(Part 2 of a two-part series. See Part 1: Six key questions to ask when buying, selling real estate.)
Whether you are a home buyer or seller, a real estate sales agent, or a “tycoon” real estate investor, a key component to your success is your negotiation skill.
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Having been a realty investor, broker and college real estate teacher for 37 years, I’ve discovered there is always more to learn about real estate negotiation tactics. Even Donald Trump doesn’t know everything about real estate negotiations.
Today we focus on the five key real estate negotiation tactics the most successful negotiators use and anticipate the other negotiation party will also use on you.
1–THE NON-STOP NEGOTIATOR WHO NEVER STOPS “NIBBLING” TO GET A BETTER PRICE OR TERMS. This is primarily a buyer’s negotiation tactic. I’ve never seen it used by a seller. Non-stop negotiators keep negotiating even after the sales contract is signed. They view the signing of the agreement as just the formal beginning of negotiations.
After the property sales agreement is signed by both parties, the non-stop negotiator keeps coming back to find real or imagined property drawbacks. The goal is to use those discoveries to lower the price, get a repair credit, or change the sales terms.
To illustrate, most home sales contracts include a professional inspection contingency clause. The non-stop negotiator uses the inspection report to “nibble” by demanding the seller either repair any defects discovered or reduce the sales price to compensate.
If the property seller refuses to cooperate, the non-stop negotiator buyer can “disapprove” the professional inspection report, cancel the sale, and obtain a refund of the buyer’s good faith deposit.
Another favorite tactic of the non-stop negotiator is to keep finding excuses to come back to the property, such as to measure for new carpet or to determine where the furniture should be placed. Every time the non-stop negotiator is on the property, the seller should watch out because that buyer is really looking for defects to renegotiate the sales price or at least obtain a repair credit from the seller.
How to control non-stop negotiators: (1) Refuse to negotiate further. Be ready to say, “We have a binding contract. I will live up to my side and I expect you to live up to your obligations too.” (2) Don’t allow the buyer on the property, except for the customary final walk-through inspection the day before the sale closing. (3) Insist on a large up-front good faith earnest money deposit from the buyer to minimize the probability the buyer will refuse to complete the sale over a minor defect.
2–THE “HIGHER AUTHORITY NEGOTIATOR” NEGOTIATES THE BEST POSSIBLE DEAL, BUT THEN MAKES IT SUBJECT TO APPROVAL BY A THIRD-PARTY. Another name for this negotiation tactic is “two bites from the apple.” A “higher authority” negotiator first negotiates their best price and terms, but includes a short clause making the agreement contingent on the approval of the buyer’s attorney, CPA, Aunt Tillie or whomever they want.
Realty sellers sometimes also use this method by making their acceptance of a purchase offer contingent on the approval of their attorney, CPA or even Uncle Jake.
How to control higher authority two-bites of the apple negotiators: (1) be sure all buyers and sellers necessary for the sale have signed the contract. This is especially critical in divorce situations. (2) If you use this method yourself, be sure some essential party is missing from the negotiations, such as your husband or wife. (3) The best way to counteract this tactic is to set a written deadline in the contract for obtaining approval of the missing “higher authority.”
3–THE FAMOUS “BAD GUY-GOOD GUY” NEGOTIATION TACTIC. Everyone has seen this negotiation strategy on TV and in the movies where it is called “bad cop-good cop.”
Just a few weeks ago I saw this method used on CBS-TV “Cold Case Files.” The bad cop was unable to extract a confession from the suspect. But the good cop female investigator skillfully talked the suspect into admitting two killings (but not the killing for which he was a suspect).
A few years ago, I had this tactic used on me by “for sale by owner” sellers Elsie and Carl. They were selling their rental house. Elsie, the “tough cop,” demanded full price and all cash. But “nice cop” husband Carl was more flexible.
After a few weeks of informal Sunday afternoon negotiations on the front lawn, “tough cop” Elsie gave in and agreed to carry back the mortgage financing so I could buy the house and Carl could go back to fixing up his antique Nash Rambler cars. Remember those?
How to handle “bad guy-good guy” negotiators: This method is very subtle. Husband and wife “tag teams” are especially good using this tactic. The best solution is to (1) listen patiently and politely, (2) nod your head to indicate understanding, but not agreement, and (3) let the “good guy” negotiator convince the “bad guy” negotiator to accept your offer.
4–THE UNEXPECTED AUCTION NEGOTIATION TACTIC. Most of us are familiar with formal auctions of artwork or antiques. Foreclosed condos and subdivision homes are often sold at real estate auctions in slow local markets.
But unexpected real estate auctions can develop suddenly. Sometimes, realty agents even “stage” auctions by suggesting their sellers create a “buyer frenzy.” This is usually done by setting an abnormally low asking price under the true market value.
Always remember, in an auction, it is the seller who primarily benefits. To illustrate, those E-Bay auctions millions of buyers and sellers enjoy mainly benefit sellers who otherwise would have great difficulty selling their items in local markets. But buyers sometimes purchase great E-Bay bargains.
When an unexpected real estate auction develops, there are two or more prospective buyers for the same property. This can happen (1) when the listing agent specifies a bid opening time, (2) an abnormally low listing price is set to create a buyer frenzy, and/or (3) two (or more) buyers make purchase offers for the same property at about the same time.
How to handle the “unexpected auction” tactic: (1) My personal strategy is to drop out (unless I absolutely must buy that property) because I know the seller will benefit more than the buyer, or (2) if you (or your spouse) has fallen in love with a property you must buy, then write in the purchase offer, “In the event a higher, legitimate 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 $10,000 more. This tactic usually stops further bidding by other parties for the property.
5–THE “WOULDJATAKE” NEGOTIATION TACTIC. This is my personal favorite. But it is a bit difficult. The key to success with this tactic is for the buyer to meet the seller.
For some unexplained reason, real estate agents do everything possible to keep buyers and sellers from ever seeing each other. As a buyer, I love to meet the seller to get acquainted and start asking questions.
To the horror of the buyer or seller agent who is usually present, I ask the seller “What is the lowest price you will accept for this property?” Then I shut up!
My experience, as a buyer, is the seller will often mention a price lower than what I was thinking of offering. A variation of this negotiation tactic is for the buyer to say “Wouldjatake $___ for this property?”
If you are the property seller, your correct answer is “Well, why don’t you put that in writing to see how it looks on paper?” Since an oral purchase offer is not legally binding, if the seller doesn’t accept the buyer’s first written offer, then the seller can make a written counteroffer.
How to handle the “wouldjatake” negotiation tactic: If you are the seller, try to get the buyer’s oral offer into writing so you can accept it or make a written counteroffer. When a buyer won’t put a “wouldjatake offer” into writing, that buyer isn’t serious and is wasting your time.
SUMMARY: Real estate buyers and sellers, as well as their real estate agents, must understand the key real estate negotiation tactics if they are to be successful.
The primary reasons are (1) to use these negotiation methods and (2) to know how to handle these tactics when used by a negotiation opponent. More details are in my brand-new special report, “How to Become a Super-Successful Real Estate Negotiator,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 and instant Internet download at www.bobbruss.com.
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