Understanding the dynamics of negotiation
While every real estate transaction is different, buyers and sellers often fall back on standard negotiating techniques to get to a signed contract both can live with. Understanding the dynamics of negotiation can help you stay focused and emotionally detached during a sometimes anxious process.
After price, there are literally hundreds of terms that can be negotiated in a real estate transaction. Most likely you'll be dealing with just a handful, such as the standard financing and home inspection contingencies, when making your offer.
But most purchase contracts, especially if they are standard documents, are replete with boilerplate language that may not fit your situation and may in fact be unfavorable to you. These are areas you want to negotiate carefully. And the more you know about the language and art of negotiation, the better a deal you can make for yourself, saving yourself hundreds if not thousands of dollars in the process.
The Art of the Deal: Negotiating strategies
* Start low and move up: Works best for properties that are overpriced in slow markets; Some possible outcomes are that the seller rejects outright or counters to get you to increase offer. You move up and agree on a price that comes close to what you ultimately wanted to pay.
* Offer close to asking price: Works best for properties that are priced well in active markets; Some possible outcomes are that the seller may accept outright or counter to get you to increase offer slightly.
* Offer the top price you can afford: Works best in slow markets; Some possible outcomes are that the seller may reject and you may have to walk away.
* Save terms to bargain: Works best in market or situation where seller is highly motivated; Some possible outcomes are that the seller may trade price concessions for quick closing date or your taking charge of repairs after the inspection.
* Give up something to get something: Works in most situations; Seller ends up taking something you really don’t want but you ask for initially to gain a lower price or other concession.
* Move in small increments: Works best for overpriced properties in slow markets; Seller may agree to lower price if given time to adjust to idea.
* Focus on issues you can resolve to keep momentum going: Works best after several rounds of negotiation; Seller and buyer come to terms after resolving easiest issue first.
* Be unpredictable: Works best after several rounds of negotiation; Seller accepts our offer after you suddenly make sizeable change.
* Make an either/or offer: Works best after several rounds of negotiation; Seller accepts one of two scenarios you offer.
* Split the difference: Works best after several rounds of negotiation; Seller and buyer settle on price exactly between asking and offering price.
* Set deadlines for action: Works best in any situation; Seller and buyer will act more quickly and decisively if given a time limit.
Tips for making the trade
If you've done your research on the market, comparable recent sales, the neighborhood and the seller, you have probably put together what you think is your best offer. Beware of being wed too strongly to your initial offer, however good you think it is. Every term in a purchase contract is negotiable, not just the price, and most sellers don't accept initial offers. Remember, you and the seller have different goals: You want the most for the least money and the seller wants to give you the least for the most money. Keep the top price you can afford to pay to yourself and stay flexible. But be prepared to walk away from a deal that would force you to overpay or accede to a highly undesirable term, such as no home inspection.
Get it in writing
It may seem cumbersome, but do all of your negotiating in writing. There are absolutely no guarantees with verbal agreements or commitments, so avoid any such interaction with the seller or the seller's agent while your offer is on the table. The dance of the paperwork begins with your purchase offer. You, your agent or lawyer will probably use a standard purchase contract, which will not contain all of the terms and conditions you want.
Make sure that any additions or amendments that you make to the purchase offer are clearly typed or written into the contract with your initials beside them. The seller should also respond in writing, either with a new purchase contract countering your proposal or a counteroffer penciled in on the back of your offer. Some sellers will return the offer merely with revisions marked up and initialed on the document. All are valid forms of communication during negotiations. If negotiations go back and forth again, and the original document is heavily marked up, take the time to prepare a fresh one incorporating the penciled-in revisions to avoid any misunderstandings. The contract is ratified, or official, when you and the seller sign on the dotted line.
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