Many real estate agents and clients think of negotiation as simply how they price their listing or their offer to buy. Maybe they include the concept of a counter offer in their bag of negotiation tools. The truth is that proper negotiation is much more than simply the price on a home or earnest deposit used in the offer. I’ve written a paragraph on a few of the most common opportunities and mistakes that I see in real estate transactions in the Sonoma County. My goal is to get you thinking about how many different ways there are to improve the outcome of your transaction. Once you put this foremost in your mind, you will begin to identify other opportunities unique to your particular transaction.
Never take an adversarial or even aggressive posture in ANY of your interactions with real estate agents, buyers or sellers. Actually, just the opposite, you must be easy to get along with and easy to talk to. BUT NEVER FORGET that you are there for one reason; to solve your real estate needs whether you are buying or selling. This means that while you are negotiating the deal, every piece of information that you provide to "the other side" should be carefully released at just the right time, spoken in just the right way and designed to improve your position in the transaction.
Experience has shown that the "art of negotiation" is not just a simple isolated exchange, but rather a continuing effort. You must remember every action that you take during the entire transaction beginning with submittal of offer to close of escrow is part of this negotiation. I have seen many real estate transactions where the Buyer or Seller got past the “Offer and Acceptance” phase and then acted like the deal was done. You know what they say about the opera, “It ‘ain’t over till the County Recorder Sings”. Don’t give up your position too early, don’t make unnecessary concessions, and don’t compromise without gain.
A good buyer's agent in the Santa Rosa area will coach their clients about the best ways to position themselves and their offer to increase the likelihood of the Seller’s acceptance. This is true even in a strong buyer's market; because if you want to pay the lowest price for piece of property, you then have to be sure that all the other components to your offer, other than price, are as attractive as possible.
This includes a conditional loan-approval from a reputable lender, timeframe for close of escrow, use of qualified inspectors, amount and type of earnest deposit, contingencies and how they are structured, comparative analysis of the property, and the professionalism and attention to detail in the offer.
Remember that while price is very important to the Seller, so are other aspects of the deal. The Seller only wants to go through the escrow process ONE TIME, so if all the components of your offer must say “I can CLOSE”, your lower-price offer may be preferable to a higher offer that says “I am not so sure this is the right house and I may be a pain and NOT close escrow”. Believe me; this happens all the time in the Santa Rosa area.
Negotiation is just as critical on the seller side of the transaction. For example, many buyer-agents in the Santa Rosa / Windsor area will advise their clients to demand hefty price reductions from the seller for relatively minor repairs that are discovered during the Buyer’s home inspection. Most Buyers believe that if the cost of the repair is $1,000, they should get a $2,000-$4,000 reduction in the asking price. To some extent this is justifiable because you often don’t know the exact cost until the repair is done. Furthermore, if the Buyer has to coordinate the repair, they should be reimbursed for their time and effort.
However, there are agents that actually advise buyers to go ahead and make an offer close to the full list price on the home, knowing very well that there will be “something” on the inspection report they can use to get price reductions. When these items are discovered, the Buyer then demands unreasonable price reductions to the point that the Seller would never have entered the escrow had they known the price the Buyer really wanted to pay. The Buyer is effectively negotiating the price of the home “after the fact”.
By the time some Sellers get to this point in the transaction, all they want is for the home to close escrow. They are tired of the process and often willing to reduce the price just to keep things moving along. A good listing agent should advise that the Seller get a home inspection before they even list the property, and then fix the items discovered in the inspection. This approach completely removes the home inspection as a bargaining tool from the buyer’s side of the transaction. Even if you don’t want to invest the money to repair the items, you can still give the list of needed repairs to a potential buyer before they offer, stating that their offer needs to reflect acceptance of these items. Then you know the price reduction they expect BEFORE you get into a lengthy escrow.
As a buyer's agent, I'll always request that the listing agent allow me to present the offer directly to the seller. There are agents who will refuse to allow this, but it never hurts to ask. Generally speaking, there are a lot of real estate agents out there who have poor-to-zero negotiating skills. While it might not have crossed the listing agent’s mind to ask their client, I really do want to understand exactly what is most important to the seller.
More often than not, at this point in the game, pricing is not the “number one most important item”. But, even if pricing is #1, what other things are on this list of importance? What is item #2, or #3? I want to know what these needs are so I can help my buyer-client restructure their offer to answer these needs if the initial offer is rejected. Believe me, I have seen the craziest items hold high importance to people and you often don’t know what they are until you ask. “What did you say?...The back door on the garage has high sentimental value to you?...yes, I am sure we can work that out”. Direct person-to-person communication is the key to this negotiation tool.
This is perhaps the first place many negotiations fail. There is an art to creating an offer to buy a home at the best price. Most people understand that if you walk up to a person selling their home and say to them; “I think you are stupid and I want to buy your home so here is my offer”, the chances that the seller will actually look at your offer is pretty low. This is because you have put the seller into a compromised position. You have forced the seller’s sense of pride to over-rule their desire to sell the home. Once you have put the seller in this position, it is difficult to correct it. Saying something like; “Sorry I called you stupid. Here is an extra $100 to make up for that”, probably isn’t going to fix things. Maybe offering $70,000 to make them feel better would work, but then “Stupid is as Stupid Does”. I have seen very few buyers able to correct the mistake of insulting the seller. Pride is a really big deal.
So, most people understand the obvious concept, but people often don’t realize how many different ways that you can put EITHER a seller or buyer into this defensive position. I have seen buyers take the approach of including a defect-list in their offer which highlights every undesirable feature in the property. They do this sometimes to support a low offer. Either way, this is the same thing as saying “Your house sucks and here is why”. The seller is insulted and either discards the offer, or counters at a higher price than they might have if they were NOT insulted. It is a counterproductive negotiation technique.
A crazy low-ball offer is another common way to insult the Seller. If you really don’t care whether you buy the property because you are just bottom-fishing anyway, then perhaps this works for you. However, for most buyers in the Santa Rosa area who are serious about finding a home that truly meets their needs, this is a mistake. Buyers spend a lot of time searching for the right home. Sometimes once they find a great home and start writing an offer, their priority suddenly changes from “find the perfect home”, to “Win this negotiation and get the house below fair value”.
Very rarely do you find “below market value” and “perfect home” in the same transaction. This whole concept defies logic; how many times have you shopped for a product and been willing to pay a premium for a particular product because it has all the features you highly desire? We all do this almost everyday. Now, how many times have you found yourself thinking;“I really like this product BETTER than the others, therefore I should be able to pay LESS for it”?
The point is that just attempting this tactic often kills the deal and the Buyer usually ends-up at square- one again. Is THAT your goal in shopping for a home? Spend your time at square-one? Stay focused on your true goals and negotiate accordingly.
I am not suggesting that price negotiations shouldn’t occur. Of course they should. The challenge is to identify a very good price that is justified by market comparables, but yet the offer is submitted in such a fashion that it does not insult the seller. The use of current Santa Rosa and Windsor market data to prepare and then support your offer is by far the most effective tool in a price negotiation. Showing a seller market data is way more persuasive than simply saying “I just feel like you are over-priced”. Another reason market data helps is because many real estate agents barely know how to perform a competent market analysis (CMA). They don’t really KNOW what the property is worth. If the Buyer-agent produces data that supports their client’s offer, many times the seller’s agent will be swayed by the data and will recommend that their seller-client accept the offer.
The mirror image of this (Seller prices high to allow room to negotiate) has the same effect on insulting the Buyer and forcing a lost negotiation. For more on this read my article; “How to price your home in a Buyer’s Market”. A good listing agent will help the Seller create a package that shows the value of the home using market data. Again, this is way more persuasive than opinion.
Another consideration in helping a buyer create an offer is how soon will the listing expire? Most listings in the Santa Rosa / Windsor area are for 90 days and at the end of that time the seller has a choice of relisting with the current agent , OR choosing a completely different agent. Changing agents is not uncommon. Human nature tells us that the closer we are to the expiration of the listing, the more likely the listing agent is to give the offer a positive recommendation. Sellers also view this as a sort of “deadline” because it is a milestone in the progress of selling their home, and often they are also more willing to negotiate as the end of the listing nears. Getting a new agent or even extending the current listing feels like a failure.
Before submitting an offer on a property, I always make a phone call to the listing agent to talk about the property and what the Seller is looking for in the way of an offer. Most of the conversation and questions are pretty obvious, however I always include a few questions which I don't really expect to be answered, but hey, you just never know. The fact is, I am frequently amazed at the kind of information other agents willingly share with me about the property or their clients position. In their defense, there really is a feeling of "fraternity" amongst agents and typically a Santa Rosa real estate agent will provide way more information to another real estate agent than they would ever provide directly to a buyer or seller.
To some degree this is justified because licensed real estate agents (at least theoretically) have a much greater understanding of the laws, risks, and "normal" problems that occur in a California real estate transaction. They are therefore less likely to "do something stupid" with the information. The point is to ask as many questions as you can before you write your offer to buy. Do not be shy about the kind of questions you ask, just be smooth. The same is true on the Buyer’s side. As a listing agent I will talk to the Buyer-agent and ask the same questions about the buyer’s needs and expectations before I help my client prepare a counter-offer.
I have mentioned above that sometimes a seller will get offended by a low-ball offer and refuse to make a counter offer. In my opinion, for a Seller, it is “almost” always worth a shot to counter back to a buyer with a reasonable price, even if they submitted a low offer. As a listing agent, I will counsel my client (very early) that sellers who can disengage their emotions about the home and view the sale as a business transaction, tend to do better than sellers making emotional decisions during the sale. I am not saying this is easy, but a good agent can really help by talking you through this process and making it easier.
Some real estate listing agents in Santa Rosa or Windsor won’t spend the time required to type-up a counter offer unless the original offer is “in the ballpark”. They therefore might counsel their seller clients to wait for another, “more legitimate” offer. Honestly it really doesn't take that much time to draft-up a counter offer, and you can make the duration of the offer a single day if you like. Unexpected things happen to people every single day in Santa Rosa and even if an offer does not appear to be “serious”, you never know until you ask.
I would put this in the category of "a million little things done right". I have seen buyers where the wife or the husband felt compelled to create a low-ball offer, simply because they thought that that was "just the way things were done". I have even seen situations when the other member disagreed, and went along with it simply to support their spouse. BUT, when the counter offer came back from the seller, the spouse who was in disagreement with the low offer simply stated "Now it is my turn" and submitted a legitimate offer. You just never know. I do not recommend endless back and forth offers if there is no significant movement towards common ground, but I do suggest that in most cases, at least one volley back across the fence is worth the effort.
There are many different kinds of incentives that a seller can offer, or a buyer can request in the transaction, and they are all part of the negotiation. Common incentives in the Santa Rosa area might include;
The list is as long your agent is creative, and often finding some little thing you can request or offer can make a deal work. Be sure to spend the time working on these possibilities and putting them in your arsenal of negotiation tactics.
NOTE: There may be restrictions imposed upon the real estate agent as a result of agency laws, there are also lender limits on buyer credits and they MUST be properly disclosed, so be careful you do not fall prey to illegal activities.
With increasing frequency, I am seeing properties in the Bay Area Multiple Listing Service (MLS) which state that the seller has pre-selected the escrow company for the sale of their home. If you have read my article on the escrow process, you know that each escrow company has their own schedule of fees and one company may be more or less expensive than another for the same service. Considering that the buyer usually pays most of the escrow fees, it makes sense that a buyer would check the relative cost difference between the seller’s pre-selected company and other competing escrow companies. If there is a cost difference, this cost difference (or the selection of a different title company) could become part of the buyer's offer to purchase. For the vast majority of homes in the Santa Rosa Ca, or Windsor area, a pre-escrow does almost nothing positive for either the Buyer or Seller. I personally think it is more of a fad, and I will be surprised if it has staying power. We’ll see.
OK, I have probably put you to sleep with all this information. Sorry. The fact is that I am passionate about real estate and LOVE the negotiation. I creatively help my clients prepare for and execute their best deal in any real estate transaction. Call me and I’d be happy to do this for you as well. Contact David Harts