Buying a house is in the same bargaining territory as wrangling for a rug in Istanbul -- almost anything goes as long as everyone walks away happy.
Artful deal-making could make the difference in getting what you want in a market that is expected to be as competitive and complex as last year because of a low supply of houses for sale and rising prices. Buyers and sellers will have to be more sophisticated negotiators to gain an edge, according to Jan Horn, a Coldwell Banker Realtor and executive director of the Coldwell Banker Negotiation Institute.
With the inventory of homes for sale in Los Angeles County dropping to a 2.6-month supply in December from a 2004 high of 6.1 months in August, buyers need to know the best way to make their offers stand out when competing against multiple offers. And while sellers have more clout to call the shots, they still need to know how to create and profit from multiple-offer situations.
The best tools for any negotiators, whether they're acquiring a Fortune 500 company or buying a two-bedroom condo, are information and alternatives, said Christopher Erickson of the executive education negotiations program at UCLA's Anderson School of Management.
"You have to have enough information to know the point at which you can walk away," said the management professor. "And you have to ask yourself, 'What will I do if I can't reach an agreement? What are my alternatives?' "
Here are some tips from real estate agents, negotiators and recent home buyers and sellers:
* Home buyers should decide how bad they want a property and what it would take to get it.
Buyers desperate to land a house can get caught up in a bidding war and lose sight of when to stand their ground and when to go higher.
"It's called an irrational escalation of commitment," said Corinne Bendersky, assistant professor and negotiation specialist at UCLA's Anderson School. "You'll overpay because you want to win."
Well-prepared buyers know the comparable prices in the area, she said, and stick to their limits.
Before making an offer, Ron Winn, associate broker for Coldwell Banker in Brentwood, advises clients to decide on a scale of 1 to 10 how much they want the house. This allows them to compare the house with others they've seen and set a price limit on how high they'll bid on a particular house.
"You'll bid differently on a 4 than a 10, and you'll need to know what your best offer will be," Winn said, "because chances are, in this market, the seller will want that best offer, and you won't get a second chance."
Buyers might also be more flexible on contingencies if the house is a 10. "They might be willing to waive the inspection or shorten the escrow period."
* Find out what matters to the seller.
Knowing a seller's "hot buttons" can help buyers in a multiple-bid situation, said Richard Gaylord, a Re/Max Real Estate Specialists broker in Long Beach.
"It could be they want a short escrow period, or they want to sell it in 'as is' condition," he said. "Any of those things can be a negotiating point."
Real estate agents can usually find out information from the seller's agent and try to accommodate those needs.
"Buyers can offer to pay the title insurance, offer a rent-back period or even a free rent-back period," Winn said. "It's not going to be as important as having the best package, but it's a nice gesture."
For Joelle Drucker, knowing that the house she was interested in had been overpriced in the $800,000 range and had sat on the market for a while inspired her to bid $751,000, well below its $790,000 asking price in November.
"I knew there would be a lot of remodeling involved, and I wanted to have as much money for that as possible," said Drucker, who was seeking a four-bedroom house on the Westside for less than $1 million. She ultimately paid $758,000 for the house and plans to put $200,000 into renovations.
* Be willing to tolerate extreme buying conditions.
Some houses have complicated financial issues, due to divorce, estate and foreclosure situations. Knowing that a house is a 10 may make it easier to wait out an extended escrow period or wade through extensive paperwork and may also help the buyer get a better deal.
"Sometimes buyers hear that a property is problematic, that there are liens against it or that there is a strange situation with the seller," said Bob Stiles, a real estate agent with Prudential California Realty in Beverly Hills. "But those properties can be good opportunities for negotiation."
For Nazih Hakim, knowing that a house in Sherman Oaks would be ideal for his family allowed him to remain patient during a five-month escrow period and numerous bureaucratic headaches before finally closing last February.
"It's a 4,822-square-foot house on a double lot in a great location," he said. "It was a long time to wait, but I had faith.... I knew it was perfect for us."