Eight Steps to Powerful Negotiating in a Buyer's Real Estate Market

Some "Do's and "Don'ts" for Getting a Great Deal on a Home.

UPDATE August 4, 2011: When I first wrote and published this article in 2009, most major real estate markets throughout the country and their corresponding values were in free fall.  Today, though, that may not be the case.  Many markets and values are up-trending while some remain flat or bumpy and others continue to fall.  it is essential, first and foremost, to know whether you are buying a home in a falling market (a buyer's market), a flat market, or in an increasing (seller's) market.  Within any given geographic real estate market, it is possible to have pockets of all three type of markets -- up, down and sideways.  Some of the following advice applies to negotiating in any market (see #8, "Be Nice") while those specific to a buyer's market may actually hurt your chances of getting the home you want if you are competing in an up-trending market. So, with that, here is the article from 2009:

In today’s real estate market, Buyers have plenty of inventory to choose from and sellers have lots of competition up and down their streets. Buyers can get good deals, no question about it. But how do you get the BEST deal?

Whether you are a buyer shopping for a home or for an investment property or you are a buyers’ agent working to get your client a great find, here are some tips that may help you get the best deal.

Step One: Get "Pre-Approved," not "Pre-Qualified!"

This rule is just as important in a buyer's market as in a seller's market.  If you want to get the best property you can for the least amount of money, make sure you are in the strongest negotiating position possible. Price is only one element in the negotiation and not always the most important one. Often other terms -- such as the financial strength of the buyer or possession time -- are equally important to a seller.

Step Two: Sell First, Then Buy.

If you need the equity to buy your next home, you will obviously need to sell it before buying your next home.

While the market has changed and more contingency offers are being written today, consider this scenario: You’ve found your ideal house. You make an offer to the seller: You want the seller to accept a low price and wait until you sell your house.  The seller recognizes that if he removes his home from the market while you attempt to sell yours, he risks losing a buyer who does not need to sell a house to buy his.  So, while the seller may agree to remove the house from the market for 30 or 60 days, he may do so at a price that is not quite as low you had proposed.  If you accept his counteroffer, you have now paid more for the house than you might otherwise have only because of the contingency. 

Furthermore, you need to sell your home quickly or lose your dream home!  You are the one feeling a little pressure now; you may accept a lower offer than you would if you had more time.

The bottom line is that buying before selling could cost you thousands of dollars.

Step Three: Keep Your Wish List Short.

Keep your search criteria broad.  Avoid too many "must haves" on your list because they will narrow the field of possible homes considerably and reduce your ability to negotiate.  You may not be the only buyer looking for acreage far from the city with a pole barn and a babbling brook. The more committed you are to your wish list, the more likely you are to find yourself in a bidding war.

Leaving your options open also minimizes your emotional investment in any one home until it is actually yours.

Some agents will advise you to avoid becoming emotionally involved in a home so your emotions don't distract you from your objective of getting the best price.  In my opinion, that is both unrealistic and unwise, even if you are buying a property for investment only.  Most people want to feel good about their purchase -- whatever it is -- and having some emotional investment is essential to being motivated to buy the property at all.  Step Four will show how to categorize your criteria to ensure you are evaluating the purchase as objectively as possible.

Step Four:  When You Go Shopping, Play Eights & Aces

Ace is low in this game. Eights are high. Create a list of criteria important to you: school district, number of bedrooms and baths, yard or acreage, etc. Keep your wish list short; include only those features essential to you.  Be realistic, though.  If your lifestyle includes entertaining family and friends in your home often, a tiny galley kitchen is probably not the right choice for you.  Likewise, if you intend to own horses or enjoy your own swimming pool, you don't want to choose a home that is on a piece of land that would not accommodate your lifestyle and hobbies.

Make copies of the list and slide it into a clipboard.  Note each address at the top of the list. After you have toured a home but before the next one, make your evaluation.  One score for each criterion from low to high -- 1 to 8, respectively.

Example: Yard: Nice, give it an 8. Bedrooms: Only 3, not 4, but they are good-sized.  You might would  4 but can live with 3, especially if they are roomy, so you give it a 5.  Schools: Great schools, excellent sports and music but a little rural, give it a 6.

After you have looked at all the homes which fit your search criteria, add up the score for each one. The ones with the highest scores are the ones on which you want to make offers.

While your objective is to get a great deal -- unless you are buying the property purely for investment, such as a flip house or income property -- you are shopping for a home you and your family will be living in for some time.  You don't want to buy something cheap and be miserable living in it.  Even if you are only buying an investment property, the criteria you scored high will very likely be scored high by a future buyer.

Step Five: Do Not Nitpick the Offer.

Negotiate the big stuff; do not get bogged down in the minutiae.  Keep your offer as simple as possible.  A seller will be more likely to accept an offer that is $20,000 or $30,000 under the listed price if the buyer is not also asking for the beer fridge in the man cave, the curtains in the bedroom (which match the comforter), and Fido´s dog house.

Give the seller as much of what they want as possible in terms of possession, reserved items (like the washer & dryer or sentimental rosebushes) and keep your offer focused on the price.

Step Six: Provide Your Credit Score to the Seller Along with the Offer.

"What???" you say?  That´s right.  Give the seller more than they expect in your disclosure to them about your financial ability to buy their home.  The most important thing to them right now is making sure they have a solid offer which will close.  Give them more than just the "information contained in a credit report."  Give them specifics. Specific information is much more powerful than general information.

Wouldn´t you look a lot stronger to a seller with, "My credit score is 805 " than if you say "I’ve got good credit." Put your strongest foot forward when your credit worthiness is strong.

I cannot tell you how often a (weak) agent or lender has told me disclosing such information is a violation of the Privacy Act and, as a listing agent, I have no right to that information. To them, I suggest they read the law or consult an attorney.   I have, and you (the buyer) has every right to disclose whatever information you want to disclose and can authorize your lender and your real estate agent to disclose it to the buyer by giving your permission in writing.

When I am working for buyers, the third form I require they sign, after agency disclosure and a buyer agency contract, is the permission form to disclose their credit score to a seller as part of the negotiation process.

Step Seven:  Put Your Money Where Your Mouth Is.

Did you ever hear the saying: "Never bring a knife to a gun fight?"  The same holds true of earnest deposits.  Show you are serious about buying a home by putting up a hefty -- and attention-getting -- earnest deposit.  If the normal earnest deposit in your market is 2% of the selling price, put up 5%. If the norm is 5%, put up 10%.

If you want to really get the seller to take you seriously, do not make your offer subject to financing approval.   Seriously, you know whether you will be approved for a mortgage, don’t you?  If you received an acceptable pre-approval from a top-notch lender and you’ve done nothing to hide information or damage your credit rating, the chances of a mortgage denial are pretty slim.

You are asking the seller to take the risk of removing the house from the market for the next 30 - 60 days. If you can bolster the seller´s confidence in doing so, the greater chance your offer will be accepted.

Step Eight: Be Nice.

The prolific bank robber, Willie Sutton, once said, "You can get more from a Smith & Wesson and a kind word than just the kind word." 

Consider the dynamics of a buyer´s market to be the gun.  You are the kind word.  No one likes having a gun held to their head and a kinder, gentler buyer may temper the seller´s frustration and result in getting a low ball offer accepted when a "take-it-or-leave-it" approach would fail.

There is no shortage of buyers and buyer´s agents who are bullying sellers today.  Be the exception.  Call for showings well in advance.  Arrive on time, respect the seller's home while you are there and turn the lights off and lock the doors when you leave (unless the seller instructs otherwise, of course.)  If you are a real estate agent showing the home to your buyer, be sure to leave your business card.

Once you write the offer, present it to the other agent or seller (per custom in your area) politely.  Avoid editorializing or justifying a low-ball offer with comparable sales information; that is the listing agent's job.  Don´t apologize for the price.  Just present it in the kindest way possible:  For example: "I completely understand your seller was hoping for more and I sincerely wish the market were different. The buyer feels this is a fair price for the home in today´s market.  I know you´ll do your best!"

Buyers and agents who treat sellers respectfully will have a head start when it´s time to negotiate.

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