How to Win the Negotiation!
Negotiating a purchase agreement is perhaps the trickiest aspect of any real estate transaction. Most homebuyers and home sellers want to arrive at a win-win agreement, but that’s not to say either side would regret getting a bigger “win” than the other. Successful negotiating is more than a matter of luck or natural talent. It also encompasses the learned ability to use certain skills and techniques to bring about those coveted win-win results.
Step #1 – Analyze the Market with your Realtor:
The most important reason homebuyers need their own buyer’s agent is to prepare a Comparative Market Analysis (CMA) prior to making an offer.
This CMA form shows:
- Recent sales prices of comparable nearby homes
- Asking prices of similar active homes listed in the neighborhood
- Asking prices of recently expired listings
- List Price to Sold Price ratios
- Average Price per Square Foot
Using the pros and cons of each home shown on the CMA, with the agent’s help the buyer can then arrive at a fair purchase offer price. The buyer’s agent will then show that CMA to the seller when the buyer’s purchase offer is presented. Although the seller’s agent probably prepared a CMA for the seller at the time of listing, the local home sales market might have shifted in the several months since then so the buyer’s up-to-date CMA is a very important negotiation tool. It shows why the buyer’s purchase offer is reasonable and should be accepted (or at least counter offered) by the seller.
Step #2 – Find Out How Much the Seller Paid:
While it is true that in many cases the price the seller originally paid for the home has little bearing on today’s market; however, if the seller purchased a few years ago in a depressed market, with little appreciation since, the asking price should be closer to the seller’s purchase price.
Step #3 – Determine the Seller’s Mortgage Balance:
If the seller has an extremely high mortgage balance, and the property is vacant, you can assume the seller is making those mortgage payments out-of-pocket, probably paying on two homes. If the mortgage balance is very low, the seller might not be motivated to immediately sell, and can afford to wait out the market to get list price.
Step #4 – Make a fair offer:
Make a fair offer based off the market statistics on the CMA prepared by your realtor. Just like over-pricing a home will turn off buyers, making too low of an offer will alienate the seller. Tip – Do not include non-a-fixed items in the offer (e.g. furniture, lawn movers, etc.). These items can be negotiated after the offer is ratified.
Final Tip – Be Prepared to Comprise!
“Win-win” doesn’t mean both the buyer and the seller will get everything they want. It means both sides will win some and give some. Rather than approaching negotiations from an adversarial winner-take-all perspective, focus on your top priorities and don’t let your emotions overrule your better judgment.