Buyer Advice for Real Estate Negotiations
This valuable article explains effective tactics that every buyer and seller needs, to improve negotiating style and increase their potential market.
Buy and Sell Real Estate
A real estate investor came up to me one day and asked me, “How can you negotiate the best possible deals as a buyer in a sellers’ market?”
“It’s not easy,” I replied. “But using certain negotiation strategies will increase your ability to achieve the best possible deal.”
Of course, understanding the procurement negotiation framework is a very important precept in the negotiation process. A sellers’ market means there are more buyers and demand than there are sellers and supply.
As a result, sellers have a greater likelihood of getting several potential buyers bidding against each other. This puts sellers in a strong, leveraged position, and their potential buyers in a relatively weak one. So what can buyers do?
1. Find potential deals before they reach the open market
If you hear a real estate owner may want to sell, contact them immediately.
You might even contact a property’s owner even if you don’t hear anything. After all, market values often rise rapidly in sellers’ markets and some owners may decide to make a nice profit if presented with a fast and easy opportunity to do so.
Of course, still critically analyse every potential opportunity. You must keep your finger on the pulse of the market and do your homework on every potential agreement. With market values constantly altering, the key to your best deals will be dependent on a comprehensive financial and market analysis of the property’s potential and the risk entailed.
2. Creatively explore the seller’s interests
A colleague’s spouse recently helped a couple buy a home in central Phoenix despite this couple’s offer being lower than two other competing offers.
How? My colleague’s spouse insisted on meeting personally with the seller and found out that the seller strongly preferred a buyer who would take care of the house in the same manner she did, and had an interest in an early close with no financial contingencies.
In summary, the real estate seller valued a strong, personal connection with the house and wanted a short, certain close as being more important than price. Both parties ended up with a great agreement.
My advice? Learn about non price issues the sellers value, and then include them fully in your offer.
3. Manage the timing
The passage of time works against the most buyers in a sellers’ markets.
Why? It provides sellers the opportunity to learn about other potential buyers and get you bidding against each other.
Avoid this by placing relatively short deadlines on your offers. Be prepared to commit and move forward quickly on deals if required.
4. Be careful of your ego, bidding wars, and the pack mentality
Auctions are almost always in favour of sellers because they feed competitive buyers’ egos and their need to “win.”
So if you end up in an auction or a real estate bidding war, keep your ego low key and maintain your focus on your primary goal.
Don’t get carried away by the competitive gamesmanship aspect of the process.
Winning might mean an unacceptably high cost.
It’s also tempting to bid higher when you see another investor, especially a sophisticated one, bidding up the same property. If they are bidding, then many people think it must be worthwhile and a good value.
This pack competitive mentality is no substitute for your own cautious diligence and your own effort to decide and stick with your aims.
Others could be bidding with a completely different investment perspective and set of financial expectations than your own. For example, they may intend to commercially develop the property in a particular way, thus justifying for them a relatively high price.
Your interest and business model, on the other hand, might be shorter-term and may not necessarily justify the higher price. Don’t bid up if you base it on others’ expectations.
Let’s face it, it’s not always easy to be a buyer negotiating in a sellers’ competitive real estate market. But, you can help level the playing field. And even if you don’t, all may not be lost. You may still end up profiting quite nicely if the sellers’ market just keeps on going.
That’s a bet many people appear to be willing to take these days.
Marty Latz, a negotiation columnist for The Business Journal of Phoenix.