Are you finding yourself it hard to buy a place in this aggressive real estate market?
Are you constantly being outbid in bidding wars and tired of it?
Don’t you wish you had some inside secrets on how to negotiate like a boss?
In this hot market, you’re going to be engaging in wild negotiations. Here are some basic tips that can help you when buying or selling real estate.
Look at the Home like a Home Inspector:
When you’re buying a property, look closely at the features of the property. See if you can pinpoint areas that need some touch ups and repairs. Are there chips on the floor? How about dents, scratches and marks on the wall? Is the place so outdated that it needs a new coat of paint?
Find out the cost to mitigate these small problems and use that to bring the price down.
How about the age of the roof, hot water tank and the furnace? Do these need replacing soon? Is the flooring dirty or outdated as well? Factor those costs in as well.
BATNA (Best Alternative To a Negotiated Agreement):
When you go into a negotiation, always have a BATNA. Best Alternative To a Negotiated Agreement is another way of saying make sure you have a backup plan. If you don’t come to an agreement, do you have a backup plan? Is there another property that you were also interested in?
When you go into a negotiation with a BATNA, then you won’t fall into the trap of succumbing to what the other party wants. You can walk away and know that you’re not at the mercy of the other party.
If the other party knows that you don’t have any options and you must buy or sell, the other party will likely stand firm on their position and it’s harder to reach a middle ground.
If the other party knows that you have options, then it’s harder for them to control the negotiations. The other party often realizes that to come to a deal, they must compromise and make it a WIN-WIN for both parties.
Post Home Inspection Negotiations:
When a buyer offers a price on a property and it’s accepted, subject to a home inspection, the buyer is saying that they are willing to pay the agreed upon price assuming that the home inspection results come out pretty good and that there’s no severe problem with the property.
However, if and when the home inspector finds unexpected problems such as mould, moisture behind bathroom tiles, asbestos, etc… these are items that are concerning. Sometimes the problem is very severe and sometimes it’s minor but whatever the case is, the buyer has an opportunity to use these findings to ask for a further negotiations. The buyer can ask that the seller remediate the problems or reduce the purchase price.
Expanding the Pie:
In negotiations, too many people go about it like splitting an 8″ pie. One party wants 60% of the pie or the other party wants the majority of the pie. This is often translated into price when it comes to real estate. Buyer and seller both go about solely negotiating about price.
Expanding the pie means thinking of alternatives outside of price, negotiating terms and options and conditions that may add value to either party. In a real estate transaction, items such as completion dates, deposit amounts and included items can all be used as bargaining chips.
Instead of trying to divide the pie, why don’t you just bake a bigger pie? Add a milkshake or fries?
How about talk about bartering for the home that you want to buy? I’ve heard of stories where buyers used a car as a part of the down payment. My real estate investor friend tries to buy homes where the seller includes everything, furniture, car, etc… He then hires contractors to do renovation work on the house and uses these items to barter with contractors instead of paying them.
Think outside the box.
Submitting More Than 1 Offer:
There’s no rule that says you can’t submit 2 offers to a seller.
In real estate transactions, you can write an offer with subject clauses (subject offer) or an offer with no subject clauses (subject free offer)
A buyer writing a subject free offer is much more attractive to a seller than an offer with subject clauses. In a subject free offer, the moment the seller accepts the offer, it’s basically a firm deal and the buyer can’t really back out of the deal. Whereas in a subject offer, that’s subject to financing, home inspection and other clauses, the buyer can often easily get out of the deal because of these subject clauses. In real estate, buyers change their mind so a seller almost always prefers a subject free offer over a subject offer.
A subject offer is used to protect the buyer. If a buyer writes a subject free offer, then there are certain risks the buyer has to take. In a subject free offer, the buyer is sometimes forgoing a home inspection, reading the strata documents, etc… and so must take on some risk. In this case, the buyer should probably write a lower price if he/she is bearing on the risk.
So how does this work? Let’s say the property you want to buy is $500,000. You can write 2 offers, one subject offer for $480,000 or one subject free offer for $460,000. The seller then has a dilemma. If the seller strictly cares about money, then the seller may choose the $480,000 subject offer but there’s a chance that the buyer may just waste the seller’s time and walk away from the deal, not to mention tying up the property so that other buyers will likely avoid the property. Buyers often times can’t get financing or the buyer have a change in heart and use certain subject clauses as the reason why they don’t want the property anymore.
Or, the seller can take the lower offer but have the assurance that the offer is firm and binding.
Sometimes, this tactic works and there are sellers who prefer serious all cash buyers with no subjects as opposed to higher offers that have subjects. This is especially the case for multiple offer situations.
The above are a brief explanation of some of the basic tactics. Many of the tactics are used differently depending on the situation. Contact me for more information on real estate negotiations.