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Thorough Research Is Key to Negotiating Best Possible Deal

October 15, 1989|ROBERT J. BRUSS

Virtually everything we do in life involving other people includes negotiation. This is especially true in real estate, particularly if you are buying or selling a home.

But successful negotiation is not easy. To come out ahead, it is critical to prepare for the transaction.

For example, if you are the property seller, you should get your property into top physical condition before putting it up for sale. If you are the buyer,you should prepare by researching recent neighborhood sales prices so you don't offer too much for the property.

If you want to be a successful negotiator, whether in real estate or another field, it is critical to know and understand the rules of the negotiation game. Just as the best athletic coaches always prepare their teams with as much physical training and knowledge as possible, negotiation works the same way.

But in addition, you will need a game plan or a strategy. Without such a goal you will be wasting your time. Here are the basic rules of the negotiation game:

Use your superior knowledge to formulate a game plan. Whether you are the buyer or seller, you need as much information as possible. To illustrate, if you are selling a home, you need to know recent sales prices of nearby comparable homes because your home's market value is based on selling (not asking) prices of similar homes.

If you are buying, learn the recent neighborhood sales prices and don't offer too much. You can always come up in offer price, but you can never come down. The time to worry is if your first purchase offer is accepted without negotiation.

In real estate you cannot know too much. There is always more to learn. However, don't get bogged down by "the paralysis of analysis."

For example, I recently inspected a run-down house on a large lot with a $295,000 asking price. But the top sales price in the neighborhood for a home in excellent condition was only $225,000.

I offered $150,000 all-cash with no contingencies for the shabby house. The seller rejected my offer. That was several months ago. The overpriced house is still for sale.

Perhaps I was too low at $150,000 but, because the seller wasn't aware of recent sales prices and refused to negotiate by making a counteroffer, she hasn't made a sale yet.

Understand the role time plays in negotiation. The best real estate negotiators are never in a hurry. There are many tactics I didn't like in Tony Hoffman's very successful book, "How to Negotiate Successfully in Real Estate," but he was absolutely correct to recommend the "He who cares least, wins" strategy. That means, if necessary, don't hesitate to walk away.

No matter how desperate your time situation may be, especially if you are the seller, act as if you have all the time in the world. If the other party learns your deadline, such as you must buy or sell by a certain time, you lose your negotiation advantage.

To illustrate, have you noticed in union negotiations how important the strike deadline is? Just before the time the workers plan to strike, management usually makes its best offer.

The same principle applies to realty negotiations. But the secret is to learn the other party's deadline. If your opponent has no deadline, such as a home seller who is testing the market and doesn't have to sell, then negotiation becomes one-sided. Walking away is the best choice.

To gain negotiation power, learn everything about the other party but reveal nothing about yourself. Be careful what you tell the real estate agent. You can be almost 100% certain that whatever you tell the agent will be repeated to the other party, one way or another.

If you are the seller, no matter how desperately you must sell, act as if you don't really care. When you are the buyer, pretend you don't care if you buy or not, but try to learn everything you can from the agent about the seller's situation.

Make the realty agent work to get the buyer and seller together on price and terms. However, if negotiations are not going well, don't hesitate to get tough, especially if you are the buyer.

For example, if you really want to buy the property but the realty agent is giving you a difficult time, insist on writing in the purchase offer, "This offer to be presented to the seller only in the presence of the buyer." Failure to follow your instructions can result in revocation of the agent's real estate license for breach of fiduciary duty.

Watch out for the "higher authority" negotiation technique. Business people love to use this method. One person in the negotiation, such as the husband or wife, approves the purchase offer contingent upon the other co-owner's acceptance. If you are the buyer or the real estate agent, be sure all parties who are essential to acceptance of an offer bid are present when the offer is delivered. A variation of this tricky method is to make the sales contract subject to the approval of the seller's or buyer's attorney.

Next: More profitable real estate negotiation strategies. Bruss is a San Francisco-area lawyer, author and real estate broker.

NEGOTIATING A DEAL

First of a two-part series.

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