|Negotiating the Real Estate Contract
There is no "one size fits all" strategy of negotiating a real estate contract.
Negotiation is the process of communication back and forth in order to reach a joint agreement. 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
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
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.)
Understanding 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.
About the author:
CRS Top 25 Agents in Austin Texas - Austin Business Journal
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