By Mike Bodeen · 25 March 2019
PHASE ONE!
Most folks think of real estate negotiation as a one-time event that occurs when a buyer first makes an offer on a home. Actually, there are several points of negotiation that take place throughout a typical residential transaction.
The first negotiation is of course for initial price and terms. The second point of negotiation follows the ten day Due Diligence (DD) period. The third phase of negation only occurs if the appraisal comes back for lower than the purchase price. Each of these points can make or cost a client money and other headaches. (Note: There could be other issues which arise during the transaction that will require more negotiations, but these are the main ones)
1) First Negotiation: Price and terms.
It’s rare that a buyer doesn’t ask their agent, “how much should I offer?” A good question certainly, but a veteran professional most often would reply that he or she would need to look at the comparable sales (aka: Comps). In effect, doing an appraisal for the client. Once we know market value, then we would look at other data such as amount of days on the market, and seller motivation.
Comps can be the most effective strategy to bring a seller, or seller’s agent down to earth. After all, if the buyer’s agent does a good job using comparable sales to align their offer, they can rationalize that an appraiser will come up with a similar valuation.
If a home is newly listed and there are multiple offers on it, it’s safe to assume that list price is at least market value. This is because a home is ultimately worth what buyers are willing to pay for it, and if multiple buyers are willing to pay at least asking price for it, that is as good a confirmation as any on value. If this happens, the negotiation strategy changes from, “how much lower can I buy this home for, to “what will it take to get this home!?”
This is where the Realtor professional must have a serious dialogue with their buyer client about a top price a buyer is willing to go. I’ve had clients look me in the eye and say, “Mike, whatever it takes, get us the home!” Umm, no pressure there. The question we agents should be asking ourselves is, “If my client doesn’t get this home they absolutely love, will I be able to find them a similar one for near that price?” Even though we have a common saying that “there’s always another house,” sometimes it’s at best only second best.
The buyer has a major role to play in negotiations as well. The up-front qualifying of the buyer is imperative in ALL transactions. An Arizona Pre-Qualification Form which is now a requirement of the purchase contract, is only the beginning. If a buyer is “pre-approved” rather than “pre-qualified,” this can help negotiations immensely. “Mr. and Mrs. Seller, my client, Buyer Bob is already loan approved. Only your house would need to be approved via its condition and appraisal.”
Another effective strategy can sometimes be a cover letter to the seller. This can be from the agent or the buyer themselves, though generally we like to undertake this task ourselves. In it, we explain how much the buyer loves the home and envisions how they would raise their family in it, or praising the design colors of the home, or how well the home is kept. This personal touch is especially valuable if multiple offers are on the table. This approach has little to no value if the seller is an investor.
Next Article: The Second Negation Stage – Duel Diligence