June 1st 2010
Mann Report Residential
“Birds do it, bees do it, even educated fleas do it…” I’m talking about negotiating, not falling in love. Everyone does it, and we do it all the time—with our partners, our children, our friends, our bosses, our clients, and even with ourselves. Some do it more skillfully than others.
Volumes have been written on the subject, and master classes continue to be offered on negotiating skills and principles. Recently I was reminded of an excellent REBNY NYRS course taught by Dr. Alon Ben-Meir who insisted that brokers consider themselves “not merely as a messenger conveying information from one party to the other, but as an architect with a clear vision of the structure he or she wants to create.”
“Please don’t shoot the messenger,” a seller’s broker recently said to me by way of apology when he countered with less than one half a percent off the asking price. I had presented what I considered to be a strong all cash bid for my buyer that was 5% off the ask. When I complained that the seller’s response failed to signal a willingness to engage in any bargaining, the seller’s broker excused himself as being simply an emissary. I described how we needed to be architects of the deal, and we went back and forth broker to broker, ultimately arriving at a meeting of the minds for our principals.
Each negotiation is different, so it’s impossible to come up with a one size fits all strategy or a definitive list of do’s and don’ts. I’ve done a bit of reading on the subject, and I have thirty years of sales experience, so with humility, I offer the following tips and insights for residential real estate trading.
Negotiating is a process to reach a mutually satisfactory agreement between two or more parties with lots of back and forth/give and take communication. It’s based on skill, intuition and common sense, and it depends on trust, respect and credibility.
The first step in any exchange is to gather as much information as possible. Research the property’s history, time on the market, price reductions, comparable sales and competitive offerings. Ask lots of questions, listen carefully to responses, and take notes. Try to uncover any rejected offers or botched deals. What is the motivation for selling or buying? What is the desired close date? Are buyer and seller expectations realistic?
More than a messenger
Never convey an offer without first establishing rapport with your co-broker. If you can, find a shared interest and talk about that first. Building a good relationship is crucial. Throughout the process, you should also cultivate good will for both buyer and seller, and never speak badly of either. When there is mutual understanding, empathy and flexibility are more likely to follow.
At all times, demonstrate good faith and treat all parties fairly. The truth, personal integrity and ethical behavior are non-negotiable. Bluffing may work in poker, but I don’t advise it for real estate negotiations. Referring to a wide circle of interest is far preferable to inventing a phantom buyer. Overstating and misrepresenting will get you in trouble, and you may be liable for damages.
Before conveying a first offer, call your counterpart to engage in conversation. You can say that you are anticipating an offer, or want to encourage your buyer to make an offer. At this stage, it’s more important to listen than to talk. Combine what you have heard with your market knowledge to suggest to your buyer a realistic range for an opening bid. Discuss how the other side might react.
When you’re ready to put the offer in writing, be as specific and as thorough as you can. Provide information about terms such as close date and financing, as well as an employment profile and net worth summary. If this is a competitive bid situation, ask your buyer to add a personal note so the human element is not lost. Why this particular property? Is there a common ground anywhere? Did they attend the same school? Putting a human face on negotiations makes the other side care.
Prepare your principal for every next move, and again lead by suggesting a range. Communicate clearly where you believe there may be flexibility. Don’t raise false expectations or promise something you can’t deliver. Appeal to reason always. Generally the first move up or down is the greatest and most significant. Subsequent 2nd and 3rd moves are usually smaller than the first. Splitting the difference works best at the end of the process, after you’ve worked hard to narrow the gap.
Devote time to the process, and don’t shortchange it. Each party needs to develop a vested interest in the exchange in order to feel good about the outcome. If you think negotiations are moving too quickly, slow things down so each side has time to evaluate the another. But be careful not to lose momentum. Use a combination of phone calls and email—and be sure to respond promptly, if only to acknowledge that you have nothing new to communicate but are working diligently to move the process forward. With emails, before you hit SEND, always reread at least once to consider how your communication will be perceived when it’s forwarded to the principal or an attorney. And don’t hesitate to immediately pick up the phone to clear up a misunderstanding, ask about delays or seal the deal.
Experience is the best teacher. Hiring an experienced broker is the best advice.