Faulkner: The fine art of real estate negotiations

Real estate negotiations are an art and a science, where gaining co-operation can make for the best transaction.

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There are many books written on negotiating.

This article will delve into real estate negotiations, an overview of some of my studies in negotiating, as well as what I have found to be most effective in my personal experiences.

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Above all, I will always seek to create a strong measure of goodwill throughout the negotiations and before and after the negotiations.

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Goodwill can bring collaboration and co-operation — a willingness to work things out. Goodwill can also resolve issues in advance, that is when surprises come up anytime before possession.

These surprises can be anything that requires the co-operation of the other side, even after the contract is enforceable. If there is an antagonist negotiation, it is less likely that a buyer or a seller may get the co-operation they want or need before possession.

These surprises can be almost anything from a delay in the financing, a need to bump up or delay possession, or any oversight from either side after the contract has been signed.

Once an offer is “final signed” and delivered to the other party, the contract is now enforceable with only the buyer having control, assuming the buyer has written in conditions such as but not limited to subject to financing or inspection or condominium document review that must be satisfied before the deal is final.

Therefore, it is the buyer who is always in control, assuming the seller has no conditions. The buyer can always walk away, renegotiate or proceed with their purchase as outlined in the contract and conditions.

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Before writing an offer, knowledge, information and an understanding of the market conditions is vital.

If the home is a bit overpriced, it is wise to have your representative collect information about how the other side arrived at their list price. Knowing the reasoning and motivations for the list price can be advantageous in negotiations.

Newbie negotiators may want to point out defects in a property in an attempt to whittle down the sale price. I have found that to backfire more often than not. There are often strong emotions when negotiating as it is more often a home, perhaps one in which they raised their family, not just a property.

I find it more effective to negotiate on value or ability and willingness to pay and leave out the defects. In fact, I would choose the opposite approach in order to elicit co-operation.

That opposite approach can include expressing how you, the buyer, appreciated how the seller took care of or decorated the property. It can include how you look forward to raising your family in the home.

If there are obvious defects, it is OK to ask if the seller has sought any quotes to perform the repair(s). That approach is less triggering when addressing defects.

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It is important for the buyer’s realtor to understand the market conditions before negotiations begin for that particular property type, location and price point.

I use one metric — absorption rate. The reason I use that metric is that it is the expression of every known and unknown factor affecting the market. The absorption rate is simply the months of supply. That number is calculated by dividing the number of active homes listed by the number of homes actually sold in the last 30 days. It is so simple.

If that number is less than 2.7 months, I would call that a seller’s market. Months of supply of 2.7 and less may mean a buyer could end up in a multiple-offer situation when negotiating their potential purchase.

If I am representing a buyer and there are two months of supply and the home my buyers want just comes on the market, it can be advantageous to pounce quickly and offer very close to the list price, hoping for an acceptance before any more offers come in.

If there are four or more months of supply and there are many homes that are suitable for the buyer, then taking a more relaxed approach can be beneficial.

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After doing my own assessment of the home’s value and assuming it is priced appropriately, I may recommend my buyer begin negotiations around $15,000 under on a $400,000 property.

Having said that, each situation is unique, and my recommendation will change depending on the particular situation. And my recommendation is just a recommendation. My job is simply to advise, and the buyer is in charge of what they offer. The client is always the boss.

I will sometimes advise a slow pace of negotiations when representing a buyer when there are several suitable homes on the market and the market conditions are either balanced or are indicative of a buyer’s market.

Many sellers, when seeing an offer, will assume that the buyer may be willing to pay the price that is in the middle of the list price and offer price. I have found that a more relaxed pace and a ‘stickiness’ in the negotiation will often favour the buyer or even the seller, depending on which side I represent.

Terms of the contract matter, as well. In general, giving the seller the terms they are asking for, such as possession day, acceptance of title insurance, etc, can sometimes lead to a better price outcome for the buyer.

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Again, it is important for the buyer’s representative to collect information on how important those terms are to the seller. Never assume and know there can be significant advantages in collecting as much information as possible regarding what is important to the seller and their motivations. Knowledge is potential power.

Chris Voss is an excellent and world-famous negotiator. Thoroughly studying and practising his style can be extremely advantageous.

There is much more to be said on real estate negotiations that go well beyond what can be learned in an article; however, the ideas presented here can lay a great foundation for a successful outcome in your real estate negotiations.

Negotiations are both an art and a science. Sometimes, I will begin negotiations with an inquiry at the time of the initial booking of the appointment to view a property.

I intend to write a more detailed booklet on real estate negotiations, so feel free to email me, and I can include you on the waiting list for the booklet when I complete it.

Dennis Faulkner, B.A. Economics, works as a realtor at MaxWell Challenge Realty. He can be contacted to answer your real estate questions at [email protected]

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