Who doesn’t like a deal? Everyone likes a deal and especially on big ticket items, like homes. Well, if you are going to get any kind of deal, then you will want to put your best foot forward on negotiating when purchasing a home. Of course, you will most likely be represented by an agent. So, why do you need to know anything about negotiating, Isn’t that the agents job? Well, yes, it is the agent’s job to negotiate on your behalf. But, it is helpful if you are well-informed as ultimately, you will have to accept or rescind the offer. Therefore, you will want to bone up on your negotiation skills.
First of all, you should be familiar with different negotiating techniques so that you can respond accordingly and get the best deal possible. Let’s take a look at the Top 5 Most common negotiating tactics.
- The “Gatekeeper” Negotiator. This is the negotiator that does not disclose that there is a “higher authority” than them that makes the FINAL decision. Often times, you may iron out a deal and all of the details and then find out that someone other than the one that you have negotiating with must get final approval from a third party. That would not be so bad, however, you may have made concessions that you would not have otherwise agreed to if you knew the terms would be changing. For example, you may have 2 spouses selling their home. Maybe one of the spouses is out of town and as a result the other spouse does the negotiating. You strike a deal and all of a sudden you find out that the traveling spouse needs to sign off on the particulars of the deal. This spouse comes back and asks for additional concessions and the deal becomes more favorable to the seller. The best way to avoid this scenario is to ask up front, who are the decision makers and is there anyone else that needs to approve the details of the deal? Additionally, if this should happen to you, you should explain that you agreed to specific terms and conditions and if there are any changes, you will likely have to alter your request as well.
- The “Good Cop, Bad Cop” tactic. This is a very popular tactic. You have 2 sellers and you are told that one seller is eager to sell the home and the other is not. In reality, they both may be very eager to sell. The goal of this tactic is to lead the buyer to believe that it will be hard to get this home for a deal because the one seller doesn’t want to sell. In reality, this is a tactic to make you think that you should offer as much as possible on the first pass. You will not really know if you have one unmotivated seller, most of the time. You only know what the listing agent has shared about the sellers. It may be true, it may not. But, if you put in a higher offer on the first pass, you start off by negotiating with yourself. Be comfortable starting lower, even when you think you are dealing with a less motivated seller. You can always go up, but you can’t go down.
- Information – Asking a lot of questions up-front. The side with the most information tends to fare better. For example, a buyer should provide a mortgage approval offer along with the offer to purchase to show that they are a legitimate buyer. This shows the seller that you as a buyer are able to afford the house and your offer is credible. Psychologically, this allows the seller to envision actually selling the home and erasing a common doubt which is, “Are these legitimate buyers”? This means that the sellers now know something about you when the negotiating begins. They know that you can afford the home. However, they don’t know if you would be able to afford the home if the purchase price is say, $5,000 more. You as the buyer want to know as much as you can about the seller before you make your offer. For example, is the homeowner current on their mortgage? You will likely not know the answer to this unless the mortgage is significantly past due and the lender has started the foreclosure process. You can do some investigation by seeing if there is a “substitute trustee” deed on the property. This indicates that the loan is in default. If this is the case, the seller is in a dire situation and needs to sell the home immediately or the property will go into foreclosure. You should always ask, “Why is the homeowner selling”? Are they selling because they are downsizing, relocating for employment, or due to divorce? If there is a divorce pending, you may also be able to get a better deal as the sellers may want to get the home sold quickly. At the end of the day, knowledge is power. Find out as much as you can about the seller and don’t be afraid to ask lots of questions particularly hard questions. The information that you uncover can be used in the negotiation process.
- Listing Agent tells the Buyers Agent that other buyers are interested or that there are other offers pending when there are not. Just remember, you as the buyer, ALWAYS have more options than the sellers. You have far more homes available for purchase than a seller has buyers. To that end, do not let that information make you an emotional buyer that puts in a higher offer out of desperation.
- Higher listing price when the home is first listed. Often times the first 30 days of a home’s listing is a market-testing. In fact, sometimes the seller has an overinflated idea of the value of their home. A listing agent may be desperate to get listings and agree to list the home at a price above market value. So, if you are looking at purchasing a home that has just been listed, you will want to determine if the price is reasonable. Again, do not be afraid to make a lower offer even though you may be told that the listing will not be for sale long.