Real Estate Negotiations

When you think of buying something, you don’t typically consider it to be a very emotional process, right? For example, I can’t think of many people who grab a gallon of milk and walk all the way to the cashier in complete inner turmoil, trying to decide if it’s a good deal, or if you really need it, or if Hiland is a reputable company, or if the cow was in good shape when the milk was taken. And if there are people who do that, it’s only until they’re caught by the police and returned to whichever insane asylum they escaped from.

But, I’ll bet you all the money that I have (and it’s a lot; I make HUNDREDS of dollars per month) that if you went up to any real estate agent who’s sold even one house and asked them if a real estate transaction was a smooth process, devoid of any emotions or drama, they would have to resist the urge to either laugh or cry. And if they’re an agent worth their salt, they will successfully resist the urge to do either and reply with a simple “No.”

For some reason, when it comes to buying a house, it is an emotional rollercoaster for some (most) people. I get it. I sold my house last year. And bought a new one. I closed on both of them in one day. It’s not for the faint of heart. I told my wife that even if we hate our new house, we are going to hate it forever. As a family. Because I’d rather spend a month full of “enhanced interrogation” at Guantanamo Bay than list, sell, or buy another house. Not in the near future, anyway. Not until I can afford to pay some beautiful company whatever exorbitant price they demand to come in and pack everything up, move it, unpack, hang pictures, fold clothes, sort laundry, and every tiny little thing imaginable for me.

A buyer’s emotions come from fear, which comes from a lack of understanding of the process or industry or a lack of trust. A seller’s emotions come from fear, but also, on a more sentimental level, the detachment from their home. Home is an integral part of a person’s sense of security, comfort, and worth. I hear it’s even where the heart is. Or where you make it, for all you Joe Dirt fans. But it’s not an easy thing to stop seeing your home as a sentimental sanctuary for you and all of your loved ones and instead as just a house for sale.

But if an agent has done their job, they have removed as much fear and emotion from this process as possible. They do this by explaining what is happening in each step, why it’s a necessary step, who is responsible for completing the step, when the step is supposed to be completed, and have updated you along the way with new pieces of information. If a client has done their job, they have trusted the agent to do theirs.

The best advice I can give a client, or anyone who is about to head into a negotiation, is to trust your agent and keep your emotions in check. It is a game that can be played diplomatically, tactfully, respectfully, and effectively. You can’t “play hardball” with people. This is not a movie. Just as you are emotionally charged as a buyer, they are emotionally charged as sellers.

So, for a buyer, before you make an offer, I first recommend that you sit down with your agent and go over the comparative market analysis that your agent has prepared for you for the house you are interested in. That report shows how much similar houses in that area or neighborhood have sold for recently. These are the same comparable properties that an appraiser will look at. That report will have different columns of information with averages for each area of information. With your agent’s counsel, you will decide where that house falls in relation to the averages. You’ll also see a column called SP/LP% (Sales Price to List Price Ratio). This column tells you the average percentage of the list price houses are getting. For example, if a $100,000 house in that area is bringing 97% of their list price (SP/LP%), that would come to $97,000.

So, if the SP/LP% for the area you are buying your house is 96.5%, and you want to “play hardball” or you ever say the phrase “you don’t ask, you don’t get” or “you never know”… First of all, if you look closely at your agent as you utter any of the above colloquialisms, you will see them die a little bit inside. But secondly, the further you get from that average of 96.5%, the more you make history. History is not made very frequently. And if you come in offering 90% of the list price on a house that you know is fairly priced just based on the premise of “you never know”, you risk making the seller mad and starting the negotiations off on the wrong foot. So, be reasonable and logical, look at the numbers, and make your decisions based on facts. Most importantly, remove emotions from the process. Detach yourself from the outcome.

Sellers, don’t get mad when you receive low offers. They’re going to happen. You know you have your house priced fairly. I know that. They know that. But people are always going to lowball at the very first, for the same reason that people keep buying lottery tickets. There is always a chance that you could give up on your hopes and dreams of receiving an equity check at the closing table, lose all self-respect and dignity, and say yes to an offer of 80% of the list price. Don’t reject it. Counter. Always counter. Never reject an offer. Never take an offer personally. Don’t let an offer control your emotions.

Warren Buffet has a quote, “If you cannot control your emotions, you cannot control your money.” That is very true from my experience in this industry and others. If a person can elicit an emotional response from you from their words or actions, they can control you. Keep control of your emotions, talk to your agent, take your time digesting information, and build a logical, emotionless response. Counter like they were close with their first offer, and you’d like to do business with them. Even if you really would like to use their first offer as toilet paper. But you and I both know that you don’t want that. That would be very uncomfortable and ineffective toilet paper. It’s better off as a starting point to a successful transaction than it is TP.

In short, let your agents coach you through this process. Let them be your counselor if they need to be. Their job is to protect your best interests. A good agent’s emotions are always in check during negotiations. They will never approach a situation without diplomacy, an understanding of the value and condition of the property and local market, and a desire to reach a desirable outcome for all parties involved. Let them do their job.