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Realities of Real Estate: Negotiate, don’t irritate

Without a doubt, one of the most critical parts of a real estate transaction is the point at which an offer is put on the table and a contract is negotiated.

By the time you reach this stage in the process, it’s likely that everyone involved has already invested a great deal of time and effort in the process. The buyers have been diligently looking for the “perfect” house. They may have submitted previous offers, only to be outbid by someone who wanted the place a little bit more. For the sellers, they’re probably growing weary of cleaning the shower door every morning, picking up their socks and having the showing service call to say, “There’s an agent in your driveway that would like to see the house.”

With all this water under the bridge, emotions are usually running high. Consequently, this intensified level of anxiety can contribute to some fatal mistakes when making an offer and negotiating the sale. Here are some of the biggest mistakes we commonly see buyers, sellers and agents make.

Lowballing the sellers: In today’s market, many buyers still believe they’re in the driver’s seat. As a result, some still want to take a shot at stealing a house by submitting an offer that is clearly below market value. These buyers hope that the sellers might be desperate and they could get lucky with a lowball offer.

In reality, all this usually accomplishes is to poison the well for future negotiations. If that initial offer doesn’t pass the test of reasonableness, a seller is likely to get his back up. The reason is that most sellers don’t see the sale of their house purely in economic terms. A low offer can be interpreted as a personal attack and/or an indictment of one’s most prized possession. If a buyer really wants a house, the tactic of lowballing is ill-advised.

Overreacting to a lowball offer: On the flip side, sellers should try to keep their emotions in check when someone submits a low offer. We know it can be difficult not to take it personally, but, like they say, you don’t want to cut off your nose to spite your face.

Some sellers will say, “I’m not even going to respond to an offer like that.” But the best response is to make some sort of counter-offer. By doing so, you keep the negotiations alive. Buyers who really want the house may substantially increase their offer once they discover the property isn’t some sort of fire sale.

Sometimes, listing agents also overreact to a lowball. It’s human nature. The agent has invested a lot of time and money in trying to get the place sold. Plus, it’s no fun calling up your clients and bursting their bubble with an offer that’s well under the asking price. A buyer’s agent is obligated to submit an offer, no matter how ridiculous, and a listing agent is also required to present that offer. So, if your agent brings you one of those offers, remember not to kill the messenger.

Loading a contract with contingencies: Beyond the sales price, most contracts contain a wide variety of contingencies. The buyers may want to make the purchase contingent on selling their current home. The sellers might want to make the sale contingent on finding their future home. And there are numerous types of home inspections that can enter into the mix.

With today’s uncertain economic future, buyers and sellers are increasingly trying to eliminate all possible levels of risk associated with a real estate transaction. But there can be a point at which overdoing this can kill the deal. If sellers see an offer loaded up with contingencies, they might interpret this as a weak buyer who isn’t committed to purchasing the property. Consequently, the sellers’ price may become less negotiable, due to concerns that the buyers might not follow through with the sale or will ask for numerous repairs once the inspections are complete.

Saying too much: In process of negotiating a contract, buyers, sellers and their agents are always fishing for information that might help them gain an advantage. For example, if a buyer knows that the seller just got divorced and needs to unload the house, it would clearly give the buyer the upper hand in negotiations. Conversely, if the sellers found out the buyers have a big bankroll, they might be more inclined to hang tough on the list price.

Agents often find themselves in the middle of this. We frequently get questions like, “Why are they selling?” “Where are they going?” “What does the buyer do for a living?” People, often times inaccurately, develop theories about buyer and seller motivation. If there are only men’s clothes in the closet and not much more than a six pack of Bud in the fridge, it must be a divorce. If the house has been vacant a while, they’re desperate to sell. Sometimes those assumptions might be right; sometimes they’re not.

As agents, we’re not supposed to disclose anything about buyer or seller motivation, unless we are specifically instructed to do so. In the process of negotiating a contract, carefully consider what you or your agent tell the other side. As a rule of thumb, saying less will usually get you more.

Nickel and diming: It never ceases to amaze us at how the sale of a $500,000 house can get hung up on something that might cost little more than $500 to fix. All agents have heard a buyer or seller say: “I know it’s not much money, but it’s a matter of principle.” A buyer might be unwilling to sign on the dotted line unless the seller throws in that $500 home warranty, or a seller might be willing to blow the deal if the buyer insists on some minor repair.

Whether you’re a buyer or a seller, always try to keep things in perspective. Everyone wants to feel like he “won” the negotiation, but no one wins if the sale goes south over some petty issue. Remember; keep your eye on the doughnut, not the hole.

There are many other ways people can hurt and help themselves in the process of negotiating a real estate sale. We’ve just touched on a few that seem to be cropping up in the current market.

It’s important to remember that the average buyer or seller might be party to a real estate transaction only three or four times in her life, whereas an experienced real estate agent could have 500 transactions under his belt. So, when it comes time to cut the deal, don’t forget that your agent can be an invaluable resource in helping you avoid costly negotiating errors.

Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is McWilliams@BobDonna.com.