Monday, March 12, 2018

LEARN THE ART OF NEGOTIATING - 7-EASY TIPS TO SUCCEED!!

IT'S UP TO YOU TO MAKE IT A WIN-WIN FOR BOTH PARTIES!

         In my last blog we finished covering real estate forms, and now you are ready to receive that first offer. Assuming that you were the one to provide the forms necessary to sell your house, allow the buyer to fill in the details about the offer such as price and terms throughout the contract. You might offer some guidance, but never tell the buyer up front that you will not accept his price or terms without trying to negotiate the deal. You know that you will probably have to negotiate that deal if your going to succeed in the Ultimate DIY Challenge- Selling Your Own Home. If you still need forms, go to USLegal forms at the following link: http://www.uslegalforms.com/index.html?auslf=fsrl2018. Make sure to have copier available to make copies for the buyer. Once you have that first offer from the buyer, you will need to have several blank copies of the Addendum Form handy in order to counter that offer. Remember that every part of negotiating with the buyer has to be in writing. This is where the art of negotiations begin.

          There will be more to the negotiations then just price, there may be a need to place conditions on the sale based on whether a buyer needs to sell another home, time frames for inspections, and even a higher earnest money deposit based on some of these new conditions. One addendum form can be used to identify any number of changes, but as each new addendum is added, it should only identify the specific change sought after and not repeat items that are already agreed upon. The addendum form is the form used for all counteroffers, and other issues. How to do this will become obvious as we get into actual negotiations and how to present them in writing.

         Since the buyer has the advantage of knowing your selling price and assumes that it is your highest price, you can be confident that the buyer will come in at a lower price.This does not mean you should be asking for more than the market value to cover a possible lower offer. If you do this, you probably won't get that initial offer, however, if you did that appraisal to determine fair market value you will be able to show the buyer this information before the buyer writes that first offer. Whatever you do, don't play the halve offer game in negotiating your best deal. Let me show you how you the seller will give up the most in that game. Let's create an imaginary deal so you can see how you would lose. Assume you are asking $300,000 and you receive an offer of $280,000, that's a huge difference of $20,000.You counter at halfway at $290,000, you both give up $10,000. They counter back at $285,000, now you are giving up $15,000 and they are giving up $5,000. I think you see where this goes, only the seller will lose when you  play the meet in the middle game. I have never played this game nor should you. Consider coming down a little such as $1,000 and force the buyer to come back up to reason. There were a couple of times, as a sellers agent, when receiving a low-ball offer that was unreasonable, that I actually had the sellers counter at a higher than asking price, just letting the buyers know that we could go up and we were serious about our price. In one case the buyers bolted, the other we actually got more than the asking price. You don't have to negotiate or accept a bad offer, you can just decline it and walk away from the deal. Don't let your emotions take over the transaction, instead use your ability to stay calm and use business logic in negotiating your best offer. Always try to make it a win-win for both parties.

          Sometimes you will need to negotiate other terms and conditions that will make the deal happen.  Often the buyer will need to sell and close before they can buy your home, this is known as a contingency. If a buyer has to sell their home then you need to negotiate a "72-hour kick-out clause" in the contract stating that you the seller has the right to continue to show your home and entertain additional offers even though the buyer has a legally binding contract of sale. This important clause allows the seller to give the buyer notice that their is a second acceptable or better offer on the table and that they have 72 hours to prove that they can close the deal on the agreed closing date.  This will put the original buyer in an awkward position of having to find a way to come up with the funds necessary to close. Often times this means the buyer will need to seek financing rather than sell his home.  Most buyers don't want two mortgages and the sellers now have a new contingency in that  the financial institution might not commit until the end of the deal. There will always be a clause in the contract that allows a buyer to get the earnest money back if they can't get financing. Keep in mind that this is a business transaction and your goal is to sell to a qualified buyer. Thus, sellers should include, at the very least, the following language in the 72-hour kick-out clause: "The parties agree that sellers' property shall remain on the market during the above contingency period. If the purchaser does not remove the above contingency and provide evidence satisfactory to seller in their discretion of ability to perform under the terms herein within  72 (or any specific number of hours) hours after receipt of written notice that seller  has accepted a secondary contract, purchaser's earnest money shall be promptly returned in full."  I am not an attorney and the language I am suggesting is for reference only, seek help in this area from an attorney or find the language as written in your local real estate contracts. You might even be ale to find proper language on the Internet. Any time you accept any buyer that places any form of contingency in the sales contract, please place this kick-out clause in that contract, this is just a good business practice. The clause is a win-win for both parties. 

          Now let's put a twist in how you determine if you have a solid deal or not. This is known as the Domino Effect of transactions and should be a consideration in how you approach accepting an offer. Start with your transaction in that you accept a contingency from the buyer that they need to sell their home first to buy yours, they accept an offer on their house with the same contingency from their buyer that they need to sell their home first to buy your buyer's home so they can buy your home, and so the list goes on. Assume the last buyer in line cannot buy because they could not sell their home, here starts the Domino Effect and ultimately you will be the last man in that domino line to lose your buyer for that same reason. There is no real way to guarantee that everyone in the domino line will comply, but you can certainly be hesitant about how many buyers and sellers are involved. Simply put, limit the number of transactions that need to happen before accepting the offer. You can ask your buyer if they would accept a similar contingency on their home, if they would then I would be cautious in accepting their offer, this small element weakens the whole deal and would probably be a waste of your time and effort. Try negotiating with them in asking if they would consider approaching back-up financing in case the contingency failed, which would put you in a better position in  accepting the contingency of your buyer needing to sell first. Limit the number of transactions to you and your buyer as the only two in the Domino Effect. If your buyer has a buyer for his home and cannot complete the sale in time to buy yours according to the agreed contract date, suggest to your buyer that they might approach their lender for a Bridge-Gap Loan using the sale of their home as collateral for the temporary loan to purchase your home in a timely manner. Often the proceeds from their sale will be collateral enough for a lender to commit to the loan. Of course this is only a temporary loan for your buyer as he will need to commit to the permanent loan in the near future. This works very well if the buyers home is selling for more than the purchase of your home. In a future blog I will discuss how each type of loan affects you the seller and how you will need to comply with lender requirements when you agree to the type of loan in the contract of sale. 

          We are currently in a Sellers Market, which means that the seller should be in the drivers seat when negotiating the sale. As part of teaching you the important parts of negotiating you should consider the market you are in and maybe play a little hardball in how you approach your negotiations. First of all when you receive an offer and you feel it is a low ball offer, then make a conscious decision to not counter-offer. When you counteroffer you are in binding legal negotiations and you must deal with the other party. Try to keep them in the game by asking them to submit a new offer. If they are honestly interested and you haven't turned them off,  they will submit a new offer. This is a gutsy move, but has proven to be effective. By asking this way you have told the buyer that his offer is not acceptable and you will only entertain better offers. You are now not legally bound to negotiate. As I have stated before, when you get a low ball offer, you might want to counter with your asking price or above, this sends a message that you know what your property is worth and you intend to get the money you deserve. Another negotiating skill is to have you shorten the counteroffer reply time. Often there is a stated time of 3-4 days to reply to counteroffers, shorten that to 1-2 days to get the other party to commit. You could offer to pay some of the closing costs but explain that you will need to raise the asking price to do so, this is a another way to finalize the deal. Remember that you are trying to keep your equity. Basically negotiating is the art of getting what you want without giving away the farm. You want to sell but you don't have to give away your equity in the process. You just did all the work to get a buyer to offer, now close the deal and get into escrow.

In review, learn the basics of negotiating your best deal;

First: Listen to what the buyer and offer are attempting to convey. Make sure to address all the elements that you will be dealing with,  price, contingencies,  time frames, inspections, closing date, possession, etc.

Second: Decide how you are going to approach a counter offer if any, make sure to include all the elements above.

Third: Come up with a plan to have alternative approaches to the offer, such as shortening response times, offering to pay closing costs by raising the price, etc.

Fourth: Make sure that everything in the contract becomes a win-win for both parties. You absolutely want a happy buyer because a happy buyer will make you a happy seller. 

Fifth: You are in a stronger position if you keep your true feelings in check, you do not want to give the other party the advantage of working on your emotions as a way of maneuvering you into an awkward position of decision.

Sixth: Never go down in price as fast as the buyer is going up, let them move closer to your goal, not the other way around.

Seventh: Always put everything in writing and make sure that you fully understand the offer before writing a counteroffer. 

        You are now ready to negotiate your best deal. If you are worried about this part, you might feel more comfortable with having an attorney help, or hire a real estate agent to fulfill the contractual portion. These types of agents are Transaction Agents and offer their services for a flat fee. You can go to any real estate firm and ask if their office provides an agent for that service, not all do.

         If you have any questions about what we just covered, please email me at fsboanswerman@gmail.com or ask in the comment section below. I am always here to help for free, just ask!

Roger
The FSBOAnswerman


         



         







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