Negotiating the purchase or sale of a home can be fraught with struggles, ill-will and nastiness. coming the three deal-killers is easy if you remember one thing. Keep your emotions out of real estate contract negotiations. It will reward you handsomely. Plus, if you exit successfully from a ugly negotiation you still have to endure several weeks or months with the other side. On top of that, you might need to go back to the buyer and seller and ask for a closing date extension or inspection repairs. If wear out the other side early, they'll be much more unlikely to agree to anything you ask for simply because they don't like you or your attitude.
There are three outcome variables when a real estate contract is drafted by the buyer and presented to the seller.
The seller will accept the terms=contract.
The seller will change the terms=counteroffer.
The seller will reject the terms=the end, start over or walk away.
When the parties to a real estate contract accept the terms, it is known as acceptance. Most states require all real estate contracts to be in writing. And, they require that all offers of price or other terms be in writing. You might want to throw out a number out to a seller in a conversation, but it is not enforceable and is considered by real estate professionals as undesirable.
The counteroffer is the most common scenario in real estate contracts. Many buyers and sellers like the back and fourth of counteroffers and negotiations. But, be forewarned, some buyers and sellers have a low threshold to extended counteroffering. My rule of thumb is once you have gone back and fourth five times, you start to bog down the process. Each side should develop a strategy for negotiating before the real estate contract is formally presented.
In some situations a real estate contract is rejected before acceptance, by either side at any time. Some reasons for rejections are: incompatible closing dates or other terms, price, or another real estate contract is presented and it is more attractive to the seller. I am of the opinion that it is better for a contract to be rejected during negotiations than fall-through after acceptance. Like many things in life, accepted contracts are easier to get into, than out of.
Low-ball offers. Much more common in 2006 and 2007 than in previous years. Real estate market pendulums have swung in the buyers favor. That being said, some of the low-ball offers that buyers recently have attempted to negotiate were twenty-percent under list. Sellers of appropriately priced homes did not even respond. The rule of thumb is to not go below ten-percent of list for an opening price offer. If you can sweeten other terms of a contract to counter the low price, it could help keep you in good graces with the seller.
Counteroffers are like volleyball. Each time an counteroffer is given back to the other side, you will start to know where they want to go on price and terms. If sellers or buyers don't move off their original price much, they are showing signs of digging in their heals, don't expect much movement, each round. Early signs of rigidity in counteroffers tell me to buckle your seatbelt another notch, because the other side is not flexible.
The take-it-or-leave-it offer. Sometimes negotiations get near an impasse. The other side might call your bluff and say this is it, take-it-or-leave it. If you developed a strategy as I mentioned earlier, you will know what to do with the ultimatum. And, I hate to say it, the folks who do these ultimatums also like to try and come back after you've met the ultimatum and ask for another bump. No, no, and no.
Highest and best offer. Sometimes sellers or their agents get restless in negotiations and want to call your bluff. They'll say give us your highest and best offer. This is a tricky situation, sometimes if your not in love with a home, you might withdraw the offer and not tip your hand. Especially if you might revisit it later after pursuing other homes.
Bidding Wars. Going into bidding wars is not for the faint of heart. You will probably over-pay for the home, but if you truly want it, it's okay. You might though have to come up with some extra cash for the down-payment if it doesn't appraise out, at an inflated price. One of the main problems in bidding wars is not knowing how many offers are on the table. Real estate license laws usually favor the listing agent 's need for confidentially with their client, the seller. I've also seen all the offers drop out except for one, and you end up negotiating against yourself. I tell my clients to not participate in a multiple offer situation. They become competitive and emotional, I prefer to stay on the sidelines until the dust settles. Since you haven't tipped your hand, if you are invited to submit your contract after the multiple peter out, you will have a fresh slate with all the frenzy just a learning experience for the sellers.
Don't be rushed through negotiations. I have seen contracts put into acceptance in hours and at the worst, weeks. I would say, a good negotiation should take no more than two days, with five rounds of counteroffers. If either side starts to delay their response to a counteroffer more than one day, it's a red flag. Give reasonable deadlines for a response to all your counteroffers.
Full price offers. Sometimes if a home is priced right and new to the market, and you really want it, offer full price. I've seen homes slip away over a thousand dollars, and in the scheme of things or as a ratio of list price, it's dumb.
Withdrawing an offer. If you are working with unreasonable people, or terms that are agreed to are change and continually in flux, walk away. First though, withdraw the offer. Withdrawing can really tell the other side that they are unreasonable. Sometimes they get it, sometimes they don't. But, most houses are worth the trouble of torture-some sellers or buyers.
Keep a written record of negotiations. It's easy after a couple of rounds to forget that you agreed to leave the basement refrigerator, or as a buyer to shorten your mortgage contingency, make sure you write down all the changes each round, all experienced real estate agents do.
Mark Nash, is a residential real estate author, broker, columnist and writer based in Chicago. His fourth book 1001 Tips for Buying and Selling a Home received eighteen five star reviews on Amazon.com. His latest book; Real Estate A-Z for Buying & Selling a Home will be published in December 2006. Mark publishes a free monthly ezine for real estate professionals. Agent to Agent features ten articles that offer free reprints for agents, home buyers and sellers through EzineArticles.com . Real estate news and book reviews, Celebrity Homestyles, Home selling and buying tips and advice, Joke-of-the-Month, Help this Agent, and agent marketing tips. Over 5000 subscribers in the U.S. & Canada. Subscribe at: http://www.1001realestatetips.com/forrealestateagents.html
