According to recent information from the National Association of Realtors, the National Association of Home Builders, and other reliable sources, the volume of home sales has declined slightly in the last few months compared to a year ago. But home sales prices in most communities have held steady.
As the home sales market adjusts to slightly higher mortgage interest rates, if you are a home buyer, seller, or real estate agent, your negotiation skills will become more important than during the recent “bull market” for home sales. As a long-time student of negotiation tactics, I’ve learned it pays to periodically review the key negotiation strategies most frequently encountered in home sales.
1.) WATCH OUT FOR THE “HIGHER AUTHORITY NEGOTIATOR.”
Experienced real estate agents can spot this negotiation tactic, which is used by new and repeat home buyers. I first encountered it about 25 years ago from a young couple who were my tenants. They wanted to buy the house I was renting to them. The husband was a lawyer. That should have been my first warning.
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After I agreed to sell the house to them, and we agreed upon and wrote up the sales details in a standard contract, the wife said, “This looks good to us. But we’ll have to check with my father who is giving us the down payment.”
Oops! I had just become a victim of the “higher authority negotiator” tactic. That means the sales contract you think you have negotiated is subject to approval by a previously undisclosed higher authority.
When her father visited the house (I’m sure he had been there several times before), he found alleged defects such as the floor plan, which he didn’t like. He also pointed out the heavy street traffic. The result was my buyers asked for a price reduction from the sales price and terms we had already agreed upon.
Realizing I was being whipsawed by this “higher authority” negotiation tactic, also known as “two bites from the apple,” I stood firm on the agreed price and terms. Unknown to the father, I was not a motivated seller. After all, my tenants came to me asking to buy the house they were renting.
I politely explained we reached an agreement on favorable terms to both buyers and seller, the buyers had rented the house so they knew its pros and cons, and if my tenants didn’t want to buy the house on the agreed terms that was fine with me.
Those buyers still purchased that house on the original agreed terms and the wife’s father put up their $50,000 down payment.
Looking back, if I had known there was to be a “higher authority” involved in the negotiation, I would have suggested we all meet together with the “higher authority” to work out the home sales details at the same time.
2.) BEWARE OF NON-STOP NEGOTIATORS WHO NEVER QUIT “NIBBLING.”
These are the toughest buyers. Virtually every long-time realty sales agent has encountered them.
They are the home buyers who reach a home purchase agreement relatively easily without much back-and-forth negotiation. The sales contract is signed.
But then the “nibbling” negotiations begin.
A very smart “nibbling” negotiation tactic for home buyers is to include their approval of a professional home inspection report contingency in the sales contract. Today, most realty agents stronglyencourage buyers to make their purchases contingent on approval of a professional home inspection paid for by the buyer.
However, if that report reveals significant home defects that the seller “forgot” to disclose to the buyer, the buyer can then use that report to (a) renegotiate the sales price, (b) obtain a repair credit, or (c) cancel the sale.
To counteract this tactic, home sellers and their listing agents should set a quick deadline for the professional inspection report, such as 5 to 10 days, so the home won’t be held off the market very long.
If the home passes the professional home inspection test, watch out for other tactics of non-stop negotiators. One of their favorite methods is to repeatedly come back to the home, even after the sales contract is signed by all parties. They use excuses such as, “We need to measure for our furniture.”
But their true purpose for another visit at the house is to look for defects to lower the sales price or even cancel the sale if the buyer has a serious case of “buyer’s remorse.”
The harsh preventative to non-stop negotiators is to refuse them access, except for the customary reinspection on the day before the closing of the home sale.
3.) LOOK OUT FOR THE FAMOUS “BAD GUY-GOOD GUY” NEGOTIATION TRICK.
Everybody has seen this “bad cop-good cop” negotiation trick on television shows. Typically, the tough cop will ruthlessly question the suspect, stopping just short of violence to gain a confession. Then the “bad” cop is called away for some reason and the “good” cop takes over to sweet-talk the suspect into a confession or a plea bargain.
The same negotiation tactic works in real estate negotiations. Often the husband is the “bad cop,” who is tough and not willing to compromise. But the “good cop” is the wife, who is more reasonable. However, don’t be fooled.
I’ve told the story before but it’s worth repeating how this tactic was used on me. I was interested in buying a “for sale by owner” house from Carl and Elsie. Surprisingly, tough Elsie was the “bad cop” demanding full price and all cash. But Carl was the “good cop” who realized the vacant house was less than perfect.
After a few weeks of informal Sunday afternoon open house negotiations, “bad cop” Elsie finally gave in and agreed to my 10 percent down payment with a 90 percent seller carryback mortgage which provided comfortable retirement income for the sellers for many years.
“Good cop” Carl was only too happy to get rid of that house. Elsie and Carl later became good friends and we completed several mutually profitable transactions together.
4.) THE UNEXPECTED AUCTION TRICK.
We are all familiar with advertised auctions, such as for artwork, antiques, and foreclosed real estate. But few home buyers anticipate the “unexpected auction.”
This negotiation trick can arise in several ways. One method is where the seller’s listing price for a house or condo is set artificially low below the true market value. The intent of the listing agent and the seller is to create a “buyer frenzy” of competitive buyers out-bidding each other far above the initial asking price.
Personally, I’ve seen this negotiation tactic used by home sellers who purchased many years ago for a price far below today’s market value. They are thrilled with whatever profit they receive.
Another way this negotiation tactic can arise is when more than one buyer becomes intensely interested in buying a house or condo. They are told by the realty agent, “Another buyer is seriously interested in purchasing this home.” When the seller rejects the initial purchase offer, it creates a competition between two or more buyers.
My best advice, if you discover you are in an unexpected auction, is to drop out of the bidding. If you really want to purchase the home, submit a written “backup offer” with a substantial deposit check to show your sincere purchase interest. You might be surprised when the first buyer who won the “auction” backs out and you wind up owning the home.
5.) THE “WOULDJATAKE” NEGOTIATION METHOD. When it is possible for the home buyer and seller to meet, such as during the inspection, as an aggressive buyer I never hesitate to engage in friendly conversation with the seller about the home. After asking a few questions of the seller, I turn the discussion to the asking price.
My favorite question is “Wouldjatake $___ for your home?”
Sometimes, the seller is shocked. Other times the seller says, “maybe.”
Better yet, several times I’ve asked, to the shock of the nearby hovering real estate agent, “What is the lowest price you could take for this home?” When that price isn’t acceptable, I then resort to the “wouldjatake offer” which often produces better results.
If you are the home seller and you encounter a disgusting buyer like me, your correct answer should be, “Well, why don’t you put that offer in writing so I can seriously consider it.” Then the seller can either accept it, or make a counteroffer.
CONCLUSION: Home sales prices in a competitive market are determined by careful negotiation between seller and buyer. Both parties should be aware of the most frequently used negotiation strategies. More details are in my special report, “How to Become a Super-Successful Real Estate Negotiator,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.BobBruss.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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