Can you negotiate? Those of you, that know the Art of negotiation say, “I”, those of you that don’t, you know who you are. It’s okay if you’re not a master negotiator but let’s strengthen our skills by being more knowledgeable when it comes to Real Estate. A negotiation is a strategic art that is complex for the simple being that it’s a bilateral arrangement between the buyer and seller. Both parties want to achieve the best deal but how do you overcome difficult situations and creating them into smooth negotiations without insulting the other party? We’ve got to reach a balance, and sure there’s a bluff somewhere along the way. You might even take away the deal which can be your strongest strategy depending how the negotiations are going along? There are fundamental truths to understand the right steps and being able to control who ends up on top at the end of the day.
1. Let’s analysis the market at hand.
A. Our real estate market never sits still so first we need to understand if it’s a buyers or sellers’ market so that we can also understand supply and demand.
B. As a purchaser, a good negotiating tip is how quickly you can Close Escrow. The less time the seller has their home on the market means fewer mortgage payments.
C. If you’re a seller owning a property in a community that’s established with houses around you and homes are flying off the shelf, you now have teeth in the game. You now know that you have a possibility of receiving multiple offers. Buyers will be staying away from presenting you low-ball offers, and you have a better chance of getting a better sales result with more proceeds.
2. Who’s in control?
A. If you’re a buyer and happen to know that the seller is experiencing a job change and or possible Short Sale or Foreclosure in the near future, then you know that they will be more apt to negotiate.
B. In a real estate market of low inventory and high demand, you’re most likely to get multiple offers that put you in the driver’s seat as you sit and wait to receive offers. You the seller can then Counter Offer all of them with what’s called “highest and best”. Most likely you will see a response to your counter above the original list price of your home.
C. Buyers presenting all Cash have control for few factors; Quick Close of Escrow, no financing obstacles getting in the way of possibly cancelling a the transaction and no Home Inspections necessary if agreed upon the contract.
3. What’s written in the contract?
A. Take two houses priced at $300,000.00. They both show extremely well and have similar upgrades, does that mean they’re worth the same? If after inspections or reviewing the Sellers Property Disclosure Statement you notice that the seller of one home has put a new roof on the home two years ago, what’s that worth to you?
B. If in the contract under “Additional Terms” you see that the buyer wants you the seller to pay for closing costs. Did you factor whether or not they raised the original purchase price by adding the closing costs? Are you the seller affected by this? For instance, let’s say that the original sales price is $300,000.00, and the buyer is asking for closing costs upwards of $8,000-$10,000. In doing so, did the buyer raise the offer price from $300,000 to $310,000 by compensating you for the closing costs?
C. If the buyer raised their purchase price offer to reflect the closing costs they asked for should you be concerned? The answer is yes and no but in all probability yes! If you’re presented with an all Cash Offer, the seller would not have to worry about appraisal and closing costs. By not financing the buyer will pay minimal fees in the range of $2,000-$4,000 which means you’re ahead of the game if you’re a seller agreeing to pay for closing costs. If you happen to be the seller but the buyers are financing does that change this scenario? Yes, now we’re dealing with Appraisal issues. What if you’re presented an offer of $310,000.00 compensating for the Buyer’s Closing Costs, but comps are at $300,000.00? If the property appraises for $300,000.00 you’ve now reached a dilemma. You the buyer can either come up with an additional $10,000.00 which is impossible hence the seller credit or you can ask for the seller to come up with the difference. Remember that the lender will never approve a loan for more than the appraised purchase price. Knowing all this, what do you think the seller is going to do? Most likely Cancel the transaction!
4. Financial Stability?
A. When reviewing an offer should you accept before calling the lender to get specific details about the buyer? Yes, always call their lender and or bank before you accept any offer.
B. Have the prospective buyers checked the box that says “No” as to whether or not they are attaching a pre-qualification letter? Obviously, if they checked “No” then you probably don’t want to take your house off the market until you know their financial stability and or call their lender.
C. You have a Cash Offer on the table, does that mean accept the offer if everything in the contract looks agreeable? That depends on; did the buyer supply you the seller with “Proof of Funds”? Without proof of sufficient liquidity, you have no way of knowing whether the buyer is a dealer or a dreamer.
Stay on top of the game and make sure that your realtor has been in the business and has a good understanding for contract negotiations. A great agent can make a big difference from the start of identifying a negotiable price to the Home Inspections at hand that can go one way or another costing you thousands! Be proactive and start being more aware of what it means to have a bad, okay or a great offer!
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