For most sellers, it’s important to define what strategic negotiation looks like during the offer response phase. Without employing effective negotiation strategies, sellers end up selling their homes for lower prices and/or with more contingencies in place. This obviously means lower profits and a higher chance of headaches, which is the opposite of what we’re going for.
While it’s definitely possible to get a great offer off the bat, it’s not usually the case. However, it is more likely to occur in a seller’s market. Buyers are less confident that they’ll be able to bring the price down lower than asking when there’s a multiple offer situation. In a very hot seller’s market, multiple offers become the norm. Thus, the impetus for better initial offers increases.
Even in a buyer’s market, a well-priced, well-shown property can generate a lot of interest and emotional investment from the buyers. This too can result in a situation where you get great offers off the bat.
It’s amazing to get a great offer without much back and forth needed. However, it’s not the norm, and thus we need to be prepared for strategic negotiation. This is the period in which prospective buyer and seller try to push the limits of the opposing party’s tolerance.
Of course, you don’t want to push too hard, or you risk alienating the other party and ruining the deal. This is why strategic negotiation is almost an art form and requires a high level of skill and experience.
Maximizing the Quality of the Initial Offers
With all else being equal, the better of a job you and your agent can do of collecting the best offers up front, the better outcome you’ll ultimately have. As with any negotiation, the final agreement tends to be somewhere in the middle of the initial two positions. Thus, the more attractive the opposition’s initial position is, the less you should have to move from yours.
A few key options for maximizing your position from the start include:
- Ensuring that your home is priced effectively from the start, so you’re getting maximum exposure
- Ensuring that your home is presented in the best possible light so that its perceived value is maximized
- Giving enough time to collect as many offers as possible prior to responding
- Asking the prospective buyers to present a “highest and best” offer as their initial offer
- Letting the prospective buyers know about any particularly strong offer you’ve already received
Keep in mind, even if you do everything in your power to generate the best buyer offers, it’s very possible that you’ll receive one or more low ball offers. Resist the urge to reject them outright. There’s always a possibility that they’re just swinging for the fences hoping for a miracle, and may be willing to pay a lot more. It never hurts to keep all options open until you’re sure of what direction you want to take.
Understanding Terms and Contingencies
Before we delve too far into what makes for strategic negotiation, let’s quickly define terms and conditions. Terms are essentially the “rules” of the deal as requested by the seller. In other words, in what manner does the deal need to occur for the seller to be satisfied? Common examples of terms include things like no inspection/appraisal contingencies, all cash purchases and 30 day closing.
Contingencies are essentially safeguards the buyer requests to ensure that the deal closes in a way that doesn’t leave them holding the bag. Common examples of contingencies include things like credit/repairs on any issues from the inspection and ability to renegotiate the purchase price in the event an appraisal comes back under the offer price.
Sellers can have contingencies too, but it’s usually less common. It’s almost always related to the seller closing on a new home before completing the sale of their original home. This is a safeguard that prevents them from selling themselves into homelessness, basically.
Neither buyer nor seller is required to agree to the terms or contingencies requested by the opposing party. Of course, by refusing, there’s a high risk that the deal will fall through.
Moving the Negotiation Process Forward
As most buyers will be represented by their own agent, it’s important to have someone representing you who knows how to best interact with real estate professionals. You’ll be routing all counter offers through the agent. Thus, knowing how to best get their attention will be crucial to moving the negotiation process forward quickly.
And let’s be clear: moving negotiations forward quickly should be of primary concern for the offer you’re interested in. The longer things drag on without a contract signed, the higher the chance that the buyers will lose interest and move on to making offers on other homes.
It’s possible they’ve already made multiple offers to other sellers as well, and are waiting for who reaches an agreement with them first. Either way, eliminating the other agent as a bottleneck is important.
Negotiating From a Strong vs. Weak Position
Your ability to call the shots of the sale largely depends on the market conditions, as well as how your specific home fits into the larger market. For example, let’s say you’re extremely confident that your home is worth more than the asking price and that you’re in a very hot seller’s market. In this situation, you might aggressively demand few or even no contingencies. Similarly, you might request an all-cash buyer with a closing of a week or less.
In other situations, these could be terrible decisions that prevent any sale from occurring. You don’t want to look back after months languishing on the market and realize that you were in the way of what could have been a very solid, financed offer that resulted in a sale 45-60 days later.
In a buyer’s market, you might find yourself agreeing to throw furniture or appliances into the offer. You might even agree to accepting an offer that’s contingent upon the buyer selling their home. This would likely be a poor choice if you have a strong listing in a hot market, where there’s plenty of other buyers who will be less unpredictable.
At the end of the day, you have to determine what your risk tolerance is, the sales environment you’re in, and what outcome is most important to you. If your agent performs a pre-listing audit, then you’ll already have the answers you need on this. If not, consider the following questions:
- Are you more interested in a quick sale, or getting the maximum price for your home?
- Do you feel like your home will be positioned better, the same, or worse than other comparable homes in the area?
- Are you willing to risk shutting down potentially good offers in return for ensuring limited contingencies and advantageous terms?
- Do other considerations of the sale exist that would impact your choices, such as if you have contingencies of your own?
- Are you aware of any issues with your home that could trigger a contingency?
The answers to these questions should be guiding your entire listing approach. Specifically, they’ll need to play a large role in determining your approach to the entire negotiating process.
If you have any questions about strategic negotiation during the selling of a home, please let me know in the comments. You can also contact us if you’d like to discuss specifics of listing your home in more detail.