Real estate negotiation can be a daunting task. You want to enter the room as prepared as possible, with every trick up your sleeve. But what do you do if you don’t know any tricks and tips yet? That’s where this guide comes in. What follows is a breakdown of some expert negotiation strategies that will help you get the best possible deal when buying and selling properties.
Create a win-win scenario
The best real estate negotiators are ones who are able to fashion win-win scenarios for both parties at the table. Just because the seller (vendor) has their eye on the prize, doesn’t mean the buyer’s (purchaser’s) wants and needs ought to go ignored. For instance, those aiming to sell an investment property at a high cost might offer some concessions to the buyers, such as offering to pay for moving costs or meet their preferred settlement date. Big picture-wise, moving costs are often a small expense for investors but may be a major gesture to the buyer.
Smart sellers don’t just negotiate over one issue, they make sure to have multiple topics in their queue. You should learn as much as you can about who you’re meeting so you’re up to speed on their needs and wants before coming face to face. That way, you can ensure everyone walks away with a satisfying deal.
Be prepared to compromise
As you search for ways to facilitate a win on both sides, look for areas you’re willing to budge when it comes to the contract. Maybe you’re willing to let the buyer clean out the property in exchange for knocking a couple thousand off the sale price. Or perhaps, you’re willing to accept less for a faster closing date on the price, terms and conditions of the contract.
The key to successful real estate negotiation is to think through your potential compromises before you begin. This will save you conceding too much or walking away unhappy with the outcome. Compromise is essential when it comes to real estate bargaining, but so is standing your ground when it counts.
Be prepared to walk away
One of the most critical skills of any successful real estate negotiator is the ability to know when to walk away from the table. Even if the property in question is your dream sale, it’s a mistake to negotiate with your hand showing. No matter how awesome a prospect might seem, keep your wits about you when engaging in negotiations. The best negotiators successfully convey to the buyer or seller that they’re willing to walk away if they don’t get what they want.
One way to mitigate any loss of footing as a vendor, is to ensure you have other buyers lined up. And, if you are a buyer, by ensuring you have multiple contingency properties to consider purchasing. The confidence to walk away increases if you have something you’re aiming for. Keep a suite of options on your radar in case plans don’t pan out. While these secondary plans may not be perfect, they’re still essential to keep on hand.
Discuss an escalation clause
An escalation clause is generally employed when the seller or the buyer thinks a property will see multiple offers. It’s essentially stating their willingness to pay a certain amount more than the highest offer the seller receives.
There are typically clauses in place capping the total sale price – this ensures investors don’t overextend themselves financially.
An escalation clause should be employed when you’re engaging in competitive markets to help you lock down your property sale.
In Melbourne, the concept of an escalation clause is not commonly adopted. A buyer intending to bid and buy a property via private sale or attempting to buy before auction needs to be strict with a best and final offer, unless the sales agent or seller has specified the rules to afford more opportunities to all parties.
Know the rules
Knowing and specifying an expiry on the offer, (i.e two business days) at a price that is reasonably attractive for a seller is a wise move and generally shocks the competition. Submitting bids early in a campaign cuts the momentum by reducing days on the market and reducing competition.
Alternatively, the buyer would seek clarity from the sales agent to confirm their agency process on the specific property with regards to the sale closing date and how the deal will proceed. For example with private sale or auction methods.
If it is a private sale, the vendor may call for best and final offers in a closed tender process, called blind bidding or sealed envelope bidding.
Undoubtedly, this is the most frustrating style of bidding for buyers and the least transparent of all the scenarios, as it leaves the power firmly in the hands of the seller and sales agent.
In this scenario it is always good to seek clarity. Will the offer be the bid that officially reaches the seller’s reserve price?
Will the buyer who reached the satisfactory price on contract first be notified and have another opportunity to submit a best and final bid should their original offer be out bid?
Will they take multiple bids from buyers and provide multiple opportunities to keep out- bidding competitors until the last man is left standing?
This latter style, often referred to as a Dutch Auction, can be fairer, but still requires a level of trust between buyer and seller and sales agent, as it can be difficult to gauge where the competition truly stands.
If they are selling prior to auction, what is their process? Best and final offers, multiple bid scenarios or a hybrid approach which involves bringing the auction forward and making the bidding transparent for all parties?
Employ affirmative language
The key to successful real estate negotiation is being direct and decisive. The negotiation table is not the place to doubt yourself or change your mind – this makes affirmative language a must.
Affirmative language essentially expresses the truth of a statement. It shouldn’t include any negatives like “not”. Used effectively, affirmative language shows assurance and confidence. It also helps you anticipate other perspectives.
Before you enter the negotiation room, write out a few things about your deal then go through the list and see how you can better incorporate affirmative language in your negotiation strategy.
Always negotiate face-to-face
Email and text may have done a lot for global communication but they still leave a lot to interpret when it comes to daily conversation. For this reason, real estate negotiations should always be face-to-face when possible. An in-person conversation helps to ensure everyone is on the same page.
That being said, sometimes busy schedules or long-distance deals will get in the way of this rule. Or, as in the case with the current pandemic, restrictions on meeting in person may require adapting to revise the deal at a high level.
In cases like this, always ensure you speak over the phone or via video conference. It still leaves a lot to be desired for reading body language and nuance but it’s much better than an email or a text message.
Listen first, then react
One of the worst things that can happen at a negotiation table is for one party to lose their cool and walk away from the deal. This not only affects the deal in question, but it can also harm your reputation as a buyer or seller, thus potentially impacting future deals.
Always keep your cool when entering negotiations and listen carefully before you react to any statements. Even if you’re the most well-spoken negotiator in the world, you may be dealing with people unlike yourself. Always give the other party a chance to respond fully before you push for a counter-offer. Maintain silence, and build in a pause before you respond. This provides you with the opportunity to compose yourself and formulate a suitable reply. Understand the deal from the other party’s perspective to assess the needs and motivation to reach a win-win scenario.
When negotiating, never lose sight of your end goal. It can be all too easy to be distracted by tangents or counter offers but remember: you’re there to buy or sell a property. Keep yourself on task during negotiations and check your notes when applicable to make sure you cover all your talking points.
Also, when handling concessions, don’t lose sight of why you’re in the room. Just because you didn’t get every one of your goals doesn’t mean it wasn’t a great deal.
Negotiate like a pro
Real estate negotiation is tricky but it’s not impossible. You just need to keep your cool, engage in affirmative language, and know when to walk away. With these effective strategies, you’ll be in a better position to buy or sell your property for a price that benefits both buyer and seller.
Still stuck? Then why not call the masters? Master Advocates, experts in both buyers’ and vendors’ advocacy. Contact the masters at +61 408 988 118