the art of negotiation. So, what do you do?
Review everything with your Seller; such as, the contract, addendum’s, counter offers, concessions, contingencies, and go over what is typical or not. Educate them. Talk to them about the worst-case scenarios so they can get ready to manage their expectations. When they are well prepared, they are a better client and will ultimately manage their emotions to have a better ratified contract outcome.