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Visit Steve Catsman - Managing Director of Telluride Real Estate Corp. Every real estate negotiation is unique. With today's required and optional disclosures, there is so much paperwork involved in typical home and investment property sales, it is difficult to avoid having one or more of these negotiation tactics used on you. Or, you might want to use them on the other party to negotiate the best price and terms from your viewpoint. Whenever possible, the best real estate negotiators try to avoid confrontational negotiations. But confrontations often can't be avoided. However, it's best to always remember there are two important parts to virtually every real estate negotiation – price and terms. As famous negotiator Herb Cohen says in the title of his great book "Everything is Negotiable!" Prepared with as much factual information knowledge about the situation as possible, and having inquired as to the motivations and time deadlines of the other party to the negotiation, next we must anticipate the key real estate negotiation tactics to use or to anticipate being used on you. There are many other negotiation tactics, but these five most often are used in real estate negotiations: 1 – THE NON-STOP NEGOTIATOR WHO NEVER QUITS "NIBBLING" TO GET A BETTER PRICE OR BETTER TERMS. Especially when a house or condo is vacant and easily accessible via a Realtor's lockbox on the door, this tactic is often used without the other party even realizing what is happening. The most successful real estate negotiators I've encountered use this tactic. But this is a buyer's negotiation tactic – I've never seen it used by a property seller. A non-stop negotiator keeps negotiating even after the sales contract or lease is signed! These negotiators view the signing of the agreement to be just the beginning of negotiations. They reason that's the worst they can do – so they keep trying to improve on the initial terms. Here's how the technique works: The non-stop negotiator keeps finding real or imagined defects in the property to justify a price reduction or credit, or improved sales terms. Sellers should be aware when they notice this tactic being used by buyers. The easiest way to use this negotiation method occurs when the buyer obtains a professional home inspection report and uses it to negotiate a lower sales price or better terms. But the real experts then keep using this non-stop negotiation method to obtain further price reductions or repair credits. A favorite ploy is to stop by the property to measure for new carpets or to determine where to place the furniture. Then the buyer notices something wrong with the property, thus justifying reopened negotiations! How property sellers and realty agents can control non-stop negotiators: (A) Refuse to negotiate further – unless you don't want to lose that buyer and no other buyers are in sight. Be ready to say, "We have a firm sales contract. I will live up to my side of the agreement and I expect you to live up to yours also." (B) Don't allow the property buyer to come back to re-inspect the property except for the final walk-through inspection the day before the sale closing. Buyers should be aware that before the sale closes, the buyer has maximum leverage over the seller. After the sale closes, and the seller has the cash, the buyer loses leverage over the seller. Sellers should be prepared to stand their ground against "non-stop negotiators" – unless the buyer has a legitimate complaint, of course. (C) Another way to minimize this tactic being used by a buyer against the seller is to insist on as large a good-faith earnest money deposit from the buyer as possible. If the buyer risks losing a big deposit without going to court, chances of the buyer using this tactic are minimized. 2 – THE "HIGHER AUTHORITY" NEGOTIATOR NEGOTIATES THE BEST POSSIBLE PRICE AND TERMS, AND THEN SAYS HE MUST CONSULT A "HIGHER AUTHORITY," SUCH AS AN ATTORNEY OR C.P.A. Another name for this negotiation tactic is "two bites from the apple!" One negotiator negotiates their best price and terms, but then includes in the written contract a short clause stating the agreement is contingent on the approval of the buyer's attorney, CPA, Aunt Tillie, or whomever else they want. Sellers can also use this negotiation method by agreeing to accept the buyer's written purchase offer, subject to approval of the seller's attorney, CPA, partner, etc. How to handle the "higher authority," two-bites-of-the-apple negotiator: (A) Be sure all parties necessary to sign the contract are present. This is especially important in divorce situations. If all needed parties have not signed the contract, you don't have a legally binding agreement until all the necessary signatures are obtained. Sometimes, it pays to "take a chance" that the party who made the offer can obtain approval from the other necessary parties. To illustrate, I once bought a probate property from a Catholic priest who said he represented his brother and sister who lived in distant towns. When Father Ward said he liked my offer for 10 percent down payment and 90 percent seller financing, I took a chance and trusted his word that he could deliver their signatures on the sales contract. Within a few days, he got their signatures and the sale closed successfully. (B) If you use this tactic yourself, be sure someone essential is missing from the negotiations, such as your wife, husband, attorney, or CPA. Then include a contingency clause in the contract that the agreement is contingent on their approval within 48 hours (or other acceptable time limit). (C) The best way to counteract this tactic is to insist on a written deadline for obtaining any necessary approval of a third-party who is missing from the negotiation. I've learned it is best to word the clause very carefully, such as "This contract is contingent on the approval of the buyer's attorney, John Jones, within five calendar days from the seller's acceptance; unless attorney Jones disapproves this contingency in writing within said five calendar days, this contingency is waived by the buyer." If you think the "higher authority" negotiation tactic doesn't work, consider virtually every labor union contract negotiation. After the labor union leaders and the employer management negotiate a new contract, it is always subject to ratification by the union members by a vote. When the labor negotiator recommends acceptance by the union members, if he or she is a strong leader, the contract is usually ratified by the "higher authority" union members. 3 – THE FAMOUS "BAD GUY-GOOD GUY" NEGOTIATION TACTIC. I know you've seen this tactic used on TV where it is called the "bad cop, good cop" method. Just a few nights ago, I saw this negotiation tactic skillfully used on CBS-TV "Cold Case Files." The "bad guy" tough cop unsuccessfully tried to get a confession out of the suspect. Then the "good guy" cop, a female investigator, skillfully talked the suspect into confessing to two killings (although not the killing for which he was originally the suspect!). The same method works in real estate. EXAMPLE: Long-time subscribers will remember Elsie and Carl who used this tactic on me (although I didn't realize it at the time). They had a vacant, free-and-clear rental house to sell. Every Sunday afternoon they put up their "for sale by owner" sign on the front lawn, set up their lawn chairs, and spent the day chatting with visitors who stopped by on the busy street. They are very nice people. Elsie (the "bad guy") was tough. She said they wanted all-cash for the house. But it had a few defects, which I quickly discovered, and I wanted seller financing for 90 percent of my purchase price. Husband Carl played the "good guy" role. He just wanted to get the house sold so he could get back to his hobby of restoring Nash Rambler cars (he owned about 10!). After repeated weekly visits each Sunday, Elsie and Carl eventually became realistic (at least by my standards). We eventually agreed on a 10 percent cash down payment and a 90 percent mortgage. Later, after many months of on-time mortgage payments, we became good friends. When Carl and Elsie retired and moved to Tucson, Ariz., they even loaned me $150,000 to buy a rental house they never saw! How to handle "bad guy-good guy" negotiators: This method is very subtle. Often, like me, it's difficult to recognize when it is being used by the other negotiation party. Husband and wife "tag teams" are especially good using this tactic. The best solution is to: (A) Listen carefully and patiently to discover what motivates the other party, (B) Nod your head to indicate understanding, but not agreement, and (C) Let the "good guy" negotiator convince the "bad buy" to accept your offer. It may take hours, several negotiation sessions, and many counteroffers to wear down the bad guy. 4 – THE UNEXPECTED AUCTION NEGOTIATION TACTIC. Most of us have attended an auction of artwork or antiques. Foreclosed condos and new subdivision homes are often sold at auctions, especially in a slow "buyer's market." If you buy or sell on the Internet at eBay, you know a lot about auctions. Who benefits most from an auction? It is usually the seller. But buyers often think they are purchasing bargains. EBay sellers have discovered that is a neat way to get decent prices for objects that would otherwise be very difficult or impossible to sell to local buyers. However, when an unexpected real estate auction develops between two or more prospects interested in buying the same property, it is always the seller who benefits. But please be aware we are not talking about a formal real estate auction. Real estate auctions develop in three ways: (A) The listing agent specifies in the local MLS (multiple listing service) that written purchase offers will be opened at a specific day and time, (B) The listing agent uses this same method, but sets the original asking price abnormally low at a price the seller has no intention of accepting, thus creating a buying frenzy "auction" among bidders, or (C) Two or more buyers make purchase offers for a property at about the same time, the seller accepts neither offer; and makes counteroffers to the prospective buyers. No matter how the real estate auction develops, whether intentional or accidental, it is the seller who primarily benefits! How to handle a real estate auction negotiation: My strategy is to drop out of the auction bidding (unless I absolutely must buy that property!). If you, or your spouse, has fallen in love with the property and absolutely must own it, the best way to win the auction is to submit a bid which specifies "In the event a higher, legitimate written purchase offer is received from another qualified buyer, I offer $5,000 more." If you don't think that is enough to impress the seller, offer $10,000 more. 5 – THE "WOULDJATAKE" NEGOTIATION TACTIC. This negotiation method is a bit difficult to implement because it requires a face-to-face meeting of the prospective buyer with the property seller (most realty agents try to keep their buyers and sellers from meeting), but it works best when the buyer and seller "bond" and like each other. As an investment property buyer, when I can meet the seller I try to learn as much as possible about both the property and the seller's motivations for selling. Then, to the horror of the listing or selling agent who is usually present, I ask "What is the lowest price you will accept for this property?" Then I shut up! Realty agents often try to stop the seller from saying anything. But the seller will usually name a price that is far lower than I was thinking of offering! A variation of this tactic is for the prospective buyer to say "Wouldjatake $____ for this property?" If you are the seller, even if the price sounds very low, your correct answer is "Well, why don't you put that in writing to see how it looks on paper?" As you know, an oral purchase offer is not legally binding because the Statute of Frauds requires real estate contracts to be written to be legally enforceable. Even if the buyer's tentative offer is far too low, once a written offer is received, the seller can either accept it or make a written counteroffer to get negotiations rolling. How to handle the "wouldjatake" real estate negotiation tactic: If you are the seller (or the listing agent), the best way to handle this tactic is to get the buyer to put the offer in writing to show that the buyer is serious and is willing to make a significant earnest money deposit. Then, a counteroffer can result at a price acceptable to the seller. If the buyer won't put the "wouldjatake offer" into writing, he is not serious and is wasting your time. THE IMPORTANCE OF NOT REVEALING CONFIDENTIAL INFORMATION. I would love to write more about this ultra-important topic of real estate negotiation, but I'm running out of space. Maybe I should write a book on this fascinating subject. But one very critical point to emphasize is both buyers and sellers should be extremely careful what they tell to their real estate agents. Although realty agents are supposed to be trained not to reveal confidential information to the other party to the negotiation, such as the lowest price the seller will accept or the highest price the buyer will pay, realty agents often slip up and let out this valuable information to the other party. To prevent this from happening, don't reveal to your buyer's or seller's realty agent any information you don't want the other party to know. However, if the information is essential to the sale conditions, such as a foreclosure sale of your home has been scheduled by the lender for 30 days from today, be sure you tell your realty agent who then should communicate that vital fact so any serious buyer knows they must complete the sale before the property is lost by foreclosure. SUMMARY: Super-successful real estate negotiators, whether buyers, sellers or real estate agents, must understand the importance of negotiation tactics and methods because realty negotiations are a high-stakes game. To be a truly successful real estate negotiator, be sure to understand the importance of time (deadlines), motivations, and information knowledge impacting on the situation. Then use that valuable information to your advantage without taking unfair advantage of the other party to the negotiation.
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