Negotiating 101

“You can lead a horse to water, but you can’t make him drink.”

I think this is good quote for explaining how negotiating works. Some people think negotiating is about getting the other party to do exactly what you want. It isn’t. It would be nice if it worked that way but it doesn’t. The goal of negotiating is to get the other party to bend as much towards your ideal situation as they are willing to go.

In real estate sales, the biggest single item to negotiate is the sale price.

Often a buyer will base their offer amount on the seller’s list price. MISTAKE!

Before you make an offer, you need to first know what the house is worth. That’s where your realtor comes in. Once you know what the house is worth, you make an offer based on its value rather than the seller’s list price. Why? Because if the house was overpriced, you might make an acceptable offer that is still more than what the house is worth.

Here’s a few observations based on my 17 years of experience in every market type ranging from the worst in history to the best in history and everything else in between:

  1. Sellers in our area usually don’t come down a considerable amount from their list price. You are not going to get your offer for 80% of the list price accepted. Even in the worst market ever, this was very rare. Usually if a seller is that motivated, they reflect their motivation in their list price.
  2. If you make a very low offer, most sellers either reject the offer or barely budge from their list price because you have given them a sign that you are going to be difficult to deal with so they leave plenty of room for more negotiating. This basically put you back in the same place you started so it is counter productive.
  3. The most common method of negotiating is the old “Meet you in the middle” routine. I often see a buyer make an offer for say $10k less than list price hoping to get the house for $5k less than the list price. Common also is when you come down to the last round of negotiating and somebody says “Let’s split the difference.” While this is common, it is very uncreative.
  4. You can lose a house while waiting for a seller to respond. I have seen this numerous times where a buyer will make a low offer, drag out negotiating over multiple days, then all the sudden another buyer makes a much better offer and your next communication from the seller’s realtor is that the house is no longer available. You typically want to make an offer that will either be accepted immediately or maybe where the seller counters once and you accept it. If the house is nice enough for you to have picked it among all the competing listings, then odds are another buyer has come to the same conclusion that it is currently the best house on the market in that price range.

So, here is my advise on getting your house and getting it at a favorable price:

  1. Realize that the person who wins the last battle usually thinks they won the whole war. I usually try to reverse engineer a counter offer so the other party can come back with exactly the number I was hoping they would. When they do, they feel like they won the war of negotiating, but I really just let them win the last battle.
  2. Know what it is worth and make an offer either for that amount or slightly less. Remember the goal is get the seller to tell you the least they will take for the house. Before the market got so crazy the past few years, the average list to sale price was about 97-98%. I might make an offer 1-3% less that the house is worth. If they counter for anything less than the full price, guess what, you’re getting the house for less than it is worth. Sometimes the seller just accepts it. If that happens, great, you STILL got the house for less than it is worth.
  3. And speaking of winning, don’t get too caught up in the game. Save that for a trip to Vegas at at blackjack table. Your goal here is to get the one house that you felt was superior to any other house you have seen. If you get it and get it at a fair price, quit trying to make that horse drink more water.

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