Tuesday, February 17, 2015

The Art of Negotiation

A top buzzword in Real Estate is "Negotiation".Despite what many may think, negotiation isn’t just something Realtors do on a gut or a whim. There are several factors to consider when coming to an agreeable price between a buyer and seller. We can’t get into every aspect of negotiation but we can share some helpful angles our team always looks at from the buying and selling sides when negotiating a deal.
1. Know your market:
- The market's condition is the single most important factor in real estate negotiation. The overall market and a specific market within a city or subdivision might be completely different and it is imperative to know what the “climate” is surrounding the property you are buying or selling.
- Buyer's market:  This is when there is a surplus of supply compared to the demans- this means that there are more home than there are buyers for them. A strong indicator for this is longer listing times. Properties in a buyer's market can take longer to sell and sellers are usually more wiling to give on things they had not planned on in hope of not losing a potential sale. 
- Seller's market: The table turn here for the sellers. We have seen houses get listed and sold within the same hour if the market is ripe! Buyers should try to make an offer quickly, if not on the spot, if they find something they like and try to "make it good" so as to avoid entering into a counter situation if possible. 
- Balanced market: This is just what it sounds like. Neither side has the upper hand, so it is safe to expect a back-and-forth counteroffer phase and prepare to land somewhere right down the middle on terms and pricing. 
Factors that help determine the type of market:
- Look at the average time properties are on the market in that area. This will help determine how quickly an offer needs to be made or accepted. If the subject property has been on the market substantially longer than others like it in the area, this could mean red flags such as overpriced, non-negotiable sellers or deeper issues with the house itself.  
- Get a Comparative Market Analysis (CMA) with the full MLS (multiple listing system) details of comparables.  This will reveal what has recently sold (within the past 6 months) and what is currently on the market similar to the subject property in the same area.  
- List-to-sale ratio: this ratio is found when the sale price is divided by list price. If the percentage is above 100, that indicates a house selling for more than it was listed and a percentage under 100 indicated a house being sold for less than it was listed for. When the list-to-sale ratio is calculated for a specific area, it reveals which was the market is moving and what types of offers would be acceptable at a given time. 
2. History of the listing:
- Price reductions: The amount of any price reduction as it relates to the overall purchase price may indicate the seller's desire to attract an offer.
- Other offers: As the buyer, it is good to understand what the sellers were presented with before you and the reasons why they were not accepted.  This information isn't always disclosed but it doesn't hurt to ask.
- Seller’s motivation: If a seller has all the time in the world or if they are relocating for work in the next month then this could really change what type of offer they would be willing to accept. A potential buyer shouldn't count on the seller giving the property to them if they are in a bind but it could put the negotiating power more in the buyer's favor.
3. How to respond:
- A general rule of thumb is to respond quickly and wisely. Keep the big picture in mind and try to avoid any terms that could potentially be deal breakers, especially if the market is not on your side.  Also depending on the market, a slow response leaves an open door for other offers which could lead to a multiple offer situation - at this point, a bidding war could break out which is not what any buyer wants. 
- The best negotiation is where everyone walks away feeling good about the transaction commonly referred to as "the meeting of the minds". This is usually the case in a balanced market and while each side may not get everything they want, both are happy with what they have. Like they say: pick your battles and focus on winning the war! 
4. Trust the experts:
- While this might be your first experience in the bull pen, your agent has been here before so let them do the talking. It is best to go through your real estate agent who will communicate on your behalf to the other side of the bargaining table. It is essentially my people will talk to your people and it might seem over the top if it is your first time but a HUGE beginners mistake is to contact the other side yourself.  Not only is it taboo but if the other agent throws out a few terms that you don't quite grasp which are usually legally sensitive and the LA (listing agent) could have you paying for WDO (wood destroying organism) repairs on the IA (inspection addendum) and all of a sudden you lose your EMD (earnest money deposit)! These slight changes could leave you in trouble with your lender and the terms for financing! However, your agent is well versed and prepared to make sure you don't get stuck between a rock and a hard place. Regal Homes always puts the emphasis on the importance of having a strong team to back you up!
Some might consider themselves sharks and others can play the good cop bad cop routine; no matter the style, true real estate negotiation is based on the facts! Know your market, have a holistic picture of the property at hand and work with an agent you can trust. That is the Art of Negotiation! 

Read more: 
http://www.realtor.com/advice/how-to-negotiate-the-best-real-estate-deal/


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