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Secret to Successful Negotiation

Secret to Successful Negotiation

“The best move you can make in negotiation is to think of an incentive the other person hasn’t even thought of — and then meet it.” Eli Broad, American Entrepreneur, KB Home

[dropcap]C[/dropcap]AR.org home seller survey 2015 shows that the skill most sellers need from the listing agent is negotiating terms of sales.
It is a shame for the industry that many real estate agents don’t know how to negotiate for the sellers’ best interest.
Selling a home is like a chess game in which the real estate laws are the rules of the game. Negotiating with buyers is the endgame. Therefore, it’s impossible to explain all the different tactics in one article, but the principles are as follows.

Step 1. Un-level the playing field

Before we get to the endgame, sellers should lay out the pieces to their maximum advantage. In real estate, that means doing all the preparation, hiring the right inspectors and putting together good disclosures — all the good stuff we talked about in earlier secrets. As long as we play by the rules (real estate laws), sellers get to set up the chessboard to make it difficult for buyers to win. Who said we have to play on a level field?

Step 2. Know your opponent

If you are observant, you will learn a lot about your opponents (the buyers) during open house interactions. You can learn what they like about the home, where they are moving from, what life stage they are at, where they work, etc. Getting to know your opponents helps you see your opponents’ play and predict how they will move.

Step 3. Play by the rules

Yes, the sellers have a lot of advantages in this game, but the game rules (real estate laws) are in place to prevent cheating (fraud). It’s very important to know the rules well so you can use them to your advantage without breaking them. This is often the trickiest step for sellers without a top real estate agent. Search engines can only get them so far. Sellers may encounter a lot of questions specific to their game for which they can’t find answers on the Internet. Going outside the laws could result in hundreds of thousands of dollars in attorney fees and compensation to the other party.

Case Study: Over-improved Home

A seller client of mine bought a small bungalow for $500k and over-improved his home with a $80k chef’s kitchen. He enjoyed his kitchen a lot while he was living there. When it was time to sell, similar homes in the neighborhood without a chef’s kitchen were valued at $700k, and I suggested the chef’s kitchen would add another $50k in value, yielding $750k market value by my estimate. The seller felt he should get $700k+ $80k, or $780k for his home, and insisted on listing the home for $780k. As you can imagine, buyers like chef’s kitchens, but few

Commercial Grade Chef Kitchen
Commercial-grade chef’s kitchen

were willing to pay $80k for it. It was a niche house to sell at $750k, not to mention $780k. The house was sitting on the market for over 30 days without an offer. Finally one buyer came along and made a lowball offer of $720k, saying $720k was the top of their budget. When presented with the offer, seller became anxious and regretted listing the home for $780k and even second-guessed whether it would have sold at $750k. He was about to take the low ball $720k offer, but we stopped him. We explained, “Out of all the $700k homes on market, this buyer made an offer on yours for $720k. Why pay $20k more? Because they wanted your chef’s kitchen. Had they only wanted a regular kitchen, they would’ve gotten another house for $700k. The fact that they offered $20k more on your house tells us they truly want your home.”

With the seller’s permission, I kindly told the buyers’ agent, “The seller understands your client’s budget is $720k, and we can make it work. The seller can take out all the professional kitchen equipment before close of escrow.”

The buyer’s agent said, “No, no, no. The buyers wanted that equipment.”

Upon hearing that, I smiled to the seller because the buyer’s agent just indirectly confirmed my seller’s home was indeed the only one they wanted and there were no other alternative on the market.

I told the buyer’s agent “Look, it would cost your buyers $80k to furnish an equivalent kitchen in any other home in the neighborhood, which are going for $700k, not to mention the remodeling hassle. If they really want this home, the seller would take $760k, and that’s a very good value, even after depreciation.” I showed the buyers the product information and renovation receipts to support the $80k cost figure.

At the end, we settled for $755k, $35k more than what the seller was willing to take out of desperation.

There are a few takeaways in this case study.

  • The buyer’s agent leveraged the listing’s staleness (on market 30 days, no offers) to corner my seller into taking a low-ball offer.
  • The seller would’ve taken the bait out of frustration and ended up selling the home for $35k less if there wasn’t a second eye to keep things in check.
  • With good conversation skills and a clear mind, one could extract more information from the other party and turn the tables to negotiate much more favorable terms for the seller.
  • Good preparation was another key to this successful negotiation. Without the cost documentation, it would take more time to convince the buyers it would cost them $80k to get the same kitchen.

Real estate negotiation is not a symmetrical game like chess. The preparations each party does before the game could drastically increase the number of possible moves. On top of that, a top player needs to be well versed, with lots of different moves depending on the situation.

The truth is, 80% of the time, when things are smooth, a mediocre agent will do just fine. A top agent’s value truly shines in the 20% of not-so-smooth situations. When two agents charge the same commission, why take the chance with a mediocre one?

The Cal Agents are strong negotiators and champions for our seller clients.

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Lex Shan

Lex is a real estate broker, real estate developer, entrepreneur and technologist. He has started an architectural design firm, real estate development private equity fund and California's largest real estate 3D marketing company.

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