It finally happened. You received an offer on your home! But is it the right offer? Should you accept it or should you tell the potential buyer to go fly a kite? What is your best strategy? To help answer these questions let's take a look at how experienced negotiators handle a negotiation.
First, savvy deal makers establish a decision touchstone as a guide to a successful negotiation. In ancient times, a touchstone was a literal stone, such as jasper or basalt that was often used to test the quality of gold or silver. Likewise, today your decision touchstone can test the quality of a buyer's offer.
To build your own decision touchstone, first identify what housing goals you wish to accomplish as a result of your home sale. For instance let's look at Susans goals, she has three:
Net $30,000 - $50,000 from the sale of the home.
Relocate to her new job by no later than June 30th.
Have the fewest headaches possible. (A cash sale would be great.)
Susan knows what she wants and has taken the time to think about what her most important priorities are before she receives an offer. Her number one goal is to net $30,000-$50,000 dollars from the sale of her home. Notice that she hasn't named a specific number. Why? Sellers who set a price in concrete often face disappointment and frustration by not giving themselves the opportunity to flex on other issues. For instance, what if a buyer rolled in who offered cash (fewer headaches), would agree to close by June 1, but would only agree to pay her enough to net $42,000 from the sale. Susan has wisely discovered that expert negotiators look at each offer in the context of their entire priority list rather than just according to one item.
So even when you revisit your decision touchstone, what if you're still left scratching your head? What then? Reject the offer? Not yet. The next step is to ask your self - What if? For instance, a wise seller might ask themselves: What if I don't sell my home to this buyer - what is the next best possible outcome? And the reverse: What if I don't sell my home to this buyer - what is the worst possible outcome? In today's market, real estate offers are a rare commodity and assuming that another one is just around the corner is a dangerous mindset to adopt. Because of this savvy sellers resist the urge assume a strong negotiating position when in reality they are in a very weak position. In addition to these fundamentals, wise sellers often look for five essential elements within the offer itself to help make their decision.
The larger the deposit a buyer makes, the more serious and committed the buyer is and the better you should feel. On the other hand a small deposit, or worse, a promissory note, may indicate a buyer's unwillingness to fully commit. Decide in advance what you feel is an appropriate earnest money deposit relative to the price of your home. In many markets, this may be 1%-2% of the sale price, but it can also be much, much more.
A letter of pre-approval states that the buyer has been qualified to purchase the home based on the information they have provided the lender at the time of the loan application. This doesn't mean they are fully approved, as the lender still has to verify assets and liabilities, run a credit report, and verify income, employment, and residency, but it does provide a sense that the buyer is a legitimate prospect.
A condition or contingency that has not been satisfied means that the buyer still has an opportunity to back out of the sale, potentially without penalty, all the way until the day of closing. The trouble is a buyer who has open ended condition, and one that they can use as an excuse to exit the sale without penalty, may decide during a sudden panic attack that they should bail out of the sale. To prevent this, wise sellers require that conditions and contingencies be removed as quickly as possible.
The first question to ask yourself while studying the offer is this: Could someone not in the real estate business understand this agreement? A poorly written sale agreement allows room for interpretation. Successful sellers reduce the risk of an offer failing by working with a highly qualified real estate agent or real estate attorney to create agreements that are clearly understood by all parties in the transaction.
In a real estate transaction how do you know that the sale is progressing forward? If you're using a poorly written real estate contract you might not know if the sale is moving forward, backward, or sideways. What you're missing are benchmarks, beacons of hope that signal that your transaction is flying in the right direction and that you are on course for a successful landing. Thankfully, many standard real estate agreements have built in benchmarks, like requiring the buyer to submit an application by a specific deadline, or requiring the buyer to approve the preliminary title report by a certain deadline.
Successful negotiators are those people that understand and embrace the simple but powerful techniques that can enable anyone to create a successful sale - the fundamentals.