The moment you start receiving offers will change the dynamic of your home selling process. No longer will you be forecasting buyer response to your listing, you’ll actually know how buyers are responding. Whether the offer is for full-price, near-price, or a lowball fishing expedition, you should plan ahead with your agent about your negotiating strategies.
Contrary to popular belief, negotiation is not about winning and losing. You don’t “win” a negotiation at the expense of the other side. Indeed, a good negotiated resolution always has two winners by definition, because both sides must have gotten what they wanted or they would not have reached an agreement. Now, that doesn’t mean that both sides got everything they wanted, or that either side got all it wanted, but it does mean that both parties found the terms of the agreement acceptable.
Remember that when you negotiate. The buyer is not your enemy, but rather a partner in trying to solve the problem of both of you wanting to transact the property on the most favorable terms possible. Buyers want to pay as little as they can, and you want them to pay as much as they can. It’s definitely a problem, and good faith negotiation is the solution.
Obviously, a full discussion of the art of negotiating on the sale of a home would be well beyond what we could cover here. At Rand Realty, we have whole training courses devoted to negotiation, including studies of elements of psychological persuasion that can help your agent and you maintain control of the discussions. We don’t teach “game-playing”, but we do believe that a good negotiator can get the best possible result for a client by maintaining the upper hand, controlling the terms of the negotiation. And as you’ll see below, you should be negotiating through your agent, so you will have good professional representation as you try to make a deal.
Nevertheless, we wanted to share some perspectives into the negotiation process, and also give you some insight into the negotiation approach adopted by Rand:
1. Keep control of your anchored starting point: your asking price.
It’s always an ideal situation when you control the starting point of negotiations on the most important term, which in real estate sales is the initial asking price. In psychology, they call this “anchoring,” because the initial asking price becomes a reference point that can “anchor” the rest of the negotiation. Throughout the process, the buyer will be working off the price you set, which is a very powerful way to control the terms of the negotiation. You and your agent should never let them be dismissive of the asking price, because that’s the buyer’s way of undermining the power of your anchor.
2. Never convey an eagerness to sell.
The only way to dissipate the power of your initial price anchor is to convey an anxiety or eagerness to sell to the buyer or buyer agent. That’s why we counsel you to avoid discussing specifics with a buyer or a buyer’s agent, because if you happened to let slip that you were under any pressure to sell you would be undermining the firmness of your commitment to your asking price. Similarly, we always tell agents to avoid using terms like “bring best offer” or “seller is negotiable,” because there’s no benefit in letting buyers know that the seller is anxious.
3. Provide justifications for your price through your agent.
Anchors become more powerful if you provide reasonable and objective justification for them. When you set your initial pricing of your listing, we counseled you to pay close attention to what the market was telling you. If you can provide a buyer with reasonably comparable sales that justify the price you’ve set, you can firmly set that pricing anchor by putting the buyer in a position of having to argue away the fact that comparable homes have sold for close to your asking price.
4. Get commitments from buyers.
Psychologists have also noted the power of verbal and written commitments during negotiations. If a seller can get a buyer to make even a verbal commitment to agree to a term of the negotiation, the buyer will feel strongly compelled to abide by that commitment. That’s why most of our agents demand that all offers be made in writing, not because the offers themselves are legally binding, but the act of writing them down (and in some cases signing them) is psychologically binding.
5. Frame the negotiation as about more than just price.
In any real estate sales transaction, the most important negotiated term is price. But it’s not necessarily the only term that can be at issue. In some cases, closing date is important. In others, it’s the down payment. And in others, it could be whether the buyer will have a mortgage contingency, or the fixtures or furniture included, or really anything that one side particularly wants. In most negotiations, however, the parties don’t strongly negotiate the other terms, because their sole focus is price. Accordingly, a good way to control the frame of the negotiation is to put all the other terms in play (closing date, down payment, contingencies, fixtures, furniture). If you are flexible on all those terms, but the other side is not, you now have something to bargain away to get a concession on price.
6. Avoid making concessions without getting a reciprocal concession.
Ultimately, at some point in the negotiation, you’re likely to have to make a concession. Very few sellers are fortunate enough (or set their initial price accurately enough) to sell their listings for the full asking price. But if you are to make a concession, try to avoid making the concession in a vacuum – condition your concession on the buyer giving on some other point. Generally, if you do someone a favor, that person feels obligated to return the favor, even if their “reciprocation” of the favor is disproportionate to what you did for them. If you’ve been successful in putting multiple terms at play, you can even concede on a minor point in return for flexibility on something you actually care a lot about.
7. Always negotiate through your agent.
Negotiating through intermediaries is always a good strategy, if only because it keeps the client from developing or generating ill-will with the other side or betraying anxiety that would undermine the bargaining position. In real estate negotiations, buyers and sellers rarely discuss the terms directly with the other side, instead communicating through their agents. One of the most powerful ways to control the process is to work through an intermediary (like your agent), keeping the ultimate decision maker away from the negotiating table. That way, your agent can always use the justification that he or she does not have the authority to make concessions, giving you both time to discuss strategy and avoid giving in under self-imposed pressures.
8. Be likable to buyers.
We always counsel clients to be friendly and agreeable with all buyers, including buyers that make what you might think are insulting offers. Throughout your negotiation, you’ll want to maintain good relations with buyers, even if you ultimately cannot reach an agreement. We have seen many potential deals fall apart simply because the parties treat each other badly, insulting each other, ignoring offers, delaying out of spite, and other unhelpful tactics. Buyers want to like the person selling them their new home, so be likable.
9. Be open to all offers.
Generally, in real estate, we always welcome offers of any kind because it gets discussions going on a path in which anything can happen. Everyone in the business has seen lowball starting points turn into near- or full-price sales, so never simply dismiss a buyer as a “bottom-feeder” on a fishing expedition. That buyer might be testing the waters, and seeing if you will jump at any kind of offer. And although it might seem superstitious, agents swear by the fact that they can go months without a nibble, then get one offer, and then suddenly get multiple offers. So respond to and respect all offers, even if the response is that the offer is too low to merit a counter.
10. Remember that you don’t have to actually accept the offer.
Some clients worry that in the heat of the moment they will make concessions that they will ultimately regret, which is why they don’t like to consider lowball offers. Remember, though, that you don’t make any final legal commitments as part of the negotiation. You’re never fully committed until after inspections, contract drafting, contract review, and a host of other issues that could delay final signing. So you never have to risk getting carried away by anxiety or pressure.
Conclusion: Stay Calm
Most people are not familiar or comfortable with negotiations, because most of us do it so rarely in our professional or personal lives. Culturally, we don’t negotiate much compared to people in many other areas of the world – for example, we don’t haggle at supermarkets or department stores. So it’s not unusual for sellers to become a little anxious about the prospect of negotiating something as important as a home sale. Don’t worry. You have a lot of professionals watching out for you, starting with your Rand agent.