For savvy agents, negotiations begin long before an offer is made. Possessing sharp negotiating skills is not merely one important aspect of developing a successful real estate business –this skill set can literally make or break an agent. Negotiating is a constant in the industry, and these skills don’t just come out when an offer is made. Terms of the agreement, overlooked clauses, even agent commissions – there are several details that can and often should be negotiated for an agent’s or client’s benefit.
It’s obvious that to homebuyers and sellers negotiating is important, too: according to the Chicago Association of Realtors, 99 percent of buyers believe negotiation skills are important when choosing their real estate agent. And being able to adapt your negotiating skills to each type of market is truly important. During the pre-recession real estate heyday, agents may have been relaxing their negotiation skills a bit because deals were almost too easy to make. Homebuyers and sellers didn’t seem to care much about little details or the cost of repairs and improvements before signing a contract.
Sue Hall, a broker with Century 21 Elm Realtors in Park Ridge, has been in the real estate business since 1984, when interest rates were 11 and 12 percent. She has seen the market fluctuate a number of times.
“I am sure my negotiating skills were much different then; the landscape of negotiating changes with the times, and negotiating is an entirely different animal now,” she said. “You have to change with the times or else your business is not going to remain successful.”
Pre-recession, rules were quite different. Years ago, developers would price their properties and units and not budge – very rarely would they negotiate price. Today, most developers have started to negotiate on price, but there are still others who refuse to budge. However, they will negotiate other items within the contract – terms, extras and finance options. In this market, negotiating is all about getting the best value for the best price for buyer and seller clients. And, negotiating for buyers and sellers takes different tactics.
Education vs. Experience
How important is actual negotiating experience in the field vs. obtaining a designation in negotiating? The Certified Negotiation Expert designation, or CNE, is a result of negotiating classes and agents who have it should be savvy negotiators. It is $249 for this designation’s courses, and according to the Real Estate Negotiation Institute, of agents who have their CNE, 85 percent say they get better results for their real estate clients, 81 percent say they get better results for themselves, and 75 percent feel the designation helps separate them from the crowd.
But while this designation is certainly helpful, ultimately, negotiation skills are most effectively developed outside of a classroom setting through trial and error.
“Every single negotiation experience teaches you something new,” said Allison Silver, a broker with the Highland Park office of Coldwell Banker. Negotiating takes savvy and knowledge, but while courses and designations can’t hurt, Silver does not necessarily know if a class could have as much impact as actual experience.
“There are certain skills you can learn in a class to always refer back to,” Silver said. “Being creative and persistent in closing a deal is important, and role-playing scenarios in a class could help to develop these skills. Sometimes sellers and/or agents will get frustrated because negotiations are so far apart for involved parties, and I encourage my clients to remain open and not to give up. Learning about different personality styles and how to handle them via a class can also help, as you should always tailor your negotiations to the other side.”
One benefit of a CNE designation, says Joel Holland, brokerage manager of Homescout Realty in downtown Chicago, is learning about different scenarios and different types of negotiating – for example, being the coordinator. This entails balancing between pushing for your client’s desired terms but with a gentle approach.
“It helps agents to develop a balanced, effective negotiation style,” he said. “For traditional sales, versus foreclosures or short sales, it is important for a smooth transaction to make sure that both parties are happy with the terms.”
Being a savvy negotiator sometimes means adopting a creative approach, Silver said. She recalls the time when she had clients who were one of multiple buyers vying for the same home. Rather than pushing her clients towards a price that was uncomfortable for them, Silver convinced them to allow her to place an offer that ultimately stood out – $333,333.33.
“When we presented, their agent laughed and it broke the ice,” she said. “I told them that if they didn’t want the 33 cents, I would buy them ice cream. Due to this move, the sellers liked our buyer, even though the other buyer offered $335,000. They liked us because we made the experience fun; we infused a positive energy into it. In some situations, adding humor can definitely help. You want everyone involved to feel good.”
Getting creative can sometimes be the only means of making your client happy, and in today’s market, where short sales and foreclosures abound, thinking outside the box can make or break a negotiation.
Holland has represented quite a few clients who have bought short sales and foreclosures, which are often fraught with complications. Recently, he had a buyer who placed an offer on a foreclosure. The property was an investment for his client, who had already budgeted for repairs he would need to do to the home. However, at closing, the bank told Holland’s client that there were several thousands of dollars of fees that needed to be paid – fees neither Holland nor his client were aware of at all.
This could have been a disheartening blow, but instead of just paying, or even walking away, Holland negotiated with the bank. “Rather than paying the fees or walking away, I negotiated a later closing date,” he said. “The client was planning on renting the home to a tenant, and this put it into a better leasing cycle. He was able to charge a higher rent for a two-year lease, he received more applications and was able to choose the best tenant, and the rent more than covered the additional cost of the last-minute fees.”
With negotiating, the small wins are often the biggest gains, he added. This is especially true in something that comes up often today after inspections and before closings – proposed repairs or costs. There might be an issue an inspector finds that needs a $1,000 repair or a proposed special assessment that hasn’t yet passed but soon could. The seller is leaving, so they don’t want to pay it, and the buyer doesn’t want to be stuck with another cost. What then?
Holland gets creative again. A tactic he’s used in several of these types of situations, where an extra fee is a gray area and a cost is a looming concern, is to create a separate escrow account where the sellers put money aside that the buyers can use in case a repair needs to be made or a special assessment passes. “We set up an escrow account where if nothing happens within a certain time frame, the sellers get their money back,” Holland said. “I convince the sellers to let go of their money and sell them on the idea that there’s a chance they’ll get it back. I sell the buyers on not getting money for the cost right away because they don’t know if there will be an extra cost. Creative solutions like this help to bridge the gap between both parties, who obviously don’t want to spend more money.”
Without clear, open and persistent communication, no amount of experience or education can save negotiations. This especially applies when it comes with negotiating with clients – expectations need to be set. The negotiating process also starts well before both parties sit down to hammer out the details of an offer.
Holland said that prior to making an offer, he outlines with his clients how they should anticipate the entire negotiation process to play out. This prepares for any and all outcomes, which ultimately makes the negotiation run smoothly and eliminates stress for the client, and also helps avoid conflict during negotiations with another party.
Finding out deal-killers is essential for any negotiation, as well.
With sellers, Hall says a big problem is unrealistically high expectations for the current market. Providing information about the current state of the local market to your clients is a part of setting expectations that should not be ignored. “When you go along with them, you set yourself up for a nasty negotiation process,” Hall said. “Clients throw numbers at me during the listening process, and sometimes I have to enlighten them that their offer or listing price is unrealistic for the market or the home/property.”
Or when your buyers or the other agent refuses to budge on one feature or price that seems unattainable in the grand scheme, probing further can sometimes help both parties to reach a mutually beneficial agreement.
“Dig deeper,” Holland said. “If a client says they want a balcony, find out why they want it. Do they want to grill? Do they want to sit outside? This helps to substitute other features in case the balcony is not an option for a property that is perfect in every other way.”
When it comes to the actual back and forth of the negotiation, what everyone is paying attention to is concessions. When the negotiating agents are good, each party will have to give up something to meet in the middle and come to an agreement. Sometimes this means the two agents have to give up something, too; if a seller refuses to sell below a certain price and a buyer refuses to come up, to make the deal happen, agents will often give part of their commission money to make up for the price difference to get the deal done.
In addition, a good rule to have when conceding in the opening rounds of negotiations is to concede small, but that’s different than making small, equal-sized concessions. If you have a negotiating room of $10,000, don’t give it away in increments of $2,500. Say your seller’s asking price is $270,000 and a buyer makes an offer of $250,000. If you counter with $267,500 in the first round, $265,000 in the second and $262,500 in the third, the other party has realized that every time they come back, $2,500 is conceded. Why wouldn’t they keep pushing until they get to the absolute middle?
But there is one very important thing all agents should keep in mind – the party who is willing to walk away has the power. You have to make sure your clients can be prepared to lose. Whether it’s a disagreement over price, a repair or a proposed upcoming special assessment, if the property or terms of the deal doesn’t have everything your client wants, then they win by walking away and not buying something that they’re not ultimately happy with. The same thing applies to sellers: if they aren’t happy with the terms of the deal and walk away, they can hold out for something better. In this market, it’s easy for buyers to pay more than what a home is worth, and for sellers, to sell for less – sometimes much less. Waiting for the deal that is right for your clients is the right thing to do.
Holland tracks the last 14 deals he has made in terms of list price versus sale price. He uses the information as a marketing tool to show potential clients what kind of sale prices he achieved for existing and former clients. For example, with his most recent deals where he has represented buyers, on average, he closes the deal for his buyers at 7.27 percent below the list price.
“I have gotten referrals based mainly on my negotiation skills, because at the end of the day, clients want an agent who is going to negotiate the best deal for them,” Holland said. “Yes, there are other characteristics that count, too – but good negotiation skills give you an edge over other agents.”
Silver utilizes a current market analysis, including recent home sales, when negotiating with the other agent as well as her own client. She reviews the pros and cons with her clients so that, with the facts, they can make the best decision possible.
“When you present an undeniable fact to a buyer or seller, it can provide them with some guidance that helps with negotiations,” she said. “Sometimes being realistic will get you a higher listing value for the seller or lower asking price for the buyer in the end.”
Holland abides by a series of negotiation strategies. One is asking the other side outright what they want, which he stresses facilitates a smooth process for all involved. And one of the most important parts of negotiation to abide by is to sell the benefits to the other party instead of the services.
“Offering a longer closing window to a seller in order to provide them more time to find their new home so they do not need to move into temporary housing is a strategy geared towards making my client look as good as possible to the other party,” he says.
But a quick way that could jeopardize or kill the deal is to negotiate just to negotiate.
“If you push too hard, someone is going to break and be unhappy, and then you have exhausted all of your leeway,” Holland said, adding, “For example, you may be $5,000 away from what each party wants. By asking for an alternative agreement, you could show both parties that by sticking to their guns so hard, they are not accomplishing anything, whereas if they are willing to be flexible, you can then move forward.”
In fact, pushing your client too hard in a direction they are resisting can cause a host of problems. Hall said she has learned over the years that refraining from offering an opinion and allowing clients time to think and explore their options are negotiation strategies, even though she isn’t actively doing anything.
“Even if you are directing people in the direction you desire, you do not necessarily want it to be obvious,” she said. That’s the sign of a great negotiator. “People need to go to the well of their own accord. For example, you may have a buyer who is resistant to a short sale. In that case, it is important to fill them in on all of the scenarios. You need to present your clients with all of their options, and from there most people will make the right decision for themselves without you pushing a whole lot.”
Negotiating might seem more cutthroat in today’s market, but the bottom line remains the same: the agent with the better negotiating skills will be more likely to make clients happy, gain a reputation for being a skilled negotiator and obtain more referrals from clients.
“I hope that over the years I have built a reputation that would compel people to hire me as their agent, thanks to negotiating and many other skills,” Hall said. “You are only as good as your last sale.”
Century 21 Elm Realtors,