To be a great real estate agent, you have to be willing to get your hands dirty and learn how to negotiate. Check out these 6 powerful real estate negotiation techniques to help you close more deals.
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As a real estate professional, one of your main responsibilities is to fight for the best interests of your clients.
In this article we’ll be getting down and dirty with one of the most valuable skills you can develop to help you at the closing table – how to negotiate.
Let’s analyze 6 real estate negotiation techniques that will help you close more favorable deals
#1 Decide what you want to get out of the deal
Before you approach any negotiation situation, you need to decide what you want to get out of it. In other words, you have to define what winning means to you and your client.
Winning isn’t always about the money (though it often is ?). It could be a number of things depending on the deal.
For example, do you represent a seller in a hurry to sell his/her home because of a job relocation, divorce, or life-changing circumstances?
If so, getting top dollar for the home isn’t the seller’s main priority. Winning, in this case, means selling the home ASAP. So in order to win, you would have to price the home to sell from day one.
Are your clients selling their home because they plan on upgrading to a nicer, larger, and more expensive home? Then getting top dollar IS the main priority. In this case, it would be wise to set a bottom dollar amount, and not move from it under any circumstances.
Why does this real estate negotiation technique work?
Once you define what you want to get out of the deal, you’ll have a clearer idea of the kind of concessions you can make, and where you can’t afford to be flexible.
Drawbacks:
None.
#2 Use an escalation clause on your offers
An escalation is a clause added to a standard buyer’s offer whose main purpose is to defeat competing offers ⚔. It does so by automatically increasing the buyer’s offer by a certain amount up to an upper limit.
To make that clearer, let’s look at an example.
You have a client called Mike. He fell in love with a home you showed him and wants to make an offer at $200,000. As his real estate agent, you know the home IS beautiful, it’s well-located, and there’s no way Mike will be the only one making an offer.
As a savvy real estate agent, you explain to Mike what an escalation clause is, and how it can help him secure the home. Mike likes what he hears, and decides to add it to his buyer’s offer.
His escalation clause states that if the home seller receives a higher competing offer than his, Mike will automatically counter in increments of $2,000 above the competing offer, up to a maximum of $230,000.
That would mean that if the home seller gets no other offer, Mike’s offer stays at $200,000. But if Ben, a competing buyer, makes an offer at $210,000, Mike’s offer will automatically counter at $212,000.
However, if Ben or a different buyer were to make an offer at $230,000, Mike would no longer escalate his bid.
Why does this real estate negotiation technique work?
This technique allows buyers to bid a price range, rather than a single amount. This ensures no competing buyers will outbid them within their specified price range.
Drawbacks:
An escalation clause adds an often confusing level of complexity that may frustrate home sellers. Additionally, putting together an enforceable escalation clause may potentially require the services of a real estate attorney.
And by adding an escalation clause, the buyer immediately reveals his/her buying ceiling. This may cause the seller to leverage that information by immediately countering at the buyer’s buying ceiling or higher ?.
#3 Make a conditional offer, based on market data
Let’s say you represent Charles and Darcy, a couple that fell in love with a 3-bedroom house listed at $500,000. You do your due diligence and discover that the house has a fair market value of around $430,000.
You encourage the couple to make a bid for it at its market value of $430,000. But although you presented solid market research to justify your offer, the sellers refuse to bring their price down. “Our home is worth 500,000 dollars. Take it or leave it.,” say the sellers.
“Wow. These people are nuts!” — says Darcy. “The house is exactly what we were looking for. But there’s NO WAY we’re paying half a million dollars for it!”
Darcy is absolutely right. It’s obvious that only a person with more money than common sense would pay that much for it. But you weren’t born yesterday. You know that these sellers are making that decision based on emotion, rather than logic.
Perhaps the sellers bought their house in the middle of a market peak. Maybe they were suckered into sinking a fortune into renovations because a TV show assured them would significantly increase the value of their home.
Or maybe they raised their family in that home, and those fond memories tied to the place blind them to the real market value of the home.
Regardless of their reasoning, your experience as a real estate agent tells you that time — and piling monthly bills — have a way of bringing sellers back to reality.
So you convince your buyers to make a conditional offer.
You contact the owners and tell them “You’re asking for $500,000. But I doubt you will get any offer higher than $445,000. Tell you what, if you don’t get a better offer than mine in 60 days, we’ll close at $445,000. Sounds like a deal?”
If the seller agrees, you write up the conditional offer and send it to them.
Why does this real estate negotiation technique work?
Time and monthly bills have a way of bringing “reality-challenged” sellers back to Earth. The longer the house remains unsold, the more likely the sellers will do a price drop.
By anticipating that inevitability with a conditional clause in your offer, you make sure you’ll be the first one to make a bid once the sellers are ready to face reality.
Drawbacks:
Some sellers aren’t that interested in selling and are only listing to see what kind of offer they’d get. Even if you bring all the evidence in the world, they will not budge from their original price no matter what.
Selling a home is a very emotional thing. Some sellers might refuse to sell to you out of spite, or to avoid an “I told you so.”
#4 Make an offer at the home’s market value
Instead of going through the typical back and forth between the buyer making a low offer, seller counter-offering, buyer making a counter-counter-offer, etc…
…why not just cut to the chase?
Calculate the home’s market value by doing a comparable property analysis. Take that amount, and make it your initial offer.
Why does this real estate negotiation technique work?
First of all, before making ANY kind of offer for a house, you should know how much the market is willing to pay for it. This information can help you convince your buyer to make a more informed and competitive offer.
Doing a market analysis on the homes real market value can save both time and frustration for both buyer, seller and agents as well.
If the seller has a competent real estate agent, the first thing the agent would do is calculate the home’s value by means of comparable property analysis. The agent would then recommend pricing the home a certain percentage above that amount (typically 12-17% higher).
So by making your bid at the home’s market value, you’ll make a strong bid that shows you’re not playing around, and you KNOW how much the home is worth. This would discourage the seller from counter-offering aggressively, for fear of scaring off a serious buyer.
Drawbacks:
In a hot market where there are tons of buyers, an offer at market value is likely to be outbid by other buyers.
On the other hand, in a cold market, a buyer in a hurry to sell may be willing to accept an offer below market value. While this would mean an offer that’s highly likely to be accepted, it would mean missing out on savings.
#5 Use the power of anchoring to find the buyer’s bottom line
Sometimes, playing games IS the right strategy.
Fair warning though, this strategy isn’t for the faint of heart nor the thin-skinned. It leverages a powerful cognitive bias called “anchoring”, and if you don’t use it carefully, there’s a real chance of upsetting or even insulting the other party.
For an excellent explanation of anchoring, check out this video by Wireless Philosophy
To begin, research the home’s real market value, and then make a ridiculous lowball offer (20-35% below market value). Then sit back, and wait for the seller’s response.
You’ll probably get a response such as “You are the most unprofessional, most disrespectful real estate agent I’ve ever met! My client will NEVER accept anything less than $XXX,XXX! Make a real offer or get lost!”
Once you get this response, you’ll then know that the seller’s bottom line is around the amount they gave you. You can take the amount sellers gave you, apologize for your “rudeness,” and make a counter-offer somewhere between your initial bid and the amount the seller gave you.
Why does this real estate negotiation technique work?
The main goal of this technique isn’t to get an accepted offer right at the initial offer (although if it does get accepted, you’ll become your buyer’s idol for life). Instead, this technique does three things:
- It reveals the other party’s bottom line.
- It leverages the power of anchoring. People have the tendency to unconsciously rely on an initial piece of information (such as your lowball offer) to make any future decisions. Thus any future counter-offers, arguments, and estimates will revolve around the anchor YOU set.
- Any “concession” you make as you counter above your anchor price will seem FAR MORE reasonable. This lets you negotiate a final price that’s much closer to the other party’s bottom line.
Drawbacks:
An experienced real estate agent will see this tactic coming from a mile away, and may simply counter at the original price.
Your lowball offer has a chance of offending the buyer (or an oblivious rookie real estate agent) and bringing the negotiations to an end.
#6 Find out why the other party wants to sell
When you know what motivates the other party to sell, you’re doing the real estate negotiations equivalent of peeking at their cards. But unlike poker, this isn’t cheating. It’s research.
Of course, you can (and should) ask the seller’s real estate agent why his/her client is selling the home. Although the agent will most likely give you a reason, it’s likely to be a sanitized answer meant to appease buyers. But if you want to find out the REAL reason why they’re selling the home, you may need to dig deeper.
The best time to find out is during that property’s open house. If the owners are present, you’ll have a golden opportunity to draw that information out.
Asking them requires a bit of finesse. Don’t just make a bee-line directly to the buyers, and start asking questions as if you were the Terminator. Instead, go ahead and enjoy the open house first. Take a tour of the home, and make a note of genuinely praiseworthy aspects of the home.
Once you’ve done that, go ahead and strike up a conversation with the sellers. You don’t have to start up a real estate conversation either. Just shoot the breeze, and establish some rapport.
Once you have a conversation going, just bring up the matter casually. Ask plenty of open-ended questions about their home, such as how long they’ve lived there, what made them sell the home, and where are they moving to. If the conversation is pleasant enough, you’ll be surprised how much info the seller will reveal outright.
Why does this real estate negotiation technique work?
Knowing why the homeowners want to sell can give you great insight into what they want to get out of the deal (as we saw in strategy 1).
It can tell you whether they need to move out quickly, whether they already have a home to move to or not, and so much more.
You can then use that information to your advantage to get the most favorable deal possible for your client.
There are a variety of reasons for the sale, but a quick look into sales and mortgage history of the home always tells a tale
Drawbacks:
None! Knowledge is power ?.
Conclusion
While your marketing and data analysis skills are the ones that will bring you your leads, they’re not enough for a successful career in real estate. Your real estate negotiation skills will ultimately be the ones that close deals and pay your bills.
While some of these techniques may push you outside of your comfort zone, don’t let it discourage you. Any time spent improving your real estate negotiation skills will be time well spent, and will more than pay for themselves in the future.
Do you have any real estate negotiation techniques that work for you? Let us know in the comments.
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