Today’s topic is the artful negotiation. Many of you out there would just cringe at what I am about to say, however, there are some of you who just get so tickled to win at negotiating anything. Case in point, my husband who absolutely loves to negotiate anything at all. If he can save $5 bucks on something using artful negotiation, he would. Mind you, it’s not because he’s cheap in any way. In fact, he really does love the finer things in life and doesn’t mind purchasing them for his own use or mine. He just gets positively elated if he can convince someone to sell him something for less than the asking price. In this blog, we will discuss two strategies. The first strategy we will call the “Double Down” and the second one we will call “Fast Friends.” Are you ready to learn the art of masterful negotiation as it pertains to real estate? Okay. Let’s do it.
Strategy 1. The Double Down
Step one in artful negotiation is to know where you really want to be at the end of the dance. If you are buying a house, for example, you would take the price you want to pay, subtract that from the asking price and then double that amount. Let’s try it. The house I want to purchase is $250K but, I’d like to pay $240K for it. The reduction from list price to $240 is $10K so my offer would be $230K. I would double the $10K to $20K and then make my offer hoping that the seller will meet me in the middle by counteroffering a $10K reduction instead. That would put me exactly where I want to be at $240K. It’s simple right? That is the Double Down strategy.
Strategy 2. The New DD
You’d be amazed at the number of transactions that go down exactly like that. I mean it is a textbook example of price negotiation. But, what happens when you really want to win and I mean badly. Let’s look at another type of the Double Down strategy. In this case, the house is only $150K and I want to buy it as low as possible for a fix and flip so the price is critical. If I can get the house for $100K I win, if not I’m out of the negotiations. Here you would not be able to “Double Down” in the traditional manner, so I’m going to teach you a New Double Down strategy called “The New DD” Yes, I’m very creative that way. In this circumstance, you would offer to pay $100K knowing that the seller will inevitably counter with their desired sales price. Two things just happened here. First, you hurt their feelings by telling them that their house which they believed to be worth $150K was only worth $100K to you. Ouch. Second, you just found out exactly what they were actually willing to sell for. Remember, this is a dance and it takes some time. Now what? Well, we are going to try again. Pretend that their counter offer was only $140K. That’s pretty far from the $100K that you said you would pay or you’re out, right? So this time we offer $130K just to see if they will still dance with us at that price. For argument’s sake, let’s say they do accept that offer. Now then, we are $30K away from where we need to be to win this house. Here is where you really have to buckle down. We have a ratified contract that states we will buy the house at $130K if, after our due diligence period, we find it to be in good condition.
It’s Best To Be Prepared
At this time, I would like to break this to you as gently as possible. In almost every one of my negotiations, this is what takes place. There is the first negotiation whereby we come to an agreement on the sales price then we have an inspection which changes everything. It’s back to the drawing board so to speak. I want you to know this and be prepared for it in your own life as a buyer and as a seller. Put this one in your repertoire. It’s tough to swallow as a seller because you feel like you were hit with a 1-2 punch but, as a buyer it’s gold. In my blog A Guide for the Proactive Home Seller I teach you how best to anticipate this as a seller and what to do to dismantle it early on.
Now then, we are in the due diligence period of our contract and we are going to move very quickly to get an inspector on site. Remember, these guys are paid to find what’s wrong. They haven’t done their job if they give you a clean report on the house. Quickly, I just sat through an inspection of a townhouse that was only 2 years old. The inspection still came back with plenty of findings. This is what they do. You are paying them to find problems and in this set of circumstances well, that is a good thing. After we get the findings, we are going to figure out the price it will cost to fix those things and then make our move. You will want to call in an expert contractor to give you an estimate of what they would charge to fix these items. In our example, we need to have some leverage with which to renegotiate so we are practically hoping that they will find some issues that are somewhat significant like plumbing or electric but, not to the extent of foundational cracks. I’ve been through this before right? I’m here to tell you that if it’s there no matter how small or insignificant, the inspector is going to document it. Get your contractor to address all issues no matter how small they seem. I’m willing to bet that you’re sitting pretty right now with respect to your contractor’s cost estimate being on or near $30K. A quick reminder, this house was intended to be a fix and flip, therefore, it is not one that started as a move-in ready house.
Next, we go back to the seller with our newest findings. The due diligence period allows the buyer time to inspect the property and either buy as is, request repairs of the seller or renegotiate down to the price it would cost to fix those things. That is what we are going to put forth. It is highly unlikely that the seller will want to fix those things and we are not aiming to buy “As Is” so the hope is that the seller will reduce the price based on the inspection findings and contractor’s estimate. If that happens, it’s a buyer win. The New DD is in full force only you are doubling down on the negotiations instead of the initial price reduction.
Strategy 3. Fast Friends
The third and final negotiation technique for today is called “Fast Friends.” In this artful negotiation, you have to do a little work beforehand. The premise is that you found a house that you like and are trying to decide between two. Your offer will be low because the “other” house that you like costs less and that is the price you are willing to pay. Let’s make an example here. I really want to buy a house that costs $250 and I’m also entertaining another house which costs $235K. You are going to make this known in the negotiations so that there is a sense of urgency for the seller. Here is how to do that. Write a letter. I know it may sound corny at first but, it works. You will write a short letter about why you like their house but find it’s price a little far from your budget. Compliments are the best way to make friends and in this set of circumstances, you are trying to do just that. Tell them how much you admire their garden or their choice of kitchen upgrades make it personal. In the letter, you should also casually mention the second house and how it also has nice landscaping and an upgraded kitchen so that they know you are comparing apples to apples. Then you make your offer for the price of the second house. Your real estate agent will convey the letter with the offer and the sellers will have the opportunity to read it and reflect on what you’ve written. That’s a good thing and it is very important in this negotiation. It’s your chance to build rapport, pull some heart-strings or just make friends with the seller. If you need help with this, ask your agent. I’m sure he or she would be willing to help you. To be clear, I am in no way asking you to lie or make up stories. I mentioned that you’d have to do some work beforehand and that is true. You will have to find a home that is similar to the one you want so that you can make these comparisons. Again, ask your real estate agent to find you one that matches your criteria which costs what you were hoping to spend.
I Think I Like You
Here is why this works. When you build rapport with someone, they typically give you the advantage. If they are considering multiple offers, you stand out. When they need a reason to bend on price, you’ve given it to them. Or how about when they just want someone to love the home as much as they did? This is the kind of thing that people eat up. If someone told me that they would treasure my garden and that they love flowers as much as I do, that would melt my heart a little don’t you think? Now, if I have to choose between two offers, even if the other is slightly higher, I feel as though we have a personal connection. I’m not making light of this. I’ve used this tactic myself in a no-win situation and still won.
My Own Experience
If you’re interested here is what happened to me. I had a buyer who found an older home in a well-established neighborhood. The price was particularly low for this area and we were not the only ones who noticed. It was a multiple offer situation and there were seven contenders. I’m here to tell you it was a pressure cooker situation. We had to make an offer desirable enough to beat out six other people before 5 pm and there wasn’t much room in my buyers budget to go up. We drafted a letter about the house and the sweet cat that met us at the door looking for love. We told the owner that the buyer would be sure to take good care of that little cat as we realized quickly that it must have been the former owners. Sadly, the owner had passed away and her daughter was selling the home. Well, that was it. Of course, the daughter who was selling the house was smitten with the idea of someone who was willing to take over that responsibility. We were not the highest bidder in this situation. In fact, there was an offer that came in with what we call an escalation clause. That means that this particular buyer was willing, in this case, to pay $1000 more than the highest bidder and had written that in the offer. Who won the bid? We did. Why? Because it was personal. It had all of the right ingredients at the right time. You see, the daughter was likely feeling emotional about the sale of her mother’s home and this was the perfect response. Frankly, the sale of any home is emotional for the seller. The whole transaction is a series of ups and downs emotionally so if you can break that tension by making Fast Friends then you already have a leg up.
In the meantime, if I can help you to find the home of your dreams or sell your current house, please don’t hesitate to call me. I look forward to hearing from you.