00:49 Frequent Points of Contention
05:57 Surprises and How to Deal With Them
Negotiations are part of every real estate deal, but they don’t have to be complicated or contentious. As a REALTOR, the best benefit I can provide to my clients in handling negotiations is to help them feel the least amount of stress about this as possible, but it’s always stressful because buying and selling real estate can be a stressful experience. This video is intended to better inform and set your expectations about the negotiations you, as a Buyer or Seller, might have to undergo in just about any real estate deal.
Frequent Points of Contention
Price is probably the most obvious point of negotiation. It’s the first thing someone looks at, and is the first thing we talk about when curating an offer. This is most commonly questioned when a listing appears to be overpriced, but in today’s market, with fewer buyers out there, pretty much every listing is going to receive an offer under the list price. The obvious goal is to make an offer based on what you feel the correct price is based on accurate market value. The best way to find accurate value is to run comps (which are comparable properties to the one in question). You can generate a value based on the benefits and draw backs of the subject property according those compe. You have to think a little bit like an appraiser, or underwriter for a bank – as a real estate professional, your agent should be able to provide this for you whether a Buyer or Seller. I find that if you can present the facts of the market through sales data, there’s little argument to be made by the other party…
That being said this doesn’t always work. So moving past the obvious, let’s look more at how the math can change to affect your bottomline. Negotiating for repairs, occupancy, even agency cost is on the table at times. These things don’t all have to be discussed up front, but I try to set the tone when I get a feel for the negotiation tactics of the other parties involved.
Say you’re under contract and you’ve decided to proceed at a price that might be a little more than you want to spend, as the Buyer, and you kept Inspections as a Contingency to the purchase. After you get under contract, you go into the inspections phase, begin your due diligence. This period of time is used by the buyers to have an inspector come through and evaluate the property, any number of licensed contractors, even mom and dad. Unless you agreed to buy the property “as is” or explicitly without repairs, you can renegotiate the purchase price, or you could have the seller credit you some funds for repairs you find are needed that they did or didn’t know about. You can ask for the Seller to do those repairs before closing, and at times certain repairs will be required by the bank as a condition of closing. Other times, a home warranty is an affordable alternative to repairs if it appears that it’s just maintenance that is needed or appliances are getting old. But you need to be well informed about how much repairs cost so you can best inform your decision to move forward with a purchase, and be able to defend a position if you’re asking for a lot.
As a Seller, when repairs come up, you likely will know that certain things need maintenance or repair, and in a Seller Disclosure state you will have disclosed this up front. In a “Buyer Beware” state, you don’t have to disclose. Either way, in theory you will price the property according to those needs. But if not, just know that a Buyer can back out of a deal and get their earnest money back if they find anything they don’t like and the contingency for inspections is in place. The best way to avoid problems in a real estate transaction both during and after the sale is to be honest and disclose what you know. You can be held liable for problems after the fact if it is found that you didn’t provide pertinent information during a sale.
Another thing that often comes up, especially for Sellers, is occupancy. Sometimes people need time after closing to organize affairs and move off the property. Depending on a Buyer’s circumstances, this might be an area where you can offer the Sellers a place to stay after the sale with what’s called a Temporary Occupancy Agreement. If you’re buying with a loan, banks don’t want you to create an agreement that lasts longer than 60 days. But generally speaking, in most of the instances where I’ve seen this, people only need a couple days or weeks, maybe a month. But you can see where there is value and leverage in that time, because it’s reasonable to expect someone staying in what will be the Buyer’s property once they own it, to have to pay for the time they need to stay. Again, just another way to affect your bottomline.
There is value in just about every part of a real estate transaction because real property has value. In fact, it’s surprising just how much value some contract terms can have. I’ve seen things as small as the ability to assign a contract break a deal. It’s very common for contracts to have assignability written into them. This means the buyer can change names, or assign the contract to another party during the contract term. There are plenty of reasons for this, but one easy way to think about it is if you apply for a loan, for some reason you have to add a cosigner to that loan during the contract term, well now you have to add a buyer to the transaction. Technically that’s an assignment of contract to add a party to the transaction. Another more common thing I see is when an investor wants to make a purchase, they may put their own name as the buyer initially, or even an LLC that they currently own, and then they will assign it prior to closing to another, usually a new LLC name, specifically for the property. But, because this can be an issue for some, I try to let people know up front if this is a possibility for a given Buyer that I represent.
Surprises and How to Deal With Them
Generally speaking, the best advice I can probably give about negotiations is something most people I find don’t consider much. You have to remember that the Buyers and Sellers of real estate are people, even if a business is attached. So know that in the day to day lives of people, things come up. People get sick… too soon to call back to Covid? In my business approach, I try to lay out the terms of a deal with all parties in the beginning in effort to create an environment that is open and honest, and to try to build a symbiotic relationship that will help deal with unforeseen circumstances. There are things that will happen that are out of anyone’s control, and you have to afford the same luxury to all parties in a transaction even if it comes at a cost. But therein lies the reality that sometimes, even with an unavoidable circumstance, you may have to concede, or to ask for something that was not discussed up front if you want the deal to close.
So, the key takeaways are: negotiations don’t have to be hard or emotional, but everything is negotiable, and we’re all just people trying to live our lives. It’s not rocket science, but it’s good to know what to expect and that in any situation, a deal can be made. Have more questions than answers? Call me anytime. I hope this was helpful for you.
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