Top 9 Real Estate Negotiation Strategies from the Pros

The crux of real estate transactions is that the seller wants the highest price while the buyer wants the greatest value (and typically a lower price). A real estate agent’s skill is in using negotiation strategies for an overall deal structure that best satisfies their client.

During negotiations, agents will be looking at different terms, which include price, contingencies, and timelines.

Negotiation Expert Calum Coburn advises:

“The nine negotiation strategies shared in this article have been successfully deployed globally in residential, large commercial, and industrial real estate deals by our graduates. So I urge real estate professionals to take a negotiation class to practice these and other strategies.”

1. Prequalify Clients

Prequalifying your clients can mean the difference between making a sale and wasting your time. If you want to make more deals faster, ensure that the buyer can pay the price.

At the prequalification stage, you haven’t discussed the sale price yet. However, you should at least have a ballpark figure depending on the seller’s asking price and market value. Verify that the prospective buyer can afford the property. Conduct credit checks before you show the property.

Prequalifying your buyers also makes the pre-approval process easier after you have agreed on a price. In this way, the buyer will know what documents and amounts are needed when applying for their mortgage.

Apart from the property price, the fees that buyers should cover can include:

• Appraisal fees
• Credit application fees
• Title insurance
• Home inspection and re-inspection
• Escrow fees
• Mortgage origination fees
• Property taxes

2. Do Your Homework

Every bit of information you can gather about the property and the client can prove useful during real estate negotiations. Of this information, price is one of the most important factors to establish. Prepare by knowing your client’s preferred price points.

It’s also important to know the condition of the house. Visit the property in person if possible. Arrange for a home inspector to provide a report. Walk through the property to inspect the key areas that may impact negotiations.

The areas to check include:

• Roofing: Check for structural issues and how much life is left.
• Interior: Prepare a health and safety checklist for things like smoke detectors.
• Plumbing: Check for signs of corrosion and worn-out connections.
• Heating and cooling systems: Check the HVAC systems.
• Electric wiring: Check for splices and double-tapping ground breakers.
• Kitchens and bathrooms: Check flashing and drainage.
• Exterior (yards, garden, etc.): For instance, check whether the driveway is all-weather.

3. Negotiate in Person

We live in the information age, with so many digital solutions making communication easier. We can easily send pictures and take digital tours of a property using phones and computers. We can submit quotes and counteroffers without leaving the comfort of our offices.

While negotiating a sale via email or a phone call may work, meeting face-to-face can lead to a better deal. Negotiation classes encourage face-to-face meetings wherever possible. Meeting in person allows you to gauge the buyer. The buyer’s body language and facial reactions provide an idea of their level of interest in the property. Frequent in-person interaction can make for a more personal connection, meaning it can be easier to close sales.

4. Practice Active Listening

Active listening skills can lead to better deals. As an active listener, take time to figure out why the sale is important to the seller and the buyer. You may be surprised to find the reasoning goes beyond money.

Take, for instance, where an agent meets two buyers at an open house. The first buyer offers the full asking price with two months to organize contingencies and financing. The second buyer offers 8% less but needs no financing and doesn’t ask for inspection contingencies.

While questioning the seller, you learn that the seller wants a quick sale to move to another city and wants to close the deal within a week or two.

An inexperienced agent may go with the higher offer. However, an agent who takes the time to question and actively listen knows the second buyer is perfect for the deal. The deal with the second buyer solves the seller’s most pressing concerns that makes up for the price difference.

Some tips for active listening include:

• Asking guided questions
• Responding appropriately
• Providing feedback
• Deferring judgment

5. Provide Value

Real estate agents do well to avoid pushing people into their choices. To be an expert in your field, put your focus on informing and educating your clients and buyers.

Simplify the deal-making process and make information accessible so buyers and sellers can make informed choices. Business classes prepare negotiators to be authentic and cultivate trust. Though house buyers and sellers can find all sorts of information online, let both groups see you as their most reliable source of information.

Leave an impression that makes the buyer and seller feel comfortable coming to you for advice, even if you represent the other side.

6. Create Win-Win Agreements

One of the core challenges of a real estate agent is to negotiate agreements that please both the buyer and seller. New agents often make the mistake of hard-selling, which can be off-putting. You don’t want to alienate future sellers, buyers, and listing agents. You may need to work with the same people again on future listings.

Instead of pushing for a hard sell, try and identify value-creating moves. Be flexible and open to ideas. Find inexpensive concessions you can make that create extra value for the other side. Though, before you consider any concessions, make sure they won’t lead to a costly mistake down the line. Also, for each concession you make, attach a penalty to the other side that delivers extra value for your client.

For example, the seller may agree to offset part of the buyer’s closing costs to reduce the buyer’s out-of-pocket expenses. In return, the buyer agrees to a higher price covering the concession amount.

So, let’s say the agreement was to sell at $4M and the closing fee is $70K. If the seller covers $50K of the closing costs, the total price adjusts to $4.05M. The buyer pays only $20K out of pocket instead of $70K.

7. Lock in with an Escalation Clause

If you’re an agent for the buyer, you likely don’t want to enter a bidding war with other buyers. If you’re an agent for the seller, you likely don’t want to commit to the highest bid if there is a chance someone could pay higher. Using an escalation clause can lock in the buyer’s offer while providing leeway for the seller to win a higher price.

An escalation clause is a contract term inserted into the sale offer to make sure the final buyer is the highest bidder. The escalation clause states the buyer is ready to pay a certain amount above what the highest bidder offers.

For instance, a seller lists their property for $5M in a market where demand for homes is high. The listing agent then advises all potential buyers that all offers will go to the seller at a specific date and time.

The seller receives four offers of $4.9M, $5M, $5.1M, and $5.3M. The first buyer’s offer includes an escalation clause agreeing to pay $20K more than the highest bid, but not to exceed $5.5M.

To the seller’s advantage, the buyer has now agreed to pay $5.32M instead of $4.9M, paying $42K more. The drawback is that the seller receives $180K less than the maximum the buyer was willing to pay. Also, the seller can’t continue negotiating with the other buyers who may have driven up the price to $6M.

The buyer’s advantage is they pay a price within their budget without engaging in a bidding war.

Despite the drawbacks, an escalation clause speeds up the bidding process and guarantees that the seller receives the highest bid.

8. Be Willing to Walk Away

No matter how perfect an opportunity may seem, keep your focus when going into negotiations. It’s generally bad practice for a real estate agent to negotiate with all their cards on the table.

If the buyer or seller senses your strong attachment to a deal or property, you are likely to walk away with an unfavorable agreement. Take negotiation classes or practice with simulations to learn to keep your cards close.

One way to avoid getting arm-twisted is to have other property listings lined up simultaneously. Having a few other properties lined up with potential buyers or sellers can give you the confidence to say no to unfavorable deals. While your other options may not seem as desirable as the first, having options can keep you levelheaded.

9. End on a Positive Note

Due to the competitive nature of negotiations, some people can feel a little negative or even resentful. As an agent, don’t let these negative feelings linger. Adopt a positive attitude. Once you agree on details, let your client and the other side feel like they arrived at the best outcome.

Welcome questions from both sides. Make everyone comfortable working with each other to make the sale as smooth as possible. Deliver on the promises you make.

If you had to walk away from the deal without an agreement, let the other side know it’s not personal. The deal wasn’t right for you, but you would be willing to collaborate on another transaction in the future.

Having a positive attitude keeps your professional dignity and can attract future clients. You never know, the seller might want you to represent them on their next sale or purchase. The buyer may refer you to other buyers if they feel you had their best interests at heart, even if the deal fell through.

Summary

One of the biggest skill sets that you can offer as a real estate professional is the art of negotiation.  We are not implying that just by reading this article that you will become a master negotiator, but it certainly can not hurt.

If you can incorporate these 9 strategies into your negotiating practices you will start to feel the difference in your business.

1. Prequalify Clients
2. Do Your Homework
3. Negotiate in Person
4. Practice Active Listening
5. Provide Value
6. Create Win-Win Agreements
7. Lock in with an Escalation Clause
8. Be Willing to Walk Away
9. End on a Positive Note

Is there a skill or two that you are particularly strong in, one or two that need some work?