Negotiation strategies and effective communication approaches

Negotiations

Recent negotiations took place regarding a house purchase and sale. The negotiators were myself, my agent, the house sellers and their agent. Each of the stakeholders in this particular situation had certain, biases, beliefs, concerns, goals and objectives. I had been looking for an investment property that I could fix up, reside in, and then sell in 3-5 years for a tidy profit. After a number of weeks of searching for just the right property, I finally found what I was looking for; a nice three-bedroom, two-bath property sitting on approximately a 1/2 acre with a double-car garage located on the outskirts of town. The residence was 20-years old and needed some work to bring it up to standard. The asking price for the entire property was $499,000.00.

The first thing that I wished to affirm was the comparable pricing in my specific marketplace. I asked my agent to run a Comparable Market Analysis (CMA) as suggested by the Home Buyers Information website (Home, 2011). What I discovered was that comparable sales in my market were priced approximately 15-25% less than what the owner was asking. I knew that preparation was the key to any successful negotiation, and therefore I knew that I had to determine what made the owners believe that their home was worth so much more than other recently sold residences in that area. Having access to a CMA also provided evidence that hiring an agent of my own was another preparatory move that had been beneficial.

Initially, I wondered if hiring a buyer's agent would be worthwhile. After all, I would be throwing one more bias into the negotiations; that bias would of course be that the agent (no matter how much they protest otherwise, they are all motivated by gaining commissions) would want to hurry the sale.

Agents not only wish to be compensated, but most of them want it quickly, even if representation was supposedly on my side. The CMA however may have ended up saving me some substantial dollars, ergo, it was likely a good idea.

My agent also provided me with a list of the amenities that came with the house, things such as the two fireplaces, the gazebo off the deck, the double thick windows that cut down on energy use, the new heating/cooling system and a new roof. Those items would all factor into the price of the house. I decided that an anchor offer of $405,000 would be a good starting point. My offer was based on the considerations of the new heating and cooling system as well as the new roof coupled with the thought that comparable houses sold in the $375,000 to $410,000 range. The owners of the house were motivated to sell having already purchased and moved into another residence out of state, which also played into my considerations.

My main worry was still why the owner's believed that the house was worth so much more than other houses in the area. According to Dottie Reuning one of the things a buyer should not present to the seller (or to anyone for that matter) is the fact that there is substantial buyer interest in the property (Reuning, 2011). Keeping Reuning's advice in mind, I did not wish to project my enthusiasm for the property in an evidentiary manner, so I decided to do some detective work on my own. I discovered two interesting items about the property; 1) that it had been in the owner's family for at least two generations, 2) that when the owner's inherited the property the estate had valued it at just over $500,000.

These two items provided me with clues as to the owner's bias; they probably believed that they had come down enough in value, and that the house was worth more than what they were asking. Now that I thought I knew what the owner's were thinking I could negotiate effectively. It would be interesting to see how they would counter my initial offer, I had set the anchor price at $405,000; would they agree that that was a good anchor? Their counter would offer me some idea. I had also determined that the most I would offer the seller for the property was $440,000 (approximately 15% less than the asking price and 7-8% more than the going rate (based on a new roof as well as a new heating and cooling system). So far, I believed that I was being more than fair. My agent believed so as well, but when the agent returned from delivering the offer to the seller's agent, it was reported that the seller's agent was not a happy camper; the agent practically threw the offer back in a contemptuous manner to my agent. Now, my agent is a sensible, no-nonsense type of person, who views negotiations as a give and take, therefore, my agent laughed off the reaction as theatrics. My agent thought that the owners would likely come back with an offer that was still high, but at least they would make a counter.

In that regard, my agent was incorrect. The owners of the house did not make a counter offer, instead, through their agent, they sent a message that in essence said that I was low-balling them at that if I were truly interested I would make a real offer. Needless to say, this type of communication was rather rude and contradictory to the negotiating process, but I, being a rather level-headed person, took it in stride. I figured that the owners were either getting poor advice from a greedy agent, or they were not facing the realities of today's real estate market.

I decided that I could offer them an additional 5% as an anchor price. My agent and I discussed the offer and agreed that it was a good 'next step'. I informed my agent that I was willing to close right away, if that would assist them in making a counter-offer. I was attempting to communicate with the owners in a pragmatic and honest manner.