Teach your agents how to negotiate.
By Larry Kendall, chairman of The Group, Inc. and author of Ninja Selling
Have you seen the latest National Association of REALTORS® (NAR) survey? Eighty-nine percent of buyers and sellers rate negotiation as the key skill they are looking for in selecting a real estate professional. This high percentage may be related to the shortage of inventory and multiple contract negotiations in many markets. How are your team’s negotiation skills? What can you do to help them perfect this skill?
Start by helping your associates understand the five basic negotiation points of a real estate contract. Most real estate contracts are lengthy. All the pages of legalese are designed to help buyers and sellers agree on just five negotiating points. Here they are:
PRICE. Are you in a seller’s market with multiple offers? Will buyers need to offer full price or above to compete for this property? What about a price escalation clause?
TERMS. Cash is king, as long as it can be verified. Conventional loans are next in line, followed by FHA and VA. If you are in a competitive seller’s market, and your buyer is a low-down payment buyer (FHA or VA), can he or she get help from a family member to raise his or her offer to conventional financing to be more competitive?
What about the earnest money? In some markets, a winning strategy is to release all or a portion of the earnest money to the seller upon contract acceptance. This strategy is effective in markets with a history of buyers making offers on multiple properties, then deciding which one they want and using the inspection clause to walk away from the others.
DATES. Closing and possession dates can often be the most important negotiating point of all. Sellers don’t like to make a double move. Sometimes they want time to find another home. Buyers who match their closing and possession dates to the seller’s goals are more likely to win. Often a closing with a seller rent back (sometimes at reduced of free rent) for up to 60 days makes the difference.
INCLUSIONS AND EXCLUSIONS. Remember the buyer’s markets in the 1980s where the price sometimes included the cars in the garage? Fortunately, those days are over. However, in many resort markets, the price may include the furnishings.
CONTINGENCIES. This one is a biggie. The cleaner the buyers can make their contract (and still be comfortable); the more likely they are to win in a multiple offer situation. The two biggest contingencies generally involve the loan and the inspection. A buyer who is pre-approved (not just pre-qualified) has an advantage. However, the property will still need to appraise. Do the buyers have enough extra cash that they can agree to buy the property so long as it appraises for a minimum amount? If so, they can modify the appraisal clause unless they are buying FHA or VA.
On the inspection clause, if the listing real estate professional had the property pre-inspected by a reputable inspector, and the seller is also offering a Homeowner’s Warranty, would the buyer be willing to accept these inspections and waive the inspection clause? If the buyer is competing for a property where contracts will be collected and then presented to the seller at one time several days later, is there time for the buyer to get his or her inspector into the property and have an inspection done BEFORE he or she writes the contract? If the property inspects, they can write an offer waiving the inspection clause.
The strategies mentioned here can be used by buyers to complete in a multiple offer market. They can also be used by sellers to request concessions from buyers when they receive multiple offers. These strategies are generally unnecessary in buyers’ markets and may vary by state law.
Regardless of the market, your associates should be familiar with the five negotiating points. We recommend you have them rehearse their strategies and share best practices, so they become master negotiators. After all, it is the No. 1 skill for which customers are looking. ^
This article originally appeared in the March 2016 issue of the REAL Trends Newsletter and is reprinted with permission of REAL Trends Inc. Copyright 2016.
The Minnesota REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.