Mastering Real Estate Negotiations
A good real estate agent will arrive armed with knowledge, understand the seller’s perspective, and establish a mutually beneficial relationship.
In this hectic spring season, real estate negotiations are the most essential aspect of securing a bargain for your new property. Even a tiny error can cost you a lot of money or dismantle the transaction entirely. You need to have a seasoned specialist by your side who is strategic, understands the psychology of both purchasers and sellers and has a profound knowledge of the ever-shifting market to secure the best price.
Ever ponder how your real estate agent does it and what goes into it? Here's my guide on how a real estate agent effectively negotiates a deal for their clients – and what they need to bring to the table to ensure a successful transaction.
Research on Other Properties
Aside from your real estate agent assisting you locate the right property, it’s imperative that they are ultimately able to secure you the bargain. That requires an extraordinary quantity of market knowledge and a lot of investigation and analysis on comparable properties. Your agent will then take this information into the negotiation with the seller.
For a house in the suburbs, that means knowing the ultimate price for all recent home sales in your neighborhood (for similarly-sized homes and acreage), as well as those presently on the market.
For an apartment, that means understanding the final pricing on all other apartments in the building and comparable buildings in the neighborhood, as well as the asking price for other properties presently on the market.
In both instances, this also means comprehending the specifications of the prospective comparable property, such as its condition, square footage, the street it is on, light, exposures and so much more. No two properties are the same, so having a trusted agent who understands all those nuances is critical in advising you on the bid price.
A competent agent should speak to other agents who have sold comparable homes recently about the level of traffic, the number of offers the home had and the number of days the home was on the market.
Putting all that research together and communicating that to the seller in the negotiation can be very potent. For example, “We are offering you x price based on this comparable y property down the street. The other property had a smaller yard, but it was in superior condition because the kitchen and two restrooms were renovated last year.”
Understanding Seller Motivation
A competent agent will attempt to grasp why the vendor is selling and use that information in the negotiations. For example, if the seller has children in school and wants to wait out the remainder of the school year, offering to lease back the property to the seller for a few months after the closing can be an effective negotiation tool. They might be more inclined to accept your offer versus another greater offer where they are anticipated to move out immediately.
On the other hand, if the sellers have already bought a new home and are eager for a quick sale because they don’t want to carry both properties for a long time or are selling due to a divorce where both parties will split the proceeds of the sale, then an all-cash deal might be an incentive to accept your offer to expedite the closing.
In cases like these, the parameters of the offer might be more essential to the vendor than the actual sale price. They might accept a lower price to have a fast transaction or an opportunity to remain in the house longer, or for another reason that suits their circumstance. Understanding the other side's motivation is critical in the negotiation process.
Making a Personal Connection With Sellers
Your broker should attempt to establish a connection between you and the vendor. While it's often the case that the parties do not meet, any opportunity to forge a relationship can assist in the negotiation process.
For example, composing a “love letter” to the vendor explaining who you are as a buyer and why you want to acquire their property can go a long way. Pointing out specific things you adore about the house can engender a sense of connection and encourage the proprietor to choose you over other suitors. For example, you could mention that one of your children really adored the decor in one of their children’s chambers and fantasized of it becoming their room. Or the fact that you have three sons when the seller also has three sons. Personal details like this can help you communicate on a level that might make a difference.
Remember, selling a home can be very emotive and creating a sense that the new purchasers will love the home as much as the sellers have loved it can impact and motivate a seller, particularly when there are multiple offers.
A Note on Contingencies
In a competitive market, contingencies such as inspections and appraisals or needing to sell another home first when bidding on a home can harm your negotiations. Offering to secure in the price, no matter the results of the appraisal or inspection, can be an essential leveraging instrument.
Also, having your financing lined up, such as getting preapproved with a bank and disclosing a proof of funds statement that demonstrates you have the funds for the down payment, strengthens your position. With multiple proposals on the table, vendors will likely select the transaction that they feel most confident will get through the finish line most seamlessly.
Read Also: Choose The Right Real Estate Attorney
Broker Experience and Reputation
Negotiations can get contentious, and the brokers' professionalism can make a huge difference. If your broker gets irate or impolite, the seller’s broker might be less willing to engage. Selecting a calm and professional broker will help avoid broker interactions that could potentially flare up a transaction.
In most markets, real estate agents know each other after years of working together. If your broker knows the other broker you’re negotiating with and has a strong relationship with them, it will help the process go more efficiently. In addition, your broker will likely know something about the other broker: whether they’re a straight-shooter, confrontational or even dishonest. Having a real estate agent who understands who you are interacting with on the other side of the table can help you avoid a bad-faith negotiation. The relationship between the agents can enhance the experience when they know and respect each other and work together to create an agreement with which both parties are pleased.
Leave It to the Professionals
Remember, your real estate broker is your advocate. Their experience can help you get the best price by having a pulse on the day-to-day market. They also manage the negotiations with the other side, which helps remove the sentiment out of the process. Buying a property can induce anxiety, wrath, desperation, frustration and more (on the part of both parties). In negotiations, having a third party remove the emotions out of the process results in the most effective outcome. The most crucial factor in negotiating a home purchase is leaving it to the professionals – and ensuring you are working with one!