10 NEGOTIATING TIPS FOR BUYERS
1. Ethics – It’s the first word in negotiations. First and foremost, it’s important to gain the trust of the seller. Always be honest and straightforward. We’ve had buyers ask us to tell the seller that the most they can afford is “$$$,$$$”, when in fact they could pay more. If you present a price limit that is in fact not your real limit, you’ll lose the seller’s respect and then compromise your position from that point forward.
2. The Golden Rule – There are those who believe that a contentious, confrontational and negative approach is the formula to be successful in negotiations. Our experience runs counter to that philosophy. Being the tough negotiator encourages the other party to dig in and respond in like kind. When you negotiate with the Golden Rule as your mantra, you’ll find people are more likely to become more cooperative in working with you to come to a mutually beneficial agreement.
3. The Other Guy Isn’t the Enemy – Are you offended when someone who does not know you projects a condescending attitude? Have you ever felt like another person treated you like the bad guy? If the other party offends you with their ill-founded, pre-conceived ideas about you, you can pretty much bet that you could easily offend them with yours! Approach the seller with respect and a willingness to try to work cooperatively.
4. Understand That the Seller Does Not See a Dollar the Same Way You Do – To you a $1,000 price difference represents less than a $5.00 change in your monthly payment (assuming a 30 year amortization schedule at 4%). So for example, a $5,000 price reduction, means the that much less at closing for the seller. For you though, your perception of the $5,000 depends on your time horizon. You’ll only save about $25.00 a month, but in the long haul you could save more than $5,000 if you kept the home for a long enough period of time. If you believe that your income could increase in the future, agreeing to a slightly higher price to get the home might be well worth it. For a seller it’s about price, for you it’s about the deal – meaning the price and your financing and time horizon.
5. You’re Not Buying a Used Car – Most people have haggled over the price of a used car and many other items they have bought or sold. So it’s no surprise that people often assume when buying or selling real estate it will necessarily include another haggle over price. One of the most common mistakes inexperienced buyers make is to simply let the negotiation process begin. When you’re buying a used car, you and the seller both put the same value on a dollar, but as we’ve seen there is a big difference when it comes to real estate.
There are other BIG differences also. You and the seller may well be negotiating one of the biggest financial transactions of your lives. It has long term implications and it’s about much more than the final agreed price. There are almost always other very important factors like financing contingencies, home inspections, and timing the closing to work for both you and the seller’s situations to name just a few. Take the time to prepare. Consider all the elements in the big picture and write your offer for your overall best position.
6. A Little Friction is Not a Bad Thing – Have you ever been involved in a negotiation that ended quickly when the other party was very agreeable with your offer? How did it make you feel? Did you think that maybe you didn’t get as good a deal as you could have? When the other party offers little resistance, they were likely happy with the deal and you may have gotten the short end of the deal. The fact is that the other party may walk away feeling the same way because you were quickly agreeable also. Although a cooperative spirit by both parties can help to foster an effective negotiation that brings the parties to a mutual agreement, without a little friction both parties can often be left feeling like they did not work hard enough to earn the best deal they could.
7. Never Re-open a Closed Issue – Make sure you take the time to make each negotiation decision carefully. Reopening an issue that was previously agreed to will almost always upset the seller party, compromise your credibility and therefore your effectiveness in negotiating any remaining open issues.
8. Negotiating in a Buyer’s Market – When there are more homes for sale than there are buyers to write offers, you are in a favorable position when it comes to negotiations. In a buyers’ market, properties take longer to sell and sellers therefore are more likely to make concessions. You can be somewhat more aggressive in your negotiations. Prices tend to be soft or even trending downward slightly at times.
Strategy (Ask for the moon)
- Negotiate hard on the price. In a buyer’s market you can often get a discount.
- Ask for seller contribution to buyer’s closing costs.
- Negotiate hard for terms that best suit the buyer’s needs such as inspections, testing and closing dates.
- Include home sale contingencies if needed.
9. Negotiating in a Seller’s Market – In a seller’s market, buyers don’t have much clout. If the seller doesn’t like your offer, they know that another buyer is likely to come along very soon. In fact, if the property is desirable there may already be another buyer at the table.
Strategy (Act fast)
- Offer your highest price going in (or be very close to it). Often in a seller’s market homes sell for the asking price or higher. Don’t expect to get any significant discount.
- Keep your offer “clean” don’t ask for seller concessions
- Sellers are much less likely to accept home sale contingencies. Ask first, if you need to include a home sale contingency. There’s no point in writing up an offer that will definitely not be accepted.
- Make you offer as appealing to the seller as possible. Find out what would be the best closing date for them and offer it.
10. Negotiating in a Balanced Market – When supply of homes on the market is balanced with the demand of all the buyers who are looking, neither side feels urgency and both sides can give equal importance to their own personal priorities. Expect the back-and-forth counteroffer phase to take longer than it does in either a buyers’ or seller’s market. After several rounds of paperwork, buyer and seller might agree to do a 50-50 split of their differences on price, terms and personal property.
If you work hard to be your best at negotiations, this might just be in your future –
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