Six Key Real Estate Negotiation Tips for Buyers, Sellers

Determining other party's motivation paramount to success



The year 2005 has been very good for most property owners and realty sales agents. Home sales prices appreciated handsomely in most communities and the sales volume of new and resale homes were near-record.



But 2006 promises to be more "normal" as mortgage interest rates slowly rise, resulting in a modest new home construction volume decline with a corresponding residence market value appreciation and sales volume slowing.



Having been through many real estate market ups and downs over almost four decades, both as an investor, sales broker, and realty writer, I've learned that success in a slowing real estate market requires paying greater attention to negotiation skills.



NEGOTIATE WITH PEOPLE WHO WANT TO NEGOTIATE. As a lifelong student of real estate negotiation techniques, because there is always more to learn, I've discovered it usually is a waste of time to attempt to negotiate with people who are not highly motivated to make a change.



Most experienced real estate agents hate the situation when a home seller lists their desirable property for sale with a top price but they really don't have a good motivation for selling. These sellers often have the attitude "If we can get our price, we'll sell. Otherwise, we won't sell." Their homes often take "forever" to sell.



But in 2005, many homes sold for above their asking prices because buyers wanted to purchase more than sellers wanted to sell. A strong motivation for many buyers was to beat the long-predicted rise in home mortgage interest rates.



The result was a "seller's market" in many communities with more qualified buyers than motivated sellers.



However, as the number of residence listings for sale has risen recently and is expected to continue rising in early 2006, especially after the customary holiday 2005 year-end lull in home sales, many real estate economists are predicting a more normal balance of motivated sellers and buyers. The result should put a premium on negotiation skills for home buyers and sellers, as well as their realty agents, to conclude successful sales.



HOW TO ACHIEVE A SUCCESSFUL NEGOTIATION. Whatever your role in a home sale, as buyer, seller or realty agent, you can't ask too many questions. Of course, the best negotiators inquire in a friendly manner interjected with compliments. Here are the six key questions to get answered for a successful home sale negotiation:



1. WHY IS THE SELLER SELLING THIS LOVELY HOME? One way or another, successful home buyers and their realty agents need the answer to this key question so the buyer can make a purchase offer which meets the seller's needs (of course, buyers should leave out the word "lovely" if the place is a dump!).



As a long-time investor in rental houses, and my personal residences, I always try to tailor my purchase offers to meet the seller's needs (and mine too).



For example, several years ago I bought a house from an elderly lady who was retiring. So I offered her 10 percent cash down payment and a 90 percent seller carryback mortgage to provide for her retirement income. When she saw my offer and how much she would receive from my payment each month, she accepted (although the listing agent previously told me she wouldn't carry back any mortgage financing).



Another time a listing agent told me the retired sellers of an "el dumpo" house were living in a boarding house and needed cash. As a result, I figured they wanted an all-cash sale so I arranged 100 percent financing at a community bank. The sellers immediately accepted my low purchase price offer for cash.



2. WHAT WAS THE HOME SELLER'S PURCHASE PRICE? Buyers who don't find out the answer to this key question, either from the listing agent or their buyer's agent, are at a severe negotiation disadvantage.



Here's why: If the seller purchased the home many years ago for a low purchase price compared to today's market value, that seller has lots of negotiation room. However, if the home seller bought within the last few years for a price not far from today's market value, there isn't much negotiation flexibility.



Of course, if the seller has a high-motivation reason for selling, as disclosed by the answer to the first question, even a recent home buyer is often willing to sell in a quick sale for close to the seller's purchase price. Such a situation is an ideal candidate for the buyer to take over payments on the current mortgage with the lender's permission.



3. DOES THE OTHER PARTY HAVE A TIME DEADLINE? This is a question both home buyer and seller should ask of their realty agent.



To illustrate, if one party has a job transfer, then purchase or sale of the home can be very important. But if the seller is moving to a retirement residence, time usually isn't so critical. However, if the seller already bought another home and needs to sell the current home to produce the down payment, then closing time is ultra-important.



As experienced real estate agents know, the worst home buyers and sellers are those without any time deadlines. Those folks can take forever to make decisions.



4. HAS THE SELLER OBTAINED A PROFESSIONAL HOME INSPECTION REPORT? Today's smartest real estate agents suggest their sellers obtain a professional inspection report at the time of listing the home for sale. Then the seller is fully aware of most home defects and can either have the defect repaired or fully disclose it to prospective buyers, thus averting future lawsuits.



Sharp home purchasers, and their buyer's agents, understand this trend. When a buyer is seriously interested in a house, always ask if the seller has already obtained a professional inspection the buyer can review before making a purchase offer.



Even if the seller has obtained customary professional inspection reports, smart buyers should always include in their purchase offers a contingency clause for the buyer's approval of their own inspection report obtained at the buyer's expense.



Most states now have some form of required seller disclosure statement revealing known home defects. However, many sellers are not aware of all their home's defects, or they might "forget" to disclose a defect. The old days of "caveat emptor" (let the buyer beware) have disappeared. Today, the new rule seems to be "let the home seller beware of the buyer and his lawyer."



5. WHAT IS THE BUYER'S MOTIVATION TO PURCHASE MY HOME? Just as home buyers need to know the seller's reason for selling, to create a harmonious negotiation situation, home sellers should ask why the buyer wants to purchase.



Of course, there are many home purchase reasons. However, if the buyer has indicated a key reason why that particular house is under consideration, such as its great condition, outstanding school district, or need to move in quickly, the seller can use that information to enhance their negotiation position.



6. ASK AN OPEN-ENDED QUESTION, SUCH AS WHAT ADDITIONAL INFORMATION SHOULD I KNOW BEFORE MAKING A DECISION? There are many variations of this question home sellers and buyers can ask, especially of their real estate agents.



To illustrate, a home buyer might ask their buyer's agent "What else should I know about this house?" Or the seller might ask their listing agent "If you were in my situation, would you accept or counteroffer the buyer's purchase offer?"



SUMMARY: When negotiating a home sale, sellers and buyers can't ask too many questions to enhance their negotiation position. The prime reason is to determine how motivated the other party is to buy or sell. If there is weak motivation, you aren't in a strong negotiation situation.



However, if the other party is highly motivated, then you are in a strong circumstance to negotiate your strongest price and terms.



BY BOB BRUSS