3 Phases of Negotiating Your Home Sale
Let’s be frank. One of the more distasteful tasks an agent normally performs that you will be doing yourself when you sell by owner is negotiating with a buyer. It’s one thing to discuss your response to an offer with an agent then send the agent off to do battle with the other side, and quite another to wade into battle yourself.
Negotiating sounds intimidating, but it doesn’t have to be. When you think about it we all spend time negotiating almost every day, with our spouse and children, at work, even at a Saturday morning garage sale.
Take what you’ve learned from those everyday encounters, add preparation time and minimize your emotions to the greatest extent possible, and you’ll be ready to negotiate your way to a great outcome.
Successful negotiation is the art of “getting to yes.” Your negotiating process should flow in three phases:
• Assessing an offer
• Getting down to brass tacks
1. Good News: You’re Preparing Already
As soon as you seriously begin to think about putting your home on the market, you begin preparing to negotiate the final outcome. That’s just natural. Your first question will no doubt be: How much can I get for my house? From there flows a series of questions about how much you can afford to pay for a new home, what your bottom line is for your house sale, can you afford to carry two houses for a time, when you want to move, etc.
Once your house is listed and you start scheduling open houses and showings, you should begin to more actively prepare for negotiating by creating a list of terms you might end up negotiating with a buyer, then prioritizing those terms from most to least important.
Typical terms of a house sale include:
• Closing Date
• Inclusions – these can be appliances, grills, patio furniture, rugs, window treatments, light fixtures and other elements that may or may not appear to “go with” the house
• Closing costs
• Other transaction-related fees
Decide in advance what negotiation points are most important to you. Would you rather stick with a higher price but be flexible on when the sale closes, potentially even renting the house back from the new owners for a few weeks to give them time to move? Or maybe you’d rather offer a garage full of garden equipment in lieu of contributing money to the closing costs. Knowing your own priorities equips you to offer things you don’t want as much and that might be of greater value to your buyer.
Update Your Research
Because you did considerable local market research in the process of deciding upon your sale price, you have already have a great feel for how your home and asking price fit into your market place. But now’s the time to update that research so you have up-to-the-moment facts you can use to bolster your argument as you negotiate.
If your home has been on the market for a while, this is especially important since the balance may have tipped in favor of buyers or sellers. A change, one way or another, can affect prospects for future offers as well as prices. Most importantly, it will give you a frame of reference, a context, in which to consider the offer. Answer these questions:
• Is the number of homes on the market on the rise or declining?
• What do the most recent statistics show?
• Are prices holding firm or are they edging up in your neighborhood and for your type of property?
• Take a look at the lending environment. What is happening with interest rates? Are they holding steady or moving up or down?
• How does your home compare to others currently on the market? Condition and location are as important to value as are features typically associated with homes in your area.
These answers will give you a better sense of how your home fits into today’s market in your neighborhood and give you the power to negotiate based on the most current data rather than opinion. For example, if prices are edging up and you set a realistic price in the beginning, it will be much easier to make the case for your price with this information. A declining inventory means the buyer will have fewer properties to select from in the future and there is a good chance that prices will go up in the future.
Decide on a Negotiating Strategy
It’s very important to decide on a negotiating strategy before an offer comes in the door. If the offer is great and you jump right on it, you should be all set except for some minor negotiating over a few terms of the contract.
In case you receive an offer that is below par but could be negotiated to be more in your favor, begin developing a negotiating strategy by revisiting your goals, objectives and future plans. Since your listing went live your motivations and goals might have changed based on the time your home has been in the market, activity in the market place and your urgency to move if you have found a new home. All of these factors will affect your bottom line and your negotiating strategy. Review where you stand on acceptable final price and what you are willing to negotiate about as the time you expect to receive an offer nears.
Home sale negotiating strategies for offers that are below asking price basically fall into three categories:
1. My price is firm and my comparables support it. Message to the buyer: “I’m not budging much off my asking price. Improve your offer significantly or move on to another house.”
2. Let’s meet in the middle. Message to the buyer: “Your offer’s not terrible, I like you and I want to get moving; let’s see if we can find a happy place in the middle.”
3. Show your cards. Message to the buyer: “This is what I need to make this work for me; let’s figure out together how to get there.”
Chances are you understand your own motivations better than you did during the run up to listing your home and, consequently you’re likely that much more confident than you were at the start of the process. That will serve you well as you move forward into assessing and negotiating offers.
2. Assessing an Offer
When an offer comes in, price grabs the most attention but an offer is actually a bundle of conditions which, in one way or another, usually affect price. Along with price, an offer to purchase will lay out the deposit, financing, time, contingencies and final walkthrough. To arrive at a meeting of the minds with the buyer, both sides typically end up compromising. A contract or an offer to purchase also includes a description of the property and lists fixtures, appliances and any personal property that might be included in the sale. Last minute disputes often revolve around personal property, so pay attention to how these items are stated in the contract.
For example, curtain rods might be fixed or attached to the house but the curtains aren’t. However, the buyer might assume you are leaving the curtains with the rods. Appliances often are another bone of contention. Be sure to spell out what appliances are included in the original property listing. If you aren’t planning on leaving a chandelier or other light fixtures, be sure to include this information on the original listing sheet. Great idea: Remove the temptation for buyers to include it in the offer and install a new fixture in its place before you list the house.
The point is, if you’ve thoroughly considered and decided upon your own priorities, you’re equipped as you enter negotiations to offer things you don’t want that much but that might be of greater value to your buyer. That can help develop trust with the buyer and go a long way toward making negotiations go smoothly.
3. Getting Down to Brass Tacks
The buyer, or their agent, will typically present the offer to the seller in writing. This can be done by email, fax or in person. The seller has the option of accepting the offer or rejecting the offer and responding with a counteroffer. Usually the offer or counter will spell out a period of time, 24 hours for example, for the other party to respond.
Don’t be put off by a low price, often called a “lowball offer.” Sometimes that’s all the buyer can afford, but quite often buyers will make a low offer to test the waters and see how the seller reacts or how firm they are with their asking price. This is a business transaction. Give yourself time to cool off but still respond within the timeframe (if it is reasonable) of the offer. If you are not sure why the offer came in as it did, ask the buyer for some context and what comparables were used to arrive at the price.
Frame your counter price in terms of what the market commands rather than what you personally must have. Use your recent market data to justify your counter and present relevant stats such as changes in the number of homes on the market, recent sales of comparable properties, and the number of homes with pending sales. Knowing your local market also helps you be realistic regarding price, and understanding your own goals helps you know when and how much to compromise.
Keep the conversation flowing; don’t rush the process. Even if you are countering on the price, respond to each element of the offer to show that there are some parts you accept. Look to see if there are other aspects of the offer that might be important to you, especially if you are willing to accept a lower price in exchange for an early closing date, the ability to rent the house back after closing, an “as is” purchase or any number of other scenarios. Is there something else you can offer the buyer to make the deal work?
Contingency Planning Is a Must
Typically closings are scheduled for 60 days from the date of the contract, but that can vary with the offer. For example, an all-cash offer will not be contingent on a mortgage and can close in short order. Buyers who have a home to sell might want more than 60 days to close and may want to make the purchase contingent on the sale of their existing home. The debate on the wisdom of such a contingency continues. Some believe it reduces interest from other buyers. Make sure it is worded so you can continue to show the property and consider other offers. Additionally, it’s always wise to review any exceptions to a contract such as this type of contingency with your attorney.
If you attract an all-cash offer without any financing contingencies, you might consider closing sooner than anticipated or accepting a lower price. Or would you rather stick with a higher price but be flexible on when the sale closes, potentially even renting the house back from the new owners for a few weeks to give them time to move?
Meeting of the Minds
Negotiating can take days. To keep the conversation flowing and not let the negotiations drift off into space, be sure to include a deadline for a response to each counter. But give buyers enough time to consider the offer. Quite often real estate agents will limit that time to 24 or 48 hours.
Compromise can be hard to reach. Sometimes not even the best real estate agents can arrive at what the industry calls “a meeting of the minds.” Stalemates over price do happen, and it’s best to remember that some people are simply looking for a steal rather than a good deal.
Again, if you know the market and have a realistic assessment of your own property, you will know when it’s time to simply keep on marketing the property and let the buyer know they are always welcome to come back with a new price.