The key to effective negotiation is your ability to convey interest while at the same time being willing to walk away. It is important to establish your interest, else the seller think you are only a tire kicker out to waste their time.
Once he or she knows you are interested, their job becomes one of getting you to make an offer. Therein begins the delicate dance of negotiation.
Here are some tips, many of which I learned as an arbitrator and settling lawsuits.
Remember, every price is an “asking price”, not the price the seller is willing to accept.
1. Do Your Homework.
In order to know whether you are getting a good deal, you have to know the current marketplace. This includes the inventory and the economic reality of the local market. You also need to know the seller’s situation and motivation.
Don’t be afraid to ask questions.
- Why are they selling?
- Where’s the seller?
- Why is the house empty? (Chances are the seller bought another house and is carrying two.)
- Is the house poorly presented?—maybe there was a death in the family or it’s a must sell and they had no time to prep the home.
- How long has the house been on the market? Waiting breeds doubt and worry and sellers are more willing to negotiate when they are fearful.
- What are other houses in the neighborhood selling for?
- How do they stack up against this one? Don’t go by a comp number—go visit those other houses and take some notes before you talk turkey.
2. The Glass Half Full.
Point out items in need of repair or other negative features of the home or the neighborhood. It is important to point them out EVEN if they are not negatives to you. The traffic noise, too many kids in the neighborhood, not enough kids, school too far, school too close. Heck, anything can be turned into a negative.
Remember, too, that everything needs to be replaced over time. Ask the age of big ticket items like the roof, A/C, boiler. Chances are a few items are nearing the end of their useful life. The roof will have to be replaced in the next few years. Are the appliances out of date. If there’s wallpaper, you’ll have to paint. If paint, you’ll have to change the color. Virtually every resale needs some work.
But be careful not to overdo it. Critique can turn to criticism and then to insult. You want to be realistic on value and costs to repair or upgrade but you do not want to demean someone’s home.
3. The Silent Treatment.
Don’t be afraid to say nothing. Sellers will get uncomfortable and may lower the asking price or give you better terms without you having to open your mouth to make an offer. You will learn more about the home and the seller if you listen. Remain interested but noncommittal.
4. Use the Tradeoff.
If you can’t negotiate further on price, negotiate on terms. Ask for seller financing. A lower rate. Negotiate for concessions or offsets on closing costs. Tradeoffs are useful negotiation tools. Rather than causing a seller to lose control over the price, tradeoffs allow them to keep control while you get value elsewhere. Tradeoffs are productive, the give and take that fosters a spirit of reciprocity and separates negotiating from bargaining.
5. Ask for the upgrades.
When buying from a builder, ask for the upgrades to be included or given at cost. No one wants to lose a sale over an upgrade. In a buyer’s market, it’s par for the course.
6. The Walk Away.
It’s a powerful card. People fear using the walk away because it looks like a take-it-or-leave-it proposition—not a good strategy because it is a power play people resent. People need an out and will balk if put on the spot.
But the walk away can be effective if you leave the door open. I usually say: Gee, we came so close on this one. If things change or you come up with a plan so “we” can make this happen, please call me. If you later decide to take it, you simply call back and ask if there is any change. You can always decide to take it then.
7. “Cash is King” and the race is to the swift.
It helps if you are prepared to pay all cash and close quickly. The absence of contingencies and a quick sale are powerful incentives. Use them to your advantage.
8. The Think It Over.
If things stall or you sense an impasse, tell the seller to think it over and get back to you. This takes the pressure off the seller and gives them time to rationalize why they should accept your offer—they usually find a reason—something to do with a bird in the hand.
9. The Pass Off.
Here is where you say you have to run things by a “higher authority”. It could be your financial planner, your attorney, your trustee or whoever. (I use the wife) This throws another variable into the equation which you can use as leverage. My wife likes the house across town but I prefer yours. Sometimes this becomes the good cop-bad cop strategy. (My wife usually wants me to play the bad cop).
10. The L Word.
If you love a house and can afford it, overpaying is not a crime. Real estate is an emotional purchase for most people. If you are lucky to fall head over heals in love with the perfect home, you would be crazy to let it go, if you could afford it.
Try to save a few bucks if you can but focus on the fact that you’re in love. Then gush like a baby to the seller how ga-ga you are over their beautiful home. You might be surprised they throw in some goodies. Just one romantic’s opinion.
What negotiation tips do you have to share? Are any of them particularly effective?
Stay tuned for Part 2 where I’ll discuss the Do Not Do’s of Negotiation.