Negotiate Win-Win for your House
Negotiators typically fit into one of three types of negotiating styles: (1) adversarial, (2) accommodating, and (3) win-win. Lawyers typically practice the adversarial style. Adversarial negotiators make outrageous demands. They push, pull, or threaten to move you as close as possible to their position. Adversarial negotiators don’t care whether their opponents end up pleased. All they care about is winning for themselves.
In contrast to the adversarial approach, the accommodating negotiator tends to give in to every request or demand. Accommodators feel powerless to effect the outcome they want. They feel helpless due to lack of money, time, information, knowledge, or experience. Accommodators detest conflict. They would rather lose than stand their ground. When negotiating through a real estate agent or other third party, accommodators typically delegate too much responsibility. Accommodators often say things like, “Oh, just do what you think is best” or “Let’s just sign and get the whole thing over.”
When you negotiate win-win, you may adopt a little of the adversarial style and maybe a little of the accommodating style. Overall, though, you adopt a cooperative perspective. Win-win negotiators recognize that every negotiation brings forth multiple issues, priorities, and possibilities. They also recognize and respect the other party’s (not opponent’s) concerns, feelings, and needs. Win-win negotiators do not operate along a single line of contention (e.g., price).
Win-win negotiators work to create a strong, mutually beneficial agreement that all parties want to see completed. By reading through the homebuyer experiences and mistakes in this article, you will learn to shape a win-win agreement. Moreover, you’ll stand up to those adversarial hardballers and avoid becoming a passive-accommodator.
We thought our agent represented us.
LESSON: Before you begin to work with a realty agent, set ground rules for your relationship.
You will probably negotiate your purchase contract through a real estate agent. So, understand how agents can work for you—or against you. During the past several years, “who represents whom” has ranked as one of the most controversial issues in homebuying. Until recent years, nearly all realty agents were employed by sellers to find buyers for their homes. Under this traditional system, you may have worked with an agent who advised, counseled, and helped you negotiate your home purchase. But as a matter of law, that agent was most likely a subagent of the sellers—not “your” agent. Here’s how the traditional system worked and why it has sparked so much confusion.
Under the traditional system, a home seller might sign a listing contract with Fox Realty. In turn, Fox Realty would place this listing in a multiple listing service (MLS). The MLS probably included dozens of other real estate agencies that employed hundreds, maybe thousands, of real estate agents. Let’s say one of these other cooperating realty firms is Hoosier Realty, and Joe Salesman works for Hoosier Realty as a sales agent. You meet Joe through your local church.
You call Joe. He sets up a meeting where you discuss your housing needs, how much you’re willing and able to invest in a home, and the neighborhoods you prefer. With this information, Joe suggests some homes to show you. If all goes well, you find a home you like and tell Joe to make an offer. Joe advises you about the price, terms, conditions, and contingencies and then helps you negotiate a purchase agreement with the sellers through their listing agent, Sally Saleswoman, who’s employed by Fox Realty. After some give and take, you and the sellers strike a deal. Everyone seems satisfied.
What’s Wrong with This Picture?
What’s wrong with the way this transaction was handled? Your agent, Joe, was representing you and looking out for your interests. Sally Saleswoman was representing the sellers and advising them about their interests. Or at least that’s the way it may seem.
But, in fact, under the traditional sales system, Joe didn’t represent you. As a salesman with Hoosier Realty, a firm that had joined with Fox Realty as a cooperating broker, Joe owed his allegiance to the sellers not to you.
As a matter of law, Joe was required to relay to the sellers your statements like, “We have to have this house. It’s the best one we’ve looked at.” Or, “Let’s try an offer of $375,000, but we’ll go to $395,000 if we have to.” Or perhaps the sellers learned you had told Joe, “We’re really pressed for time. Our apartment lease is ending and this is the only house we’ve looked at where the sellers are willing to give early possession.” Or maybe you believed Joe when he ran a bluff and told you, “The sellers won’t budge. Their absolute low dollar is $395,000.” So, thinking you had no choice, you offered $395,000.
The Traditional System Upsets Many Homebuyers
How would you feel if you later learned the sellers were really experiencing a cash crunch and were so eager to sell they would have accepted a price of $370,000 for their home? Yet, your agent, Joe, the man you trusted enough to share your confidences, never mentioned this fact to you. In effect, Joe’s silence hid this juicy bit of information that would have strengthened your negotiating power. Wouldn’t you feel angry and cheated? After all, Joe led you to believe he was representing you, but in reality he was working as an agent of the “enemy.” You might even think about suing Joe for deception.
That’s exactly what Sheila and Jeff Buck did. The Bucks sued their agent because, “We thought our agent represented us, when she really was working for the sellers. Had Diane told us she was duty bound to the sellers, we never would have told her our top dollar. We’re sure she used the information against us.”
States Create Agency Disclosure Laws
To help you and other homebuyers prevent the mistake of the Bucks (and their agent), nearly all states have enacted some type of agency disclosure laws. In addition to agency disclosure, state laws and the National Association of Realtors are making it easier for you to use a buyer’s broker or buyer’s agent when you shop for a home and negotiate a purchase agreement.
Under these laws, real estate agents disclose to you the types of agency relationships that are legal in your state, explain their meaning, and then give you a choice. Although state laws differ, you usually can select from three or four choices:
- You can choose the traditional system where you work with an agent or subagent of the sellers.
- You can choose dual agency. Here the agent helps both sellers and buyers but agrees not to divulge confidential information that could give one party an unfair advantage over the other.
- You may employ a facilitator. A facilitator owes no fiduciary responsibility to either potential buyers or the sellers. He or she acts as a mediator. The idea is to find agreement, not to play the role of advocate.
- As a fourth option, you might use a buyer’s agent, who should represent your interests exclusively. Buyer’s agents can’t legally pass along your confidential information to the sellers. But they can pass along to you any information about the sellers they know that could strengthen your hand in negotiations.
Space doesn’t permit a full look at the pros and cons of each of these types of agency relationships. Here, I mainly want to warn you that “your” agent may be working for the sellers. Also, many state laws don’t require agents to disclose their allegiances until you’re ready to make an offer on a property. By that time you already may have revealed your finances, how well you like the house, or that your landlord has ended your lease and you have to find someplace to live within the next 60 days.
Follow This Advice
Set ground rules for your relationship before you begin to work with a realty agent. Each type of agency has its advantages and disadvantages. As long as you know the ground rules for what you can disclose and what you should keep to yourself, you can work with any type of agent. Mistakes occur when you don’t set the ground rules up front.
In addition, evaluate your agent’s character, competence, and knowledge. The type of person you choose to work with is just as important as the type of agency relationship. Most real estate professionals—people who are committed to a career in real estate—don’t view homebuying and home selling as an adversarial contest. Buying (or selling) a home is not like filing a lawsuit. In contrast to lawyers whose ethics permit them to mislead and deceive, consumer laws (as well as Realtor ethics and personal reputation) oblige realty agents to treat all buyers and sellers fairly.
Nevertheless, many homebuyers now choose buyer’s agents. It is the wave of the future. But in many areas, dual agency and traditional (seller) agency still account for a large number of buyer relationships. No matter what type of agency you choose, remember: It’s tough to negotiate your best deal when the agent passes along your confidential information to the sellers.
I tried to buy directly from an owner to save the commission, but instead lost $10,000.
LESSON: Buying without an agent can cost you more than you save. Be careful.
When Dan Boatman decided to stop renting and buy his own home, he called several real estate agents whose names he had seen on for-sale signs. “They didn’t impress me much,” says Dan. “One just wanted to talk all the time and never listened. Another one kept showing houses and neighborhoods he didn’t know anything about. I’d ask him questions and he would answer, ‘I dunno, but I can find out for you if you want.’ This was a hassle I didn’t need.
“So I decided to concentrate on for sale by owners [FSBOs]. That way I wouldn’t have to deal with agents. And I could get the sellers to lower their price since they would save the commission. It seemed like a smart move. Unfortunately, I got suckered. My smart move cost me $10,000. That’s a mistake I won’t make again.”
Dan actually made not one but three mistakes.
Don’t Choose Agents Randomly
First, Dan selected agents randomly. He might as well have flipped open the yellow pages to the real estate section, pressed his finger to the page, and started telephoning. The chances are that if Dan or anyone else merely pulls an agent’s name out of the telephone book or off a for-sale sign, he or she is not going to find a first-class professional. Real estate sales follows the same 80–20 rule found in most fields. The top 20 percent of the agents do 80 percent of the business.
To locate a real estate professional, ask relatives or friends for recommendations. Read the newspapers for the names of top producers. Call the sales manager of the most highly regarded real estate firms and find out who among their agents has provided the highest quality services to the most buyers. In other words, work with an agent who has a proven track record. Helping people buy and sell homes requires knowledge, competence, and possibility analysis. Don’t settle for a chauffeur. Only work with a pro. Dan Boatman failed to understand this critical difference.
FSBOs Don’t Always Sell at Lower Prices
Second, Dan mistakenly believed that if he bought directly from an owner he would get a lower price. Because the owners wouldn’t have to pay a commission, they could pass along their savings to him. But why would they want to? Most sellers don’t take on the burden and expense of selling their own home so they can give buyers a better price. They do it to pocket more money for themselves.
In fact, as often as not, people who try to sell their own homes overprice them. They hope to find some bargain-hunting buyers who will be hoodwinked into believing they are saving money because no agent gets involved. In addition, even if the home is priced right, it may suffer from hidden defects. In today’s lawsuit-happy world, professional agents will insist that sellers disclose their home’s shortcomings. In contrast, owners who sell on their own are noted for “forgetting” about the erratic furnace or the fuses that blow every time the toaster and microwave are turned on at the same time.
Always Place Deposits in Escrow
Third, here’s how Dan lost his $10,000. After negotiating the price and terms of their purchase agreement, the sellers asked Dan for a deposit of $10,000. This amount would be credited against his down payment at closing. Dan knew deposits were customary, and since he planned to put a total of $25,000 down, a $10,000 good-faith deposit didn’t seem unreasonable. So he wrote the sellers a check. That was his biggest mistake.
As it turned out, Dan could not get his financing approved within the 30 days allowed by his purchase agreement. To make matters more difficult, other buyers wanted the house and (unlike Dan) they had secured preapproval from their lender. The sellers gave Dan an extra week to close, but to no avail. He couldn’t close. The sellers went ahead and sold to the other buyers.
When Dan asked for his deposit back, the sellers told him they would send him a check after the other buyers completed their purchase. Should that deal fall through, they promised to give Dan another chance to come up with his financing. Dan reluctantly agreed because he really wanted the house. But the new sale did close. The sellers moved to Tacoma. And Dan never again saw his $10,000.
Dan hired a lawyer who wrote to the sellers and demanded they return his deposit. The sellers’ lawyer responded that Dan had forfeited the deposit when the sellers had given him extra time and yet he still couldn’t get his financing put together.
Dan disagreed. “We didn’t discuss anything about forfeiture,” Dan told his lawyer. “Well,” the lawyer said, “we can sue them. But that will cost more than $10,000, and I can’t guarantee you’ll win, or that if you win, you can collect. There’s not really anything I can do. You might as well kiss your $10,000 goodbye.”1
Guidelines to Follow
No one denies that, on occasion, you can negotiate directly with sellers and save money. I’ve gone this route many times. But if that’s the route you choose, proceed with caution.
- If you buy direct, you’ll give up not only the services agents provide to help you find a home, but also the services that ease you through negotiation, financing, and closing.
- Get the home professionally inspected for condition and appraised for value.
- Beware of easy seller financing. Although OWC is great at times, on occasion some sellers will use it as bait to lure in unsuspecting buyers and sell them a problem property, a property that’s overpriced, or possibly both.
- Open an escrow closing account for your deposit with a title insurer, escrow firm, or realty firm. (In fact, even when buying from an FSBO, you can still employ a buyer’s agent to help negotiate a win-win agreement and provide other services that will keep your transaction progressing smoothly. In these cases, many by-owner sellers are willing to pay a two or three percent sales commission to your agent.)
1Dan may have been able to use his state’s long-arm statute and sue the sellers (without heavy legal costs) in his local small claims court (up to the applicable small claims limit). However, that possibility goes beyond the scope of this discussion.
We didn’t know we could withdraw our offer.
LESSON: You may withdraw your offer at any time before the sellers accept it.
As you prepare an offer to purchase a home, decide how long you want to give the sellers to accept it. Real estate sales contracts often include a clause that reads something like this:
This offer prepared and delivered to the Sellers by the Buyers on __
, 20___, at____________ and shall remain open
for ___ days, or until revoked by the Buyers.
In regard to this clause, some homebuyers overlook or misunderstand the meaning of the last six words. In effect, these words give you the right to withdraw your offer any time before the sellers have accepted it. If you tell the sellers you’ll leave your offer open for three days, but then change your mind, notify your agent (preferably in writing, but that’s not always essential). Even if your contract doesn’t include these words or something similar, you still may withdraw your offer.
Many agents forget to fully explain a buyer’s right to withdraw. Agents don’t like to emphasize the point because homebuyers (especially first-time buyers) often have second thoughts about their decision to buy. To squelch these worries, the agent might gloss over your right to pull back. He or she might lead you to believe you’re obliged to keep the offer on the table for the specified number of days.
Of course, you shouldn’t withdraw just because you get cold feet. Get rid of negative emotions by replacing them with thoughts of how much you’re going to enjoy the home and home ownership. But if you discover new information (you’re getting transferred or you’ve noticed a shortfall in your bank balance), or if you run across another home that better fits your needs, then feel free to exercise your right of withdrawal.
Counteroffers Kill Offers
Keep in mind, too, that if the sellers change any part of your offer, you’re released from obligation. Any counteroffer kills a previous offer. Should you offer $489,500 and the seller counter with a price of $489,501, your bid of $489,500 is dead. You could bring it back to life if you wanted. But if you reject the sellers’ $489,501, they can’t unilaterally declare (without your agreement), “Okay, then, we’ll accept $489,500.”
From a negotiating standpoint, keep the sellers guessing about what you plan to do. Let them know you’re considering other options. The sellers should realize that if they wait too long to accept your offer, or if they counteroffer too high, they could lose you as a prospective buyer. Maintain a cooperative, win-win demeanor. But don’t tip your hand.
We never met the sellers. We didn’t know anything about them.
LESSON: Get to know as much as you can about the sellers.
Some sales agents do everything they can to keep buyers and sellers away from each other. For good reason. Agents have seen sales fall through because of personality clashes. Or they fear that sellers (because agents of yesteryear nearly always represented sellers) might give away a choice bit of information that will help the buyers.
“Why are you selling?” the buyers ask.
“Oh, Mack’s been transferred,” the sellers respond. “We have to be in Omaha by the end of next month.”
Although the keep-the-buyers-and-sellers-apart sales strategy sometimes is best, as a rule I reject it. Before you make an offer, learn all you can about the sellers. What kind of people are they? Do they seem generous and open? Are they rigid and argumentative? Do they show pride in their home? Are they reluctantly moving? Are they eager to leave? Why are they selling? Have they bought another home? What are their important needs: emotional, personal, and financial? What are their worries and concerns?
What Do the Sellers Really Want?
The sellers aren’t really trying to sell a house. They’re reaching for more distant goals. Selling their home is a means to those ends. The sellers won’t judge the price and terms of your offer by absolute standards. They will judge it according to how well it helps them move toward what they want to achieve. That’s why you must get to know the sellers. Without understanding their needs, you miss a great opportunity to find high value/low value win-win trade-offs that can benefit both of you.
Say the sellers previously accepted two offers that fell through because the buyers couldn’t arrange financing. With these experiences in their background, the sellers may be quite anxious. They don’t want to be strung out again. If you can assure them that you have the resources to buy (bank statements, credit report, preapproval letter, job security), they likely will give you a lower price or other concessions.
Broaden Discussions beyond Price
Too frequently, homebuyers and sellers aim their negotiating toward price. The sellers want a higher price. The buyers want a lower price. Stalemate. Steer around this trap. Meet the sellers, talk with them, learn all you can about their perceptions, past home-selling experiences, feelings, and needs. But keep in mind that agent concerns about personality clashes are valid. When meeting and talking with the sellers, follow these guidelines:
- Meet the sellers as soon as possible. The sooner you get a fix on who they are and what they’re like, the better you can begin to map your negotiation strategy. Sellers respond more openly with information when you first look at their home. At that point they’re eager to please. They want to excite your interest. If you wait to meet them until after you’ve made an offer, they’ll guard their disclosures more closely.
- Get concessions before you begin negotiations. “You’re asking $165,000, is that right? Just so we can fairly compare your home to others we’re looking at, have you thought about how much less you would accept?” Or: “You’re asking $165,000, right? What personal property—appliances, drapes, rugs, patio furniture, gazebo, etc.—are you planning to include?” Or maybe: “How much financing will you carry back?” When you innocently suggest concessions, you’re not negotiating with the sellers. You’re not even asking for concessions. You’re merely gathering information to rank the sellers’ home against other houses that are up for sale. Sensing you are exploring other options, many sellers will sweeten the deal before you write your offer.
- Inquire, don’t interrogate. The way you ask your questions stands more important than the questions themselves. Phrase them as innocuously as you can. Don’t intimidate, accuse, threaten, or debate. Remember Peter Falk as Columbo, the perpetually “disoriented” detective. Columbo didn’t interrogate suspects. He gently probed. Use similar tactics. Encourage the easy flow of information. Don’t try to extract it.
- Establish rapport. Find common ground. Talk about the last Cubs game, the weather, or perhaps a shared hobby. Negotiations are about people, not money. Treat the sellers as people, not merely owners of a house you might want to buy.
- Compliment, don’t criticize. As you walk through the sellers’ home, sincerely note their beautiful grandfather clock. “Does it have an interesting history? How long have you owned it?” Comment on other belongings they seem to take pride in. Have the owners decorated or remodeled their home with taste, flair, or creativity? If so, tell them. What about the yard? Do the sellers have a green thumb? Can you genuinely admire their tomatoes or roses?
At this first meeting, put forth a cordial attitude. Establish a relationship bank account so you will have something to draw on later if you need it. To sharply criticize the sellers’ home won’t loosen them up to accept a lower price. But it may very well turn them against you and make later negotiations more difficult. (Of course, also corral your enthusiastic exclamations: “Wow! This is exactly what we want. It’s so much nicer than the other houses we’ve seen.”)
- Share information about yourself with the sellers. Let them get to know you. Skip the bravado. But accent personal characteristics that tell the sellers you’re decent, credible people who like (not love) their home. Trust and relationship-building can’t travel a one-way street.
The worst they can do is say no.
LESSON: The worst they can do is say get lost.
Lowball offers destroy trust. When you lowball the sellers, you signal that you’re a win-lose negotiator—with the sellers as the losers.
Joan McGill recalls her lowball experience. “We really wanted this house,” says Joan. “But my husband considered himself a hotshot negotiator. Even though the house was priced just a little over market at $325,000, he convinced me we should start with an offer of $260,000. ‘All they can say is no,’ he assured me. ‘At the worst, they’ll probably compromise. We can still get the house at a bargain price of around $290,000 to $300,000.’ Well, he clearly missed that one. We got the house all right—at a price of $325,000. After our lowball offer, the sellers simply refused to negotiate with us. They just said, ‘The price is $325,000. Take it or leave it.’ So we ate crow and took it.”
Most sellers are emotionally attached to their homes. A lowball offer insults them. Besides, if the sellers have listed their home with a realty agent, they have a good idea of how much it is worth. And if they doubt the agent’s price, 9 times out of 10 the sellers figure higher, not lower. What chance does a lowball offer have of getting accepted? Slim or none.
Put yourself in the shoes of a seller. Your home is worth $310,000. Out of the blue, someone offers you $250,000. How would you respond? You’d probably think: (1) the buyers don’t know what they’re doing, so there’s no point in even talking with them; (2) they think we’re so ignorant we don’t know the value of our own home, and they’re trying to take advantage of us; (3) the buyers believe we’re desperate and they want to prey on our misfortune; or (4) the buyers aren’t serious buyers—they are just shotgunning lowball offers to see what might turn up. (In fact, this tactic is taught in some of the get-rich-in-real-estate seminars.)
When you lowball, you’ll probably wipe out the possibility of a win-win purchase agreement. Most sellers respond to a lowball offer by flat-out rejecting it, counteroffering at the full asking price, or telling the buyers to get lost. This is not to say you’ll never find ignorant or desperate sellers who will accept a lowball offer. And, if your priority is to buy at a bargain price—without regard to a specific house—then lowballing can work. But, as the McGills learned, lowballing generally creates ill will and provokes seller retaliation.
We thought the sellers had accepted our offer.
LESSON: Get the sellers’ signatures on the contract.
“We had been going back and forth with offers and counteroffers,” says Keith O’Hara. “We kept trying to find that magic combination of price and terms that would click for both of us. Finally, it seemed like we found it. We were working with our agent in her office late Friday afternoon and she came up with a solution that would work for us. Next she called the sellers’ agent to ask him to run it by the sellers before we wrote it up in a revised contract. About 20 minutes later the sellers’ agent called back. He said we had a deal. The sellers could live with our solution.
“Our agent printed out a new copy of the agreement. We signed it, and she said she would visit the sellers later that evening to get their signatures. ‘Congratulations,’ she told us. ‘You’ve just bought a great house. I know you’re going to be happy with it.’ We were elated.
“But our spirits came crashing down less than 24 hours later. That’s when we learned the sellers had accepted a better offer that another agent brought them on Saturday morning. Our agent had dropped the ball. She hadn’t kept her 7:00 P.M. appointment with the sellers. Because of a personal conflict, she had rescheduled the appointment for 1:00 Saturday afternoon. By that time, the sellers had already accepted the other offer with the provision that we would be allowed to match it. We couldn’t. So we lost the house.”
Never assume you have a deal until the sellers have signed the contract. Their oral acceptance isn’t binding. Once upon a time you could count on people to honor their word—regardless of whether it had been committed to writing. But for many people, those days are gone. To be safe, if you receive an oral commitment to an agreement you want to see fulfilled, get the signatures as fast as possible. Don’t give the sellers time to change their minds, change the terms, or find a better offer.
The listing handout said “wet bar/sink” included.
LESSON: Itemize in writing all personal property and fixtures included in the sale.
Exactly what are you buying when you buy a home? Does the sale price include that $2,500 Tiffany light fixture hanging over the dining room table? Does it include the gazebo in the backyard? Does it include blinds, rugs, carpeting, appliances, or the window air conditioner? Does it include the mailbox? What about the lightbulbs in the ceiling lights and outdoor flood lamps?
“We couldn’t believe it,” recalls Jay Martin. “We got into town after dark around 9:00 P.M. We went right to our newly bought house, eager to spend our first night there, even though the moving van wasn’t scheduled to arrive until the next day. We opened the front door, reached for the light switch, and flipped it on. Nothing happened. At first we thought the electric company had turned off the power. But when we felt our way to the kitchen, we could hear the refrigerator running. We opened the door to the fridge expecting to get some light; nothing happened.
Like lost souls in the dark, we wandered from room to room, flipping on every light switch we could find. Still no light. Finally, we borrowed a flashlight from a neighbor, and we quickly discovered the problem. The sellers had taken every lightbulb in the house—including the bulbs from inside the refrigerator and oven.”
What Is a Wet Bar/Sink?
When Forrest and Dyan Alberts bought their home, the Realtor handout that described the features of the house listed a “wet bar/sink.” In looking at the home before they bought, the Alberts admired the bar, its fine quality wood, anD ITS UNIQUE DEsign. In fact, they had complimented the owners on the bar.
But when the Albertses moved into their new home, the bar was gone. Remaining were the marks on the floor where the bar had stood. “Where’s the bar?” Forrest inquired of the real estate agent.
“Oh,” she said, “that was the sellers’ personal property. The bar wasn’t included in the sale.”
“What do you mean, ‘not included’?” Forrest shot back. “The house listing handout you gave us said the wet bar/sink was included.”
“That didn’t refer to the bar,” the agent said. “That referred to the wet bar sink. You get the sink, not the bar. That bar was worth over $2,500.”
I once bought a house that had a large antique mirror bolted to the bricks above the mantel on the fireplace. When I took possession of the house, the mirror and the bolts were gone. I got the holes where the bolts had been.
Assume Nothing, List Everything
Each of these stories teaches the same lesson: Never assume the sellers plan to leave any personal property with the house. Sellers have removed items as trivial as lightbulbs and mailboxes. At times they remove items of high value, such as chandeliers, gazebos, and wet bars. They may even take things that are bolted to floors, walls, or ceilings. There have been court cases where after contracting with buyers, sellers have removed toilets and furnaces. No matter how obvious it is to you that the item belongs with the house, the sellers may entertain different ideas.
In some instances, the sellers merely show their pettiness. In others, the sellers interpret ambiguity in their own favor. And sometimes sellers take things that they know rightfully belong to the buyers. But they may justify their actions: “Those buyers stole the house from us, so it’s only right we even the score.” Or, with larceny in their hearts and a keen sense of the impractical, the sellers may say to themselves, “What are the buyers gonna do, come to North Dakota to get us?”
There is a body of law (real property, fixtures, personal property) that defines what stays and what goes in a homebuying transaction. Like all law, though, it’s riddled with contradictions, conflicting court opinions, and gray areas—not to mention the difficult and expensive burden of using lawyers to enforce a claim, even when you’re sure the law favors your view. (I’ve heard of a Yiddish curse that says, “May you have a lawsuit you believe you can win.” You might also recall Dickens’s Bleak House.)
The law may offer recourse but rarely satisfaction. To prevent mistakes about what goes and what stays, assume nothing. List everything included in the home’s sale price. Go through the house room by room with the sellers and your real estate agent. Identify, itemize, and write out. Leave no chance for doubt, confusion, or ambiguity. Then attach the signed list to both your copy and the sellers’ copy of the purchase agreement.
Don’t Rely on Oral Promises
Never depend on an oral promise of the sellers. “You’re such a nice couple,” the sellers say. “Since we have no use for them in our new house, we’ll leave you the washer and dryer. They’re old, but they’ll serve you until you can buy your own.”
When making their promise to you, the sellers may not know their daughter also needs a washer and dryer. Where will these appliances end up when the daughter says, “Mom, you know I hate going to the laundromat. If you’re giving your washer and dryer away, you should give them to me.” At that point, if you haven’t written the washer and dryer into your purchase agreement, even the most well-intentioned sellers may be tempted to help their daughter at your expense.
We fell in love with the house and had to have it.
LESSON: Keep your love to yourself. Put your options on the table.
In his best-selling book You Can Get Anything You Want, Roger Dawson, the world-renowned negotiating expert, tells how a negotiation slipup cost him $30,000 when he was buying his family’s home. Roger writes that one day while teaching his daughter to drive in the secluded hills of Southern California, he spied the house of his dreams. “Everything about the house was perfect,” he says, “and it was for sale.”
Posing as a reluctant, if not altogether indifferent, buyer, Roger relates how he plotted his negotiation strategy—only to see it evaporate when his wife and daughter returned to look at the house without him. “They oohed and aahed over every feature, and by the time they were through with their tour, they had demolished my reluctant buyer plan,” says Roger.
It also didn’t help matters when his wife told the sellers Roger really thought their house was wonderful. At that point the sellers knew the Dawsons were hooked. Roger says with a ticket price of $15, many people think a tour of Hearst Castle is expensive. But he calculated that one house tour by his wife and daughter cost him $30,000.
Express Like, Not Love
When talking with sellers, walk a fine line. Show interest, develop a cooperative, problem-solving attitude, and hold your tongue if tempted to criticize. Yet, do not lavish praise. Nor should you tell yourself, “This is the perfect house, we’ve simply got to have it.”
Keep your options open—both in your own mind and in the minds of the sellers. When the sellers believe you’ve scratched other houses off your list, they’ll naturally use that information to bolster their own position. When you tell yourself that nothing else will do, you abandon the strongest negotiating power any buyer has—the willpower to walk away. Once you relinquish your walk-away willpower, you might as well hand the sellers a blank contract and tell them to fill in the numbers.
Our negotiations centered on price.
LESSON: To most sellers, price is the main event. It’s up to you to win agreement by emphasizing other important points.
“The mistake many home sellers make,” says Realtor Bill Sloane, “is that they stop listening if the purchase price offer is too low.” Sloane is pointing out a well-known fact. To most sellers, price is the main event. Everything else is warm-up. That’s why lowball offers knock negotiations off the track before they even get going.
When you realize this fact, however, you can use it to your advantage. By not pushing the sellers too hard on price, you may get nearly anything else you want. Here’s an illustration from one of my early homebuying experiences.
A Truly Win-Win Agreement
The sellers and I were sitting at their dining room table drafting a contract point by point. The first point was price. Although the sellers had their house priced fairly, I offered $10,000 less. The sellers rejected. I said, “Well, let’s put that issue on hold and see if we can agree on some of the other points.” In abbreviated form, here’s how those other points went:
- The sellers agreed to a lease-purchase plan with closing 15 months after I took possession of the property.
- The sellers agreed to a cash deposit of just $5,000.
- They agreed to give possession within six weeks.
- They agreed to let me store all my household furniture in their den for the month prior to my taking possession of the property. (I had sold my previous home and was giving quick possession to the buyers, so I was going “homeless” for a month.)
- The sellers agreed to include in the sale about $4,000 worth of furniture and appliances.
These people were the easiest sellers I had ever dealt with. But when we eventually returned to price, they still didn’t want to budge. After we talked some more, the husband said, “Look, here’s what we paid for the property. At what you’re offering us, we would take a $6,000 loss. We want to at least get what we paid.”
Here’s where negotiation experts differ. Some would say at this point you’ve got the sellers committed to everything but price. Hang tough and you can still get the price concession you want. The sellers are so close to a deal, they won’t let you walk away. If they did, they would just have to start over again with someone else—if and when that someone else appears. If they’re smart, the sellers won’t take that risk.
For reasons explained earlier (and later, see Mistake #83), I don’t endorse this view. If the sellers have been willing to yield on every point that’s important to me, why not let them score a point, too? Besides, once you’ve gotten nearly all you want, why push so hard you might upset the entire applecart? So, adopting a win-win approach, I increased my offer by $7,000 on the promise the sellers would take responsibility for cutting down and removing a dead tree from the backyard. They quickly agreed. We had a deal that pleased us both.
How to Bargain for a Low Price
Let’s return to the beginning of these negotiations. What would have happened early on if we had heavily debated price? Even if I had been able to pull the sellers down to my offer, that “success” probably would have destroyed my chances of getting all the other things I needed to make the deal work. A hollow victory indeed.
However, on other occasions, I have reversed this approach. When through early inquiries I’ve learned the sellers have needs stronger than price, I emphasize how I am willing to help them meet those needs (e.g., their preferred possession date, their need to know the transaction is actually going to close). Then, once the sellers understand they are receiving nearly all the terms and conditions they want, I feel I can justify my request for their concession on price.
Remember, sellers do not demand their price for purely economic reasons. For many, price is laden with emotional content. A low offer doesn’t just hurt their pocketbook. It hurts their feelings.
When you singlemindedly negotiate price, as likely as not, one party “loses” and the other party “wins.” In contrast, when you negotiate (search for) an agreement, you and the sellers can both gain.
“Split the difference” sounds like a good compromise to me.
LESSON: Don’t compromise, conciliate.
In negotiation lore, the story is told of a mother who hears her two children bickering at the dinner table. Each child wants the only remaining slice of pie. Tiring of this debate, the mother takes the slice, cuts it in two, and gives half to Craig and half to Shawn. “There,” she says, “as you get older you must realize you can’t have everything you want. You must learn to compromise. Remember this as an important lesson.”
This well-intentioned mother thought she was teaching her kids a valuable lesson, whereas, in fact, she had imprinted them with one of the greatest obstacles to win-win negotiating. By splitting the difference before fully exploring her children’s wants and a range of options, this mother mistakenly framed her kids’ debate along a single continuum. Compromise simply meant deciding how to split the piece of pie.
Look for Ways to Enlarge the Pie
Had the mother framed the problem multidimensionally, more than likely she could have figured out a better solution. What if one child really preferred the crust? What if the children shared a television set and each preferred different programs? What if the children shared after-dinner cleanup responsibilities? What if the children had money from an allowance? What if Shawn didn’t really want the pie, but simply liked to torment Craig?
Had the mother recognized a range of wants, trade-offs, and outcomes, she may have produced results more satisfying (or just) for both children. The true art of negotiating doesn’t depend on one’s readiness to strike a compromise. It depends on seeing beyond a single either/or issue.
Conciliation Sparks Creativity
In Mistake #80, I told how the sellers I was buying a home from agreed to let me use one of their rooms to store household furniture. Alternatively, I wanted an earlier date of possession, but they wanted a later date. What would have happened had we focused our negotiations exclusively on possession date? I would have said, “I have to be out of my present home on February 1. I need possession on that date.”
The sellers may have responded, “We can’t get into our new home until March 1. A February 1 possession date is out of the question. We can’t possibly give you possession before February 28.”
“Okay,” I might say if I’m thinking compromise, “let’s split the difference. I’ll agree to February 15. I’m willing to meet you halfway.”
Although meeting the sellers halfway sounds like fair play, many times it doesn’t make sense, or it overlooks another more satisfying outcome. In this case, February 15 wouldn’t work for either of us. So that position never found its way onto the table. By looking at my real problem—what to do with my furniture for a month without incurring the cost and inconvenience of multiple moves into and out of storage—we solved the issue by temporarily storing my household goods in a large room they used but didn’t really need. We both liked this outcome.
Nine times out of 10, thoughtful conciliation beats win-lose compromise.
Compromise Provokes Extremes
Too often, people who negotiate to compromise open with offers at the extreme. If you believe the sellers will split the difference, it’s to your advantage to offer $95,000 for a $120,000 house. Should the sellers agree to meet you halfway, they will sell you the house for $107,500.
But few sellers are that obliging. The tactic of bid low and compromise is too familiar to work effectively. As negotiating expert Herb Cohen likes to emphasize, “A tactic perceived is no tactic at all.” You’re more likely to negotiate successfully if you bake a bigger pie. Expand your knowledge of wants, needs, trade-offs, and possibilities. To loosely paraphrase Emerson, “foolish compromises are the hobgoblins of little minds.”
We let our agent negotiate for us.
LESSON: Use an agent as an intermediary, but negotiate for yourself.
Writing in Real Estate Today, a national trade magazine for Realtors, sales agent Sal Gebbia tells of an offer he received on one of his listings. Sal says that after receiving the purchase offer from a buyer’s agent, this buyer’s agent told Sal, “This is their [first] offer, but I know this couple will go up to $250,000. They really want the house.”
“Of course,” Sal adds, “I told my sellers that information, and we were pleased with the outcome of the transaction.”
The lesson here is plain. Never let your agent negotiate for you. Don’t give your agent information you do not want the other side to learn. Don’t let on to your agent that you’re willing to pay a higher price than your first offer. Use your agent as fact finder and intermediary. But guard your emotions, confidences, and intentions.
Many buyers (especially first-time buyers) mistakenly rely too heavily on their agents to actually come up with the terms of their offer and carry out their negotiations. These buyers will ask their agents, “What price do you think I should offer? What’s the most you think I should pay? Will the sellers concede points or agree to carry-back financing?” Then the buyers follow whatever the agent recommends.
Such buyers abandon their own negotiating responsibilities. If you follow their example and shift decision making to your agent, you should keep the following in mind.
You May Be Working with a Subagent
Remember, you may be working with the sellers’ subagent. As a subagent, your Realtor’s legal duty is to the seller. In favoring the sellers’ interests, the agent may persuade you to boost the price or terms of your offer. Or the agent may disclose your confidences to the sellers.
As a practical matter, many subagents do not strictly follow the letter of the law. Even though technically they represent the sellers, in their heart and efforts they may feel more loyalty to you. I know many subagents who work hard for their buyers—even at a loss to their sellers.
Nevertheless, since you don’t know for sure how your agent will use the information you share, carefully limit your disclosures. Likewise, when offering price and terms, rely on your agent for facts about the sellers, selling prices of comp houses, neighborhood statistics, and general market conditions. Listen to the agent’s price recommendations and accept the benefits of his or her experience. But don’t delegate your decision making. You may be led into giving up more than you need to.
Be Cautious of Buyers’ Agents
Increasingly, brokerage firms and sales agents promote buyers’ agency. Because sellers are represented by their own agents, buyers also need someone to look out for their interests. Marilyn Williams, a Vancouver, Washington, real estate broker, says, “Buyers should think of their agents as attorneys. Would you want to have one attorney representing both parties in a divorce settlement?”
At first glance, this idea sounds reasonable. Yet, even if you choose to employ a buyers’ agent, you still need to guard your disclosures and negotiating strategy. First of all, like the agent Sal Gebbia referred to earlier, even buyers’ agents may disclose your confidences—either intentionally or unintentionally.
Second, we’re all subject to subtle influences. A buyers’ agent may talk you into offering a higher price or better terms because it will make his or her job easier. In which case do you think your agent will work hardest for you: when the agent knows you offered $685,000 but said you’re willing to go up to $750,000, or when you offer $685,000 and say “If they don’t accept this offer, there’s four or five other houses I’d like to look at”?
Watch What You Say
Regardless of whether you’re working with a sellers’ subagent, a buyers’ agent, a dual agent, or a facilitator, watch what you say. Don’t tell your agent everything and then turn the negotiations over to her with the simple instructions, “Do the best job you can,” or “Why don’t you try $135,000 and if that doesn’t fly, we can go to $145,000.”
In fact, it doesn’t matter whether we’re talking about lawyers, insurance agents, financial planners, real estate agents, or any other type of professional relationship; conflict of interest always lurks in the background. Again, tread a fine line. Release enough information to achieve the results you want, but not so much that you invite your agent to sacrifice your interests to the interests of someone else (including your agent).
We pushed to get the absolute best deal we could.
LESSON: The deal’s not over ’til it’s over.
“We chose to work with a buyers’ agent,” recalls Barry Tausch. “We felt a buyers’ agent would push harder to get us the best deal possible. As it turned out, we pushed too hard.
“We knew the sellers were getting a divorce. The wife had moved out of the house and in with her boss. Without income from the wife’s paycheck, the husband was facing tough times. He couldn’t handle the family expenses on his own. Although they had a lot of equity in the house, the husband was hurting for cash. He needed a fast sale. By using this information to our advantage, we got the sellers to come down at least $20,000 to 25,000 below market. Bad deal for them. Good deal for us.
“The only thing we had to agree to was a 30-day close. We didn’t think this would be a problem because we already had been preapproved. But it was. There was one foul-up after another.
“In the meantime, the sellers got a backup offer for $7,500 more than our price. To make a long story short, the husband held such resentment against us for ‘stealing’ his house, he wouldn’t cut us any slack. As soon as we missed the loan commitment date, he demanded payment. When we couldn’t deliver, he pulled out of our contract and sold to the backup buyers.”
Leave Something on the Table
Negotiating expert Bob Woolf says, “There isn’t any contract I have negotiated where I didn’t feel I could have gone for more money or an additional benefit.” Why “leave money on the table?” Because skilled negotiators know, “The deal’s not over ‘til it’s over.” If you push too hard, you create resentment and hostility in the other party. Even if they’ve signed a contract, they’ll start thinking of all the ways they can get out of it. Even worse, if you stumble on the way to closing, they won’t help you up. They’ll just kick dirt in your face.
Especially in the purchase of a home—where emotions run strong— you’re better off leaving something on the table. The purchase agreement only forms stage one of your negotiations. Later, you might encounter problems with respect to property inspections, appraisal, financing, possession date, closing date, surveys, or any number of other things. Without goodwill, trust, and cooperation, unpleasant setbacks on the way to closing can throw your agreement into contentious dispute.