Negotiating the Real Estate Contract

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Negotiating the Real Estate Contract

By: Roselind Hejl

Negotiation is the process of communication back and forth in order to reach a joint agreement. There is no "one size fits all" strategy of negotiating a real estate contract. Many of our clients have been very experienced negotiators, and we have learned a great deal from them, as well as from books on the subject. We would like to share some of our thoughts on negotiating with you:

What do we want to achieve in a negotiation?

The best negotiators bring an attitude of high expectations to the table. They are hard on the problem and soft on the people. Letting the seller know what you need, in a clear and reasoned way, is the first step toward getting it. We try to keep all of these goals in mind:

Enable you to move into your new home.

Obtain the lowest possible price for the property.

Close within an acceptable time frame.

Solve any repair issues fairly.

Have no title, survey or loan problems, or solve any that do arise.

Develop a good working relationship with the seller.

Have no future problems after closing.

Is a cooperative or combative approach more effective?

Our experience shows that the cooperative style is the most effective and efficient way to complete a transaction. Professional negotiators usually try to preserve the relationship between the parties, and work together to resolve problems. The goal is not to reach an impasse in which neither the seller's nor the buyer's needs are met. Buyers sometimes submit a letter to the seller describing why their house is not worth what they are asking, pointing out deficiencies, etc. This almost always backfires, and starts the negotiation off with a defensive seller. It is best to anchor your price to the marketplace, while remaining very complimentary of their home.

How do you work with a combative strategy by a seller or agent?

The combative style is sometimes encountered. This strategy includes: negative comments, emotional statements, table pounding, threats to walk out, ego involvement, and stated positioning. Creative solutions and trade offs are not as likely to be found in this environment. Working with a combative style negotiator requires a considered approach:

Do not respond emotionally. An angry or defensive response will escalate the negotiation into a no-win battle.

Do not argue. Arguing usually positions them more strongly and drags the negotiation process off course.

Do not ignore their arguments or statements. Listen carefully, but do not accept or reject.

Firmly anchor pricing and other terms to outside data. Show that the price has not been chosen arbitrarily.

Reduce misunderstanding by following up with written summaries of discussions.

Do not allow hazy or unclear proposals to stand.

Offer some "wins" on some of the terms. Face saving is very important.

Look for ways to meet their underlying interests.

Remember that they may have a beautiful home that satisfies the buyer's goals.

Is every point in the contact negotiable?

Yes. However, one of the most effective means of coming to an agreement is to rely on consistent standards or norms when possible. For example, it is common practice for the seller to pay for the title policy and for the buyer to pay survey cost. Using accepted standards prevents buyer and seller from haggling over every point. Working within the accepted "norms" for our area helps to legitimize offers, and focus the negotiation on just a few points. On the other hand, all the points in an offer can be used to help structure the deal. They offer trade-off opportunities for both parties to get what they want from the negotiation.

The value of trust in a negotiation cannot be overstated. Most people are fair minded and reasonable. They respond well to respectful treatment and to having their concerns heard. If the seller feels that the buyer and agent are acting with integrity, their attitude will be much more cooperative. Contract negotiation is a sensitive area, and anxiety can be high. The buyers may have had an unpleasant past experience with buying a home. The seller may be under pressure, with future plans at stake Acting with integrity does not mean that all "cards have to be put on the table." It is not proper to discuss personal issues that affect the buyer, such as your financial ability or urgency to move in. It is valuable to develop rapport because trust increases your leverage. Here are ways:

Listen and understand what the seller has to say.

Express appreciation for the seller's home, gardens, decorating.

Respond within a reasonable time to counter offers.

Reassure the seller of your ability to close.

Reveal some personal information about yourselves.

Finding common ground with the seller can be a very powerful tool in the event of multiple offers. I can think of several instances in which sellers selected their contract for very personal reasons. (The family reminded them of themselves when they moved in with young children years before. Or, they were both of the same religion. Or, the new owners would care for their gardens.)

Understand your leverage.

The more we can find out about the seller's needs, the better chance we have to find solutions to negotiation hurdles. We will be able to offer information or concessions that appeal to the seller's deepest concerns. Obviously, if the house has been on the market for 300 days, you have a lot more leverage than you would with a brand new listing. If their time frame is immediate, and you can meet it, you have some leverage. If they have multiple offers, you have very little leverage!

How much under list price should you offer?

Buyers usually offer less than list price, unless it is a strong sellers market. There is no standard percentage "under list price" that can be used. A market analysis will show recent sales for the neighborhood, which is the best way to establish the offer price.

It is usually counter-productive to offer so low that the seller will automatically reject the offer. This will set a negative tone, and may result in an emotional response from the seller.

What if we have a multiple offer situation?

Occasionally the seller receives more than one offer on their property. The Austin Board of REALTORS® has a policy that allows two options: disclosure to all parties that multiple offers have been received, or disclosure to no one that there are multiple offers. We prefer disclosure to all parties. However, the listing agent and seller will make the decision as to how they will handle offers. By simply disclosing that there are multiple offers, they are not "shopping" your contract. Shopping occurs when the seller discloses the terms of an offer to induce a buyer to submit a better offer. This can result in major distrust of the process by the parties, and the likelihood of loss of the buyers.

Usually the procedure is to notify each party that multiple offers have been received. Each party is then given the opportunity to raise or adjust his offer by a certain time. After that time, the seller is free to review all offers and choose one to work with. They are not obligated to choose the "first" offer that came in. The selected offer may be countered, or accepted as is.

Roselind Hejl, CRS Top 25 Agents in Austin Texas - Let us help you make your move to Austin. www.weloveaustin.com

About The Author

Roselind Hejl, CRS


Top 25 Residential Agents, Austin, Texas - Austin Business Journal Book of Lists


www.weloveaustin.com


roselind@weloveaustin.com

Comments

Dear B 23.10.2007. 00:25

Can anyone tell me the best way to negotiate real estate with asians/chinese and vietnamese? We are selling our house and had three separate families look at it. Two were vietnamese and one family was from China. Their rhythm of business is different and I would like to find out more about how they approach real estate. They never said if they wanted to make an offer, all they wanted to know is if we would take less without even giving us a contract. This isn't really how we approach negotiating so I wondered if there was a better way to handle it and how to know if they were really interested.

Dear B

Admin 23.10.2007. 00:25

You have a very tactful way of stating your issue! :)

When asked if you would take less, a fantastic answer is "like most sellers, i'm not sure we expect full price and would welcome considering any offer you'd like to make"

this is a decent give and take since you ARE giving them some information (though it's probably obvious you don't expect full price in this market!) and you are opening the door to them making "any offer" even one you would consider ridiculous. remember, it's not where you start, it's where you end. don't get offended by what you would consider a low-ball offer. if you can, always counter SOMETHING, even if it's $500 or $1,000. try to keep the ball rolling. be patient. your comment that their rhythm is different is point-on - if it takes them a few days to counter you, take your time countering them - but not to play games, just to match their rhythm.

when they make an offer and you are countering back, you can say something soft like "we're not comfortable selling the home at $____,____ (whatever their last offer/counter was). we'd like to make a counter offer of $_____,_____".

people, especially in this market, don't want to hear about what the neighbor's house sold for, or why you have more upgrades or amenities or what-have-you. try to avoid spending too much time arguing/discussing why your offer is fair - buyers are generally fairly savvy as to pricing in the area.

are you doing this thru a realtor or by yourself? i guess i should have asked that first!

good luck, feel free to repost if you have more info!

Admin

lovelyrita 16.11.2009. 03:30

What does it mean if a real estate agent is encouraging us to let her act as an intermediary? My husband and I live in Texas and we think it's time for us to finally buy a home. Our busy schedules keep us from being able to really search the marker and we have realized that we need a real estate agent but I am not sure if I should sign a contract with her. She would like us to let her act as a intermediary agent and I am not sure if that is on best interest. Please advice!

lovelyrita

Admin 16.11.2009. 03:30

NEVER ever accept anyone as a "legal" intermediary. know that the duties of a broker depend on whom
the broker represents. If you are a prospective
seller or landlord (owner) or a prospective buyer or
tenant (buyer), you should know that the broker who lists
the property for sale or lease is the owner?s agent. A
broker who acts as a subagent represents the owner in
cooperation with the listing broker. A broker who acts as
a buyer?s agent represents the buyer. A broker may act as
an intermediary between the parties if the parties
consent in writing. A broker can assist you in locating a
property, preparing a contract or lease, or obtaining
financing without representing
----------------------
http://www.habitathunters.com/services/IBS.pdf

-----------
a buyer should never ever accept anyone but a buyer's agent.

a buyer's agent acts like an attorney, ADVISING and negotiating. [paid for by the seller]

an intermediary is a totally neutral party--WORTHLESS when buying real estate.

[fact; in the past 40 yrs, buyers have overpaid by 15% average, on properties
bought when dual agency OR intermediaries was/were accepted by the buyer
because NEITHER one is permitted by law, to negotiate for the buyer!!!

Admin

westphalia1 21.05.2010. 01:36

Why do some people sell their real estate through a wholesaler? A real estate wholesaler who uses an assignment contract and "ties up" your property for sale? Is it a good or bad idea to sell through a wholesaler? Why? Why not? Thanks
I mean whats the difference between a wholesaler than a regular broker?

westphalia1

Admin 21.05.2010. 01:36

I am a wholesaler: I will negotiate with you to get you to sell me your vacant or runned-down property--I will tie up your property through a pruchase and sales contract and a $10 dollar bill and then I will sell the property to an other Re-Hab Investor who will fix and sell or Fix and rent the property-- I will negotiate with you to let me sell it for a certain amount say 65,000 and I will earn about 10%($6500) for assigning a property that may very well have a good condition value of 89,000 if sold at market value--
I will earn my money by assigning my contract to the other Investor who will pay one kwik chunk to the previous owner at closing for the sale price of 65000 and I will get my assignment fee of 6500 at closing from the purchaser and everyone gets happy in the end. this is called "quick flipping properties" and is exactly what I do. Hence the name Kwikflips

Admin

bjdmb 24.09.2007. 21:11

Is it beneficial to use a real estate agent when buying a home from a home builder? A real estate agent told me he could help negotiate the price and get us the better deal on a newly built home. The real estate agents at the builders location says they can get me a better deal if I don't have a realtor. Who is blowing smoke? Do I actually get a better price if I go with a realtor or without?

bjdmb

Admin 24.09.2007. 21:11

The Realtor is telling the truth.

New home builders actually build in the 3% they pay Realtors. If you don't bring one the 3% goes directly to the bottom line.

Go into a new home development and tell them you want 3% taken off the top of the home.

They will most likely tell you to go take a hike.

Realtors can actually ask very specific questions that you as a neophite would never think to ask.

Realtor also know that the "Statute of Frauds" prevents the salesperson in the model home from VERBALLY promising you things and not putting it in writing.

Many people decide to NOT use an agent to buy a new home and pay dearly for this decision.

Here's what normally happens.

They go into a new home development and the salesperson working for the new home builder asks "Are you with your agent?"

If you go to the models THE FIRST TIME without an agent you cannot bring your agent back to negotiate the contract.

Once they know you are not represented by professional council then they can go to work on you. How do they work on you? By VERBALLY promising things they know they don't have to live by because it was never put in writing.

P.S. Always remember this if you decide to "Go it alone" Verbal promises cannot be enforced in a court of law due to the "Statute of Frauds"

Hope this helps!

Terry S.
http://www.Welcome2Arizona.com

Admin

Lynn H 10.10.2008. 05:46

What states need a broker to hold real estate licenses for agents? I am a real estate agent in Minnesota. In the state of Minnesota I am required to have a broker hold my license. Thus, costing me a lot of money every month to be an employee of a brokerage. Are there any states that don't require a broker to hold your license?

Lynn H

Admin 10.10.2008. 05:46

So, what you are trying to say is that you DO NOT want to pay anyone for the use of their office space, to do research on their computers, send and receive faxes on their fax machine, make and receive phone calls on their phones, write up offers with their forms, conduct closings in their conference room?

By law, you are not allowed to do business for yourself unless you are a broker. As a real estate sales associate, your legal actions are to be controlled by someone who is more knowledgeable than you.

Contracts with a broker can be negotiated. Perhaps you need a broker who will allow you to keep 100% of your commission while charging you for the use of their equipment, forms, etc on a monthly basis. But be warned, in this trying market it is rather difficult to get the sales. If you are conducting a couple of sales per month consistently in these hard times, then go to a brokerage which will do this.

Admin

Quake22 18.09.2007. 20:40

When buying a property, is there any reason why I should use a buyer's agent? I am interested in buying a property to rent out. I understand real estate and contracts and have bought and sold many houses and don't feel as though I need a buyer's agent. However, is there any reason why you suggest having one? Can I negotiate a better deal without a buyer's agent since the seller won't have to pay as much in comission?

Quake22

Admin 18.09.2007. 20:40

I would never recommend cutting out a buyer's agent. They are there to legally protect you . No matter how much real estate you have done you haven't gone to school for it and don't work it on a daily basis. There are several risks and things that can occur They also help you negotiate a good price and handle all the paperwork correctly. What is you overlook something on a home inspection that will cost you 20k in the future but you didn't have an agent to tell you about it. Or you didn't know to find out if its connected to sewer and thought it was or relied off of them saying it was and have to pay 7k to connect to sewer 1 year later.. Leave the real estate to the realtors. Medicine to the doctors and so on.. You also don't always get a better deal if you cut them out, sometimes you pay more and don't know it. The listing agent will try to absorb the whole commission or cut it by a slight percent so you feel like your getting a deal, but remember they work for the seller..how can they be looking in your best interests and the sellers? What is the buyer's agent offers 50k less...you think the listing agent will want to present it and make her seller's mad at her. There is a lot of things that go on. Not to make realtors look bad but you get what you pay for. You may think there is no agent, but unless you see the actual listing contracts you will never know. If your not paying out of pocket whats the worry?

Admin

house searching 16.06.2008. 02:12

Can I get sued for signing with another real estate agent? My husband and I used a real estate agent and made an offer on a house. Our real estate agent is a woman and we felt like she was not negotiating well with the seller's agent. My father in law managed to talk and convince the seller's real estate agent to take us seriously but we had to offer higer and use him as our real estate agent. Can we get sued by our real estate agent or her office by signing a new contract with another agent? Yes we signed papers with her stating that she would represent us.

house searching

Admin 16.06.2008. 02:12

Hi Searching,

Ok, as much as I dont care for RE agents, this was not a good thing to do. In this case you should have stepped up to the plate and told your agent you are using someone else.

The contract you signed is a problem, basically what it means is they get paid whether you use them or not.

From what you have written - you crazy girl- dont offer higher, screw thier agent - sheez. The most powerful tool in any negotiation is the ability to say NO and walk away. You do not want to use the sellers agent anyway they have a contract to represent the seller NOT YOU!! this is the best way to get taken for a ride!!

RUN FOREST RUN!!!

Admin

Padraig 13.02.2013. 17:57

What types of work have realtors transitioned to after the market collapse? My residential real estate business collapsed after 5 years. I have scads of experience negotiating contracts, managing customers, and publishing marketing materials...yet I haven't received one interview based on this skill set of 3 years of looking for work. I'm wondering where other realtors have found success? Administration? Inside sales? Property management? Project management? I have been floundering and would love to hear other's stories, to give my job search more direction stat.

Padraig

Admin 13.02.2013. 17:57

I have a been a Project Manager for many years (which is how I came across your question). But I am also a real estate investor who has regular interactions with property managers and realtors.

My property manager is a "jack of all trades" when it comes to real estate. He is an investor himself, but he's also a licensed realtor and property manager. The real estate market (from a realtor perspective) is tough because people aren't buying as much as they used to. This may be because potential buyers don't have the money, they're being overly cautious or because they can't get a mortgage loan. If fewer people are able to enter the housing market as buyers/borrowers, then they will be forced to rent. As a result, the rental market would be a great place to concentrate your efforts as a property manager.

My property manager even offers a discount on property management fees if you buy your investment property through him as a realtor. And that has gotten him more business.

Another thing you may want to look into is working for a (large) mortgage company in their REO area. I'm not sure if they need former realtors but they are charged with managing and maintaining these properties that have been foreclosed upon until they can be sold (by realtors). The REO business is huge because there have been so many foreclosures. If you can make contacts with an REO department as a realtor, it may be a healthy channel of business for you.

Good luck!

Admin

Alyse 22.12.2008. 04:14

How do relocation real estate buying programs work? So we're interested in buying this house. However, there's an agreement by the seller with a relocation real estate company, to buy the house from them if they can't sell it after a period of time. We found out we made an offer that is lower than the relocation company. So are we working with the seller or the relocation company? And is this not worth it? Seems the relocation company did not incorporate the expected decline in home prices. It needs a lot of upgrades and needs some repairs too -- the reason our offer was also agressive. Any thoughts? Advice? thanks!

Alyse

Admin 22.12.2008. 04:14

My dealings with relo companies have been mixed. It used to be more common for companies to offer relocation packages to employees of a *certain position*. The benefits to the employees can vary widely.

Sounds like you are dealing with a buy-out. That's a pretty sweet deal for the transferring employee. Typically, an appraisal is done and the employee and the company reach an agreement of a buy-out price. At that point, there is little incentive for the transferring employee to negotiate the price down from what the company has agreed to pay.

At this point, you will typically do all negotiations with the owner, not the relo company. Some times, after the property is under contract between the owner and a buyer, but, just before closing (a couple of days), the relo company will buy out the owner and then closing documents and will show the relocation company as the seller of record. Just depends on the deal the owner (transferring employee) has.

You may just have to wait and see if you can negotiate with the relo company AFTER the buy-out. It may take a while until the relo company recognizes that the asking price is too high. Then you may be able to negotiate a lower price.

Good luck.

Admin

man 12.07.2013. 02:38

How much commission do real estate brokers in CA charge? In California, the commission to real estate salespersons is generally 6% (3% to selling agent + 3% to buying agent). After the real estate salesperson (either selling / buying agent) gets his 3%, how much does the broker keep and how much does the salesperson himself keep? I was told that broker keeps 60% and salesperson keeps 40% - Is that true?

Also, how does a salesperson go about picking which broker to associate with? What kind of training does broker provide?
Thanks for the info. How much is the desk fee usually?

man

Admin 12.07.2013. 02:38

There is no fixed Real Estate Commission in California or in other states. State Real Estate Commissions and Boards of Realtor groups would agree that RE commissions are negotiable. I sold and listed residential property where commissions ranged from 5% to 7.5%. One competing agency did well by offering a 5 1/2 % commission. They placed their listings into the MLS and offered a cooperating broker 2.5% while they kept 3% as the listing brokerage. It was perfectly legal. Determining factors influencing the negotiated commission include the market area, price of the real property, type of real property (Residential, Commercial, Industrial, Land, Rental, etc.), competition between Real Estate Agencies, Broker's Individual Profit Objectives, and other factors.
Real Estate Sales Persons are rarely employed by their broker of record. They function under the IRS regulation as an "Independent Contractor". The broker should have a written Independent Contracting Agreement with each sales person. Each agreement could have its own individual negotiated commission structure, fees, sales quotas, and incentives. It could be a 50-50, 60- 40, 40-60 or some other split. Using your numbers, here is how the commission may be paid:
$100,000.00 Sales price with a 6% commission. The total Gross Commission would be $6,000.00 and may be split evenly 3% ($3,000.00) Listing Office and 3% ($3,000.00) Selling Office. As the listing agent you may receive 1.5% or $1,500 and your Broker may receive 1.5% or $1,500.00. If you happen to be both the listing and selling agent, you may split the $6,000.00 50%-50% with your Broker or $ 3,000.00. I was also assessed a 6% franchise fee as was my Broker from the gross office commission. That would net out to receiving $2,820.00 on a $3,000.00 commission. I would stay away from desk fees at this time in your career. Desk fees can range anywhere from $100 a month to several thousand.
I recommend interviewing with least two different Real Estate companies. Look for a broker that has a skilled office manager, has a strong community influence, conducts regular sales meetings, has a strong and attractive Web Site, maintains a pleasant and professional office environment, provides supervision, training and leads for newer agents, has a high quality reputation for employing ethical tactics, and attracts other successful sales affiliates. That?s asking for a lot.
Some brokers require and offer no formal training. Others may buddy you up with a seasoned vet in exchange for giving that person part of your commission. Still others are part of a large franchise chain that provides sales training in an out of office setting. You usually pay for this training. Expect to budget $500.00 for this training. I wore a Gold RE jacket with a C21 emblem and received outstanding training (2 and 1 training) for one week. It was based on the objectives of obtaining two listings and making at least one sale per month. A new agent may automatically remember that there are 43,560 sq. ft. in an acre, but really doesn?t have a clue on how to properly answer the phone.

Admin

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