This week, I enjoyed an afternoon lecture by Steven Briggs of DePaul University’s College of Commerce. Dr. Briggs is an expert in negotiating and arbitration, and his MBA class on Real Estate Negotiation was open to guests. Always looking for new tricks in representing my buyers, I stopped by.
While the lecture described Dr. Briggs’ home purchase 15 years ago, the lessons are still relevant. These tips are MY take on his lecture, as he included much more detail for implementing these strategies. In any event… here are some tips that will help you on your next transaction…
1. Buyers’ Brokers are compensated when the real estate transaction closes, and therefore have “skin in the game”.
This made me uncomfortable — I have always prided myself on putting the needs of my clients first, and to be reminded that real estate brokers may have some self-interest was an affront. After all, I have worked 22 years to get my buyers the best deals possible … After considering his comments, however, I realized that in concept, Dr. Briggs is right. Theoretically, one can be a buyer’s broker and represent the client’s best interest, but at the end of the day — the agent is still paid by the proceeds of the sale. Since Dr. Briggs has not been represented by me, and since he’s not a “fly on the wall” during my negotiations, he couldn’t possibly know how I put my clients’ needs first. That’s why buyers need to find their brokers by recommendations or word of mouth. (I will devote another article to buyer’s agency later this month.)
2. Appear disinterested and don’t give away your “poker hand.”
Here, I would agree. From the time a buyer sees the property until the closing, it’s best to not “show love” for the property. Even better, no good negotiator should have emotion about a real estate asset , i.e. be willing to walk from the deal if it doesn’t suit your financial needs. How many of us, though, really see our primary residence as ONLY a rel estate asset?
3. Structure the offer with the seller in mind
Find out as much about the seller as you can… When does he have to move? Where is he going? Is it a job transfer, and if so, what is the timing? Is relocation involved? Is this an empty nester who is less than excited about downsizing, and net proceeds is more critical than the timing of the closing? and so on… You may discover ways to encourage the seller to drop the price based on closing date or other “perks” that can result in a lower purchase price.
4. Add “throw – aways” to the offer
In other words, an offer should be structured so that contingencies are included that can be negotiated out later with no harmful effect. For example, as a buyer, you might include a book case or flat screen TV in your offer, knowing that you can certainly live without them, and the seller can “win a point” by your relinquishment of these items. If you have a strong stomach for risk, maybe you will leave out the mortgage contingency clause, knowing that you are sure to get financing. I can’t tell you how many sellers’ agents were drooling over my buyer last week, since he didn’t have a sale contingency. “We will really play ball with a no-contingency buyer,” they said.
5. Initial offers can be ridiculously low
It’s important to NOT offend the seller so much that he refuses to negotiate, but a well structured offer demonstrating your sincere intent to purchase should get the conversation started. Remember, no real estate agent can refuse to present an offer. No matter how low you price it, if your offer is in writing, it’s our job to get it to the seller. Obviously, if your first offer to purchase is immediately accepted, then you are paying too much.
6. To know the seller has reached his bottom, everyone chips in
Here’s where I part company with Professor Briggs. Conceptually, I understand that the buyer knows he has gotten the seller’s bottom price when the only way to bring the deal together is by getting the agents to pitch in a part of their commission. HOWEVER, buyers are going to be sorely disappointed if they count on us to reduce our commissions. That’s a topic for another day, too, but for a buyer putting 10-20% down and financing the balance, a couple dollars from a real estate broker is not going to ensure a great deal. Hiring a true buyer’s broker who helps negotiate on your behalf is worth every penny that the seller pays. (Notice the article’s title — FIVE tips…!)
One thing he and I agree on without doubt — this is a buyers’ market, where anyone who CAN buy property SHOULD by looking for a deal. If you are contemplating getting into this marketplace, please let me help you find and negotiate a great real estate investment.
It was a well-spent afternoon, and my thanks go to Dr. Briggs for letting me sit in and learn his tricks — my real estate “bag of tricks” is enhanced, thanks to his insights.
Dr. Briggs has a PhD in Industrial Organization. His focus: Employee compliance and grievance systems, conflict management and dispute resolution. He has served as labor arbitration panelist for various government agencies, including Federal Mediation and Conciliation Service. Member of National Academy of Arbitrators.