5 Rules Of Successful Real Estate Negotiation | Propertylogy

5 Rules Of Successful Real Estate Negotiation

By on August 25, 2013

Some people are naturals at negotiation. They just have a good instinct of what motivates an opponent while knowing when and what to compromise to close deals in their favour. The ideal scenario for you will be to know all the cards of your adversary while keeping all your own cards to yourself. That however, is not realistic unless you are in a super power position while the other side of the fence is in the spirit of giving everything.

There are actually entire textbooks dedicated to the art and skill of negotiation. But even if you are not a natural negotiator and have never educated yourself with the concepts of negotiation, you can still do well as long as you follow these 5 rules of real estate negotiation.

1) Engaging the services of a good agent

2) Justify your offer or selling price

3) Uncover the motivations of buyers and sellers

4) Exercise your option of a free look period

5) You can always walk away from a deal

Rule 1: Engaging the services of a good agent

Having a shark of an agent at your corner can be what is needed to tip things in your favour. When you have an intermediary to communicate with the other party, you will be able to send mixed signals or communicate different things without compromising your position. For example, if a seller values his home too highly, you could be a little reserved on bursting his bubble. Being frank and scrutinizing the seller’s perceived value can hurt his ego as well. You don’t want to be the bad guy in this instance. So when you have an agent to work with, you can leave the task of bringing the seller’s expectations back down to earth to the agent. To put it simply, you can leave the job of being a bad guy to your agent unless you prefer to be the bad guy yourself.

winning at negotiatingIf buyers and sellers deal with each other directly, there is a social aspect of real estating involved. Nobody want to appear like losing out as there are many stakeholders and observers. Having an intermediary can diffuse tensed situations when both parties refuse to budge. For example, you can leave the job of making a low ball offer to your agent. This eliminates making you look like a vampire as the seller might think that it is the agent who suggested the low offer in the first place. Your reputation remains intact. Again, your agent can bear the brunt of your evil plans.

Property agents get into the job fully knowing that they will get their hands dirty in these mind games and negotiation plays between buyers and sellers. They add value by playing an important role in these multi-party negotiations. Make use of their skills and voluntary sacrifices to close the deal for you. They have a motivation to do so.

Some people attempt to cut off hiring an agent altogether. If you are doing so to save some money instead of it being you are experienced enough to handle everything yourself, it is suggested that you review your decision. Agents can add a whole lot of value if you use them right.

Rule 2: Justify your offer or selling price

If you are willing to buy at a seller’s asking price or sell at a buyers offer price, there is no need to learn negotiation. You can simply sign up and close the deal. There is however, a need to get a doctor to verify your sanity if you voluntarily buy high and sell low. Negotiation will only matter if you intend to buy low or sell high. And you are bound to face objections from your opponent because we seldom run into charitable individuals these days. Your job when faced with these price objections is to debunk them immediately. Delay in response actually gives your opponent a psychological upper hand as you have now revealed that you don’t know much about you position after all.

So how do you justify your perceived value on price? The good thing is that this is not an Oxford examination you are taking. There is no wrong answer. You have every right to value a property at whatever value you think is fair. Whether you are able to close at ridiculous prices is another matter altogether. So don’t push your opponents too far or you will be looking at hollow offers throughout your property journey.

If for example, you have a property that will probably sell at $1m based on market demand. You will of course ask for a price higher than that. 20% give or take is a good start. Again, if you are not going to ask for a higher buying price, negotiation is irrelevant. Just sign up and close. But if you are going to take it up to $1.2m, you have to justify how you came up with that figure.

This is my offer. Take it or leave it.

This is my offer. Take it or leave it.

How? Make use of real estate ratios and change the variables until you hit your asking price. For example, you can raise capitalization rates until property price hits $1.2m. A buyer can disagree with your numbers but he has to also accept that these are your personal forecasts. And you have every right to do so with your property. Negotiation can start now.

Rule 3: Uncover the motivations of buyers and sellers

The biggest piece of information that will give you an edge over your opponent is to know their motivations for buying and selling. The more motivated they are, the more likely they will yield to your obscene requests.

For example, a seller might be in an urgent situation to sell because he has lost his job or needs the funds to finalize buying another home. If you can grab these information by the throat, you are in a good position to close fast and close at an advantage as well.

You uncover these information by chatting up your opponent making small talk. Or leave this to your great communicator of an agent. Agents are trained to uncover these deep motivations. But whether you agent will give you these information or use them to your advantage is another matter. They have their own self-interest to look after and you cannot blame them for thinking so.

A seller might unknowingly reveal that he has bought a new home which is public housing. This implies that he has a specific timeframe to work with on selling the current property you are eyeing. A buyer might say during a friendly chat that he has just took up a new job in the area. This can imply that a quick purchase for him will alleviate a huge hassle of currently traveling to and fro to the office. This is when the listening skills you have picked up when dating will come to good use.

Rule 4: Exercise your option of a free look period

Do you know that insurance policies, investment schemes, mortgages, and many credit facilities have a free look period? What is a free look period? Sorry for jumping the gun. Let me first explain what is a free look period. If we take an insurance policy as example, a free look period is a specified period of time whereby you can back out of a deal after signing up all the documents for your policy. So within this free look period, you can call up your insurance agent to say bye bye without having to incur any penalties. Of course your insurance agent will not tell you that.

When it comes to properties, you can insist on a reasonable free look period for you to do your due-diligence checks. This will give you the right to walk away from the deal without penalties or minimum penalties if your research uncovers material information that jeopardizes the deal. You have to do this in the very early phase of a transaction. Because if you delay and only conduct your diligence after a lawyer has finalized the deal, you are acting like a moron who have absolutely no idea how to deal with properties. Backing away from a deal at this stage will not be good for your bottom line. You are wasting everybody’s time as well and have little respect for all the professionals who worked long hours to help you finalize the deal.

So although you can negotiate such a term into your agreement, be respectful of all parties involved.

Rule 5: You can always walk away from a deal

You are not committed to any transaction as long as you do not agree and sign on the dotted line. Remember that. You want your opponent to know that you are not in any rush and have the ability to walk away from a deal without regret. If the price you secretly kept in your heart is not met, you should walk away with nonchalance unless your opponent is willing to compensate you with other incentives that make up for your dollar loss.

A lot of times deals do not happen because of social aspects that prevent buyers and sellers to compromise on price. But other terms are easier to compromise as long as the final price keeps their pride intact. Artful negotiation is sometimes a game. Communicating your willingness to walk away can be just a play in your personal arsenal of haggling tactics.



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