If you are planning to buy property now or in the near future do read this article carefully. You might take away some valuable tips that can serve you well during the process of buying the property. From my experience I have seen that property buyers especially of big ticket properties do not like to feel “outgunned” during the negotiation stage of purchasing real estate. This is because most of these buyers are often doing multi million or even multi-billion dollar deals regularly as part of their professional business life.
During a negotiation no party likes to feel overpowered especially when making big ticket acquisitions like a car or a home. No one enjoys feeling “powerless” and that, “I am about to be taken for a ride” feeling.
Three Top Strategies
Over the years I have not only been a witness to hundreds of property deals being closed successfully but I have also studied the art of “negotiation” extensively by reading some great books on the topic and also attending seminars far and wide on the subject. In this article I will share my learnings and experiences built over two decades in the real estate business across two continents. These three strategies detailed below can guide you successfully through any negotiation and help you get off with that “I am on top” feeling.
- Negotiate from a base of confidence
- Do not assume you know the needs of the other person
- Detach from the outcome
Let us go through these strategies in greater detail and learn how they can be applied to the process of negotiation when buying real estate.
1. Striving for Confidence
The word “confidence” in the dictionary is defined as “full trust; belief in the powers; trustworthiness; reliability of a person or a thing; belief in oneself and one’s powers and abilities; self-confidence; assurance.
Even if you have poor negotiation skills, if you are confident then as a buyer you will fare better than the skilful but non-confident seller because people generally give more credit and deference to those whom they perceive as powerful.
So the first step as a confident home buyer you need to know about current property pricing in the market, sales histories of properties in the area you wish to buy and so on. This confidence borne out of knowledge comes with time and is a journey and not a destination. If you think that you will become confident about buying property in short span of time then you are not being realistic. Learning negotiation skills takes time and patience.
On the other hand you do not want to be going through real estate listings on online portals three months from now realizing that in all these three months you have not improved upon your goal of gaining knowledge of the desired real estate market that in turn would have helped you build up your confidence.
The moment you begin taking action to improve your knowledge is the day you are on your way to becoming a “confident” buyer of properties. Every day that you spend time working on your knowledge you are gaining competence and hence “confidence”.
2. Make no Assumptions
When in the process of negotiations, most people get into problems simply by assuming certain “facts”.
If you assume that you know the needs of another party, this can lead you on a wild goose chase and make you do things that are non-productive. In response the person with whom you are negotiating will stick to his / her position more forcefully. Negotiating from a position where both parties are not willing to compromise on any aspect can be frustrating and fruitless. People who negotiate from this situation find that they are stuck in a stalemate and in a bad mood. This situation rarely delivers the outcome that both parties desire.
Its natural to make assumptions based on one’s own background and values. A person says that he likes fast cars and one assumes that he likes Ferraris while he may like Porches. Someone says that he likes homes that give you privacy and you assume that he wants a home faraway in the mountains whereas he must have meant an apartment that faces the sea with no obstruction in between. So during a negotiation one must be careful not to base your perceptions of the other person’s views and positions upon one’s own beliefs and values.
Peeling back the Layers
It is a good idea to not assume that you know the needs of the other party. Also it is a good idea to not take whatever the other person says at face value. For example a seller says that he is no hurry to sell the property and is willing to wait for a year or more to find the right buyer willing to pay the right price for the property. Another property seller says that he will sell only if the buyer pays 100% of his asking price and a rupee less. So whenever one party in a negotiation gets stuck the other party tends to dig deeper into his / her position and the confrontation begins. The result is a stalemate where neither party wishes to budge from their respective positions.
As real estate consultants our job is to peel back the layers and look beyond the “stuck” positions to understand (not assume) the other person’s actual needs. Let us take the example of a property seller who insists on a closing date a couple of months down the line even though the deal has been locked because the new home that the seller is moving into will only be ready by then. The buyer wants to move in early though because of good mortgage deals – the key would be for the buyer to let the seller stay on the property for a couple of more months after the closing of the deal to avoid losing the mortgage rate.
The bottom line as a property buyer is that you should find the facts carefully by asking questions that can clear the air and help you understand the needs of the other party. Only then can one find a solution to meet the needs and close the deal successfully. Working on solutions only by assuming the other party’s needs is guaranteed to result in frustration.
Let us look at the situation where the seller of the property that you wish to buy will not negotiate and will accept 100 % of the asking price only. In this case you might need to peel off more layers 🙂 There are many reasons why the seller will not negotiate – maybe there are big loans that he intends to pay off or maybe he wants to boast to his friends and family about the big cheque he received for selling the property. The seller could even be an ego-driven person who in fact does not have the ability to negotiate on what on paper actually happens to be a great deal.
You can only find the inner motivations of the seller by asking plenty of questions, either directly or through the real estate agent handling the transaction. A good question would be, “Mr Seller, we are still not in agreement about the selling price of your property. It would be very kind of you to help me understand how you arrived at the selling price of your home. Maybe I am missing some key market data here.” If you asked this question – trust me you will be amazed at how truthfully the sellers will reply back sometimes. The seller replies, “Mr. Buyer, my business loans are very high and I also plan to move to a more expensive area after selling this house.” The seller may or may not give you a direct answer but you will never know until you open your mouth and ask!
3. Detach from the Outcome
If there is one important point you can take away after reading this whole article it is this – learn to detach from the outcome. Why is that? Well, the reason is that extreme attachment can cause the negotiation to move away from a need-based negotiation to position-based negotiation.
When negotiating any deal, experienced HNI deal makers will always act like they want the other party to know that they are not desperate to complete the deal. This is an important strategy. Learn from this and always be willing to walk away from the deal. Of course, sometime you will have to for compelling reasons.
Presenting an Offer
Here’s a funny and insightful experience of mine from a real estate agent’s perspective that could come in handy for you when you intend to negotiate with builders or property owners when presenting offers.
This one particular builder of luxury properties had a high ego and was a position-negotiator unwilling to budge from his position. What made matters even more challenging was that this particular builder-seller always wanted his apartments to sell for more than market rates. His aggressive pricing made it tough to get an offer and when an offer did come in his first reaction was #$%@! (unprintable).
Later I decided that I would not get too stressed about this and would detach from the outcome. And this changed my entire strategy of presenting offers to sellers. For this particular luxury project when the next offer came in (and the offers were always low because the asking price was too high), I would simply tell him, “I received an offer for the 21st floor of your project.” But before he could say anything in response, I would say, “I need an authorization from you to reject the offer.” Although it is standard practice for site managers to show clients an under development property, the authority to accept or reject an offer for a property usually always rests on the builder of the project. In response to this his answer would be, “Well, how much is the offer?” My response would be, “Its low. And I need your authorization to reject it. I cannot reject offers without your go-ahead.” We would go through two – three rounds of this and finally frustrated he would yell, “How much is the offer?!!”
So finally when I would tell him the offer price, he would say, “Well, it is not as low as I thought it would be. We can work with that.” What followed was a counter offer and a different attitude from the builder! What worked here was the fact that the builder thought that he was saving himself a deal and that was good for his ego 🙂
As seen, while purchasing real estate during the negotiation stage you can use the strategy of detaching from the outcome by ensuring that you have other options shortlisted for the purchase in case negotiations on the one you are working on fall flat. Most importantly you should also let the seller know that you have other options and that you are not “attached” to only buying this particular property.
A Useful Bonus Tip
When negotiating the purchase price of the property never use an absolute position when making your offer. When you tell the property seller that say “12 Cr. is the highest I can go for this property”, then you can be sure that the deal will not go through.
Rather than holding on to a particular position, always re-frame negotiations in the context of – Whats in it for me? You could rephrase your offer saying, “Based on market data, comparable sales and other similar properties currently available in your area, I am willing to offer 12 Cr for your property.” Talk about the market. Do not give the seller an absolute figure just like that. The seller is more concerned about what is important to them. They would not care that you can only afford to pay 12 Cr. By talking about the market data, you are bringing the discussion back to the market and you are speaking logically. You are effectively saying , “The market is saying your property is worth 12 Cr not me!”