Tips and Traps When Negotiating Real Estate: Only Work on Issues That Can Be Resolved

Walk Away a Winner – Only Work on Issues That Can Be Resolved

TIP

Always do the possible first. Leave the impossible till later.

You’re a buyer and you offer to purchase a home. You want the seller to accept a lower price, carry a second mortgage, move out within 30 days, and put on a new roof. When the seller looks at this list, her first inclination is to throw it and you out the door.

But you want to buy and she wants to sell. So you suggest that first you both identify any issues that can be resolved and separate them from those that can’t.

Price comes up immediately. She doesn’t want to accept what you are offering, but indicates she will negotiate something lower than she’s asking. There is a possible resolution here.

Next she mentions that she doesn’t want to put on a new roof. But she knows that the old roof is bad and is willing to patch it. Maybe that’s negotiable too.

However, she flat out says she cannot move out in 30 days. She sim­ ply can’t. Her kids are in school for another two and a half months. She would have to find another place to live and is going to be traveling for the next month, so she won’t have time to look. It’s simply not possible. This issue is intractable. Further, she says she needs cash, so in no way will she consider a second mortgage. Again, intractable.

Now, are you going to focus on the time factor and the second mort­ gage? Or on the roof and the price? If you turn to the time factor, she says, “No, No, No.” If you turn to the issue of the second mortgage, again she says, “No, No, No.” Suddenly it appears as if everything is wrong and there’s no way to move forward. In fact, you’ve just lost the deal because you’ve brought negotiations to a halt.

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On the other hand, if you instead concentrate on the two issues that may be possible to resolve, maybe you can make some progress. So you work with the seller on the roof. No, she doesn’t want to replace it, but she concedes it is bad. Eventually you both agree that she’ll put on a new roof, but a less expensive one.

You both heave a sigh of relief. Things are going better. You’ve just resolved a big issue. The time you’ve both invested has paid off. You’re both optimistic. So you now tackle price.

“Your offer is too low,” she says. But she concedes that she has some room to maneuver. “How much room?” you ask. You continue to negotiate into the wee hours of the night and finally hit upon a price that both of you consider reasonable, and again a collective sigh of relief is expressed. You both feel you’re much closer to a deal.

But, you point out, you can’t give that price unless the seller gives you a second mortgage. You don’t have the extra cash. But, she says, she must have the cash in order to buy the next house.

So, you put your heads together to see what you can work out. You suggest that she take that second mortgage and sell it to an investor. No, she won’t get full price for it. But if you’re a good credit risk (and you surely indicate you are), if the interest rate is high enough, and the term is short enough, couldn’t she convert it to cash some­ where? Her ears prick up. She says, “Maybe there is a way.”

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She remembers an uncle with a lot of cash who’s looking for solid investments. She rousts her uncle out of bed, even though it’s 12:30 a.m., makes effusive apologies for the late call, and then explains the problem. The uncle, convinced of the severity of the problem by the late hour call, but always looking for a good deal and liking his niece, agrees. He’ll sign off in the morning.

You both shake hands. It appears you’ve got the deal. “Oh, by the way,” you mention. “I still need to move in within 30 days.” “No problem,” says the seller. “I’ll move out and rent temporarily.” The deal is done.

But, why is it done?

The answer is that it’s human nature to “go with the flow,” to fol­low the trend. The word is momentum. Get it on your side and you can make a seemingly impossible deal.

You can see this most clearly in basketball games. You may have two evenly matched teams, but if one gains momentum by quickly building up a lead, the game may blow out and become a mismatched contest. Similarly, in a real estate deal, once movement begins to occur, once you have agreement on some issues, the ten­dency is to want to continue the momentum, to continue finding agreement (just as, if there were no momentum, the tendency would be to feel the deal had no chance of being made). Agreement begets agreement—it’s positive action. In the end, an issue such as when to give occupancy, which is intractable at the beginning, seems trivial after everything else has been accomplished.

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TIP

If you work first on those issues that you can resolve, those which you can’t may take care of themselves.

Remember, if you begin by trying to negotiate an impossible issue, you are doomed to failure. So why bother? Instead, work on those issues that you can resolve. Maybe, just maybe, by the time you’ve successfully worked out several issues, the other party will have enough familiarity with you and confidence in you and the negoti­ating process to make concessions that seemed impossible hours earlier.

TRAP

Some readers unfamiliar with just how real estate deals are put together may not believe anyone would make a call at 12:30 in the morning asking for money, much less get it. Believe it! When a seller (or buyer) is hot to close a deal, he or she will do almost anything to make the deal work.