Knowledge is Power is a cliché which is very true during negotiations in real estate. So, the first step towards successful negotiations is to learn about the current real estate market. Once negotiations have started, the scenarios that can unfold are endless. Learn more about negotiations in real estate with these tips and strategies, for both buyer and seller.
Both buyer and seller should know their limits when it comes to price. As a buyer, how high do you want to go with the purchase price, and where is the tipping point before walking away to pursue the search for another home? Having a pre-approval from a lender is extremely important. As well, having a clear picture of all the finances and knowing the comfort level helps with negotiations.
Also, the seller must acknowledge his/her ’line in the sand’. How much lower can the seller go, and when is the moment to stop countering and wait for the next buyer?
Knowing the ‘line in the sand’ gives either party a stronger position in negotiations.
Be prepared to walk away
Walking away from negotiations gives a clear sign that the buyer is not as interested as the seller had hoped. Of course, walking away can ‘bite a buyer in the tail’, as well, because the home may sell to the next buyer. Or the seller may take it as an insult and refuse to move on with negotiations at a later time.
On that same note, a seller can ‘walk away’ when the seller doesn’t want to come down in price anymore. And here, of course, the seller may take the risk that the buyer will not return to the negotiations. Motivation has a strong voice in this scenario.
Stalling or delaying negotiations
Stalling or delaying negotiations can work, or not. Obviously, it depends on the circumstances, the type of property, the type of market, etc. A buyer can stall negotiations which may make the seller feel the buyer is walking away. This can give the seller pressure to come down in price. In practice, the strategy of delaying the negotiations can work for a seller to have more time to draw more interested buyers to the property. But again, much depends on the current relevant circumstances. The effect of delay can unfold in either direction, positively or negatively. A seller can lose a buyer who has found a different property. Or a buyer can lose a property because the seller found another buyer who offered a better price.
Contact other interested parties to create more interest
Once an offer comes in, a seller can instruct the realtor to contact other interested parties, if there are any. This may create a multiple offer situation. However, a seller must realize that this tactic can also backfire. If a buyer realizes that there are competing offers, s/he may walk away.
A short expiry date may put ‘pressure on the kettle’
Every purchase contract includes a time of expiry. After that time, the contract is not valid anymore. A buyer can put pressure on the seller with a shorter expiry time to force the seller to decide more quickly. In the same way, a seller can put pressure on the buyer, using that same strategy, creating a short decision time.
The success rate of this strategy depends very much on the type of market, the type of property, etc. Both buyer and seller can use this as a ‘bluff’ to see if the other party will decide more quickly to ‘seal the deal’. And, if the strategy doesn’t work, one can still come back after expiry, continue the negotiations, and change the time of expiry in the contract.
Ending up in the middle
A buyer who determines an offer price often wants to end up in the middle. If a buyer, realistically, wants to pay $10,000 less than asking price, s/he can go in $20,000 under asking price. Often, buyer and seller end up in the middle. This only works in a balanced market, or perhaps in a buyer’s market. Theoretically, this technique doesn’t work in a seller’s market, as it carries more risk of losing the home to another buyer.
Lower offers take longer to close
For a buyer, establishing the initial offer is not always easy. Much of this decision depends on the market situation and the evaluation of a home at that point in time. A buyer must realize that the lower the offer, the longer it usually takes for buyer and seller to come to an agreement. In the meantime, another buyer can come around the corner with a better offer.
A bottom-line strategy
Sometimes a buyer or seller doesn’t like to spend much time on negotiations. Then, one asks directly for the ‘bottom-line’, or comes up with a ‘take-it-or-leave-it’ approach. In Calgary, this method doesn’t seem to work all that often. Buyer or seller may still counter, trying to get ‘some more’ out of it, as it were.
In a seller’s market, this situation is usually different again. In a seller’s market, usually, the buyer has no room, nor time for negotiations. Now the buyer must put ‘all the chips’ in the first offer. And in case of competing offers, the seller may pick the best offer and still decide to negotiate.
Winning in negotiations: Learn more about the real estate market in Calgary.
A backup offer is an offer which comes automatically into place if the current conditional sale falls through. A seller can always accept a backup offer, but only should do so under the right circumstances. This backup offer may put pressure on the current buyer. This is because the buyer has less ammunition to re-negotiate on issues that arise during the home inspection.
A buyer must realize that a backup offer is binding. If the first conditional sale falls through, the backup offer comes into place automatically. The type of market will determine if it is wise to accept a backup offer. Read more about the pro’s and con’s of a backup offer.
Have a ‘plan B’ in mind
Agendas don’t always line up. A seller does not want to lose out on a sale, and a buyer doesn’t want to lose out on a purchase simply because neither can agree on a possession date. So, having a ‘plan B’ can give both buyer and seller an advantage in negotiations. The seller can give the buyer the preferred possession date for a certain price, or vice versa, the buyer can give the seller a preferred possession date in trade for a lower offer price.
For the buyer, a ‘plan B’ may be to stay in the current rental or perhaps move to a short-term rental. Sometimes, buyers have the alternative option to temporarily stay with family or friends. Sellers may accept these same options.
Sometimes, both seller and buyer are ‘stubborn’, or perhaps neither party will cross that ‘line in the sand’ to meet ‘in a middle’. Whatever the reason, negotiations can get stale and buyer and seller may move apart. Both parties count, and neither should be afraid to ask the opponent to come back to the negotiation table days, or even weeks, later. There is generally no shame in doing so. And who knows? Buyer and seller may still come to an agreement in a second, fresh round of negotiations.
Motivation is a huge factor in negotiations. If possible, find out why a seller is selling or why a buyer is buying. This is not always possible because a realtor is never allowed to disclose the motivation of the client, unless the client gives instructions to do so. However, during negotiations and through the duration of the interactions, sometimes one can determine the other’s motivation.
Learn some rules and etiquette around negotiations
When it comes to negotiations in real estate, rules and etiquette are not set in stone. Yet, most people understand that it is easier to enter negotiations with honey, not with vinegar. While most buyers and sellers rely on the expertise of the realtor, it is still good to understand the do’s and don’ts of negotiations. Published next month: Read some tips and suggestions which help a buyer and seller during negotiations in real estate.
Tanja van de Kamp has been a realtor since 2009, working for both buyers and sellers. Tanja was a lawyer in The Netherlands for 12 years. She has a competitive edge amongst realtors in Calgary. Tanja has an extensive amount of knowledge on how to negotiate strategically, and to work in the best interests of her clients.
Together with Ariette van Pelt, they make a dynamic and forceful team helping sellers and buyers getting the best they deserve!