Tips for Home-Buying And Selling Negotiations

By Jessica Miller and Lee E. Miller

There's no "right" way to buy or sell a home. But some people feel uncomfortable with the traditional way that real-estate transactions are handled. Sometimes that's simply the result of being unfamiliar with the process. Others find the transaction doesn't suit their personal negotiating style. In either case, some simple tips can help you successfully navigate the purchase or sale of a home or apartment.

First, some basics. The core principles of negotiating are Convince, Collaborate and Create.

• Convince refers to changing the way the person you're dealing with sees things.
• Collaborate involves both sides changing the negotiating focus to one of problem solving.
• Create takes a fresh look at how you've done things in the past and coming up with more effective ways to achieve your objectives.

Consider Maxine Hartley's experience. She's an executive coach and the president of MTH Consulting in New York City. Ms. Hartley started her career working out of a small office in a townhouse on New York City's Upper East Side. Eventually, she needed a larger office but wanted to stay in the same neighborhood. Her landlord wanted more for the additional space than Ms. Hartley could afford at the time. Space elsewhere in the area was exorbitantly expensive. So she took a different approach.

She went to the owner of one of the brownstones on the block. She asked him if he'd allow her to gut the first floor of the building, which he was using for storage, and put in an office. She offered to hire the architect and build the office for the owner. In return, she wanted a 10-year lease at below-market rates. At the end of the 10-year period, the owner would get the office space, which he could then rent at the market rate.

Everyone made out well in this deal. The owner had never thought about using his first floor as office space. It didn't cost him anything to do so. He immediately began receiving rent from Ms. Hartley that he hadn't been receiving before. In addition, at the end of the lease, he had office space that he could rent out very profitably. Ms. Hartley got a beautiful office in a great location for less than she'd been paying in rent, even after the cost of the architect and building the offices. Why? She came up with an idea to create something to negotiate about.

The Convince, Collaborate and Create principles that Ms. Hartley used effectively are the common themes that run through the negotiating techniques that follow.

When Buying A Home

• Understand the market.

Your preparation begins with studying the market where you want to buy. Whether the market is strong or weak, there's no substitute for knowing what you want and what similar properties are selling for in the area. A thorough understanding of the market, including how quickly houses are selling, is important.

In a "hot market," you often need to be ready to buy immediately. Good properties don't remain available for long. If a house is fairly priced, there won't be much room to negotiate. The key is to recognize value. If you're in a hot market or dealing with a unique piece of property, the ability to act quickly can make all the difference. Your goal should be to close the deal quickly before other buyers make competing bids.

On the other hand, if the market is slow, you can afford to browse. You can negotiate about the price; ask the seller to throw in such items as appliances; have the seller take back a mortgage; or just extend a low offer to see if there's any interest.

A basic negotiating principle is to start with making the right offer. If you offer too much, you'll pay too much. If you offer too little, you might not have the opportunity to negotiate further. So how do you determine what to offer?

• Learn the seller's situation.

In deciding what to offer, begin by looking at what comparable houses have sold or rented for recently. This information is a matter of public record that your broker can get for you. Then find out what the seller's situation is. If an owner has to sell quickly, he or she is what brokers refer to as a "motivated seller." When this is the case, you usually can negotiate a good deal, particularly if you're willing to close promptly.

People who have been transferred, lost their job, purchased another home, or are divorcing usually need to sell quickly. Similarly, if the owner has died, the estate generally will want to sell the house as quickly as possible.

On the other hand, someone looking to buy a house elsewhere but who doesn't have to move will be more likely to "wait for his (or her) price." When it comes to determining the seller's situation, you can learn a lot from your broker. As Carolyn Klemm, a broker in Litchfield, Conn., puts it, "A good broker is like a gossip columnist: She knows everything about everyone."

Your ability to negotiate also will be affected by how long the house has been on the market, the number of other offers on the house, whether any have fallen through and any special problems with the house.

• Look for what others don't see.

It helps to have vision. The market takes advantage of people who have no tolerance for renovation. Lisa Brown, a broker at Stribling & Associates who sells condominiums and co-ops on New York's Upper East Side, advises looking for "a well-priced property that's poorly presented." Most people can't see the potential. People who can see what other people miss will be able to find bargains in any type of market, Ms. Brown says. Remember, however, that decorating can't fix problems with a house. A structural inspection will reveal any major problems with the house and allow you to renegotiate the price or persuade the seller to correct the problems.

• Relationships can work to your benefit.

One advantage some people use when negotiating is developing a relationship with the sellers' broker or the sellers themselves. Margery Hadar, a broker at William B. May Co., who specializes in handling co-ops and condominiums in Manhattan, recommends developing a relationship with the people with whom you're negotiating. If possible, it's best when the relationship is directly with the sellers, but having one with their broker also can be useful.

It's a mistake to try to bring down the price by "knocking the property," says Ms. Hadar. People are usually proud of their homes and what they have done with them. It pays to appeal to that emotion by complimenting the property, rather than trying to denigrate it

Ms. Hadar says a potential buyer once told her, "I'm making what you might consider a low offer because this is the worst apartment in this building." She says that even though she's a professional and only the owner's broker, the remark made her angry. She liked the apartment and her initial reaction was: "How dare he?" In the end, she sold the apartment to someone else. But had this buyer said he loved the apartment, Ms. Hadar says, she would have made every effort to help him purchase it.

It's always harder to say no to someone you know, especially if you like them. So if you can, get to know the sellers and their agent, because it will make negotiating with them a lot easier.

• Remain emotionally detached.

Be willing to walk away. In the end, all the preparation, creativity, vision and relationship-forming are no substitute for the ability to say no, to remain unemotional and to be able to walk away from the property, if necessary. If you let your feelings affect how you negotiate -- and buying a house can be very emotional -- you won't be able to reach a deal effectively. When you fall in love with a house, you can't negotiate well because you can't walk away. That's one of the biggest mistakes people make in real-estate transactions.

• Be creative in your approach.

Often, the most important thing about buying or selling property is to be creative. It helps to be creative not only with how you approach the deal, but also with other aspects of the sale than price. For example, if you aren't pressed to move in quickly, offer to close when it's most convenient for the sellers. That gives the sellers the feeling they're in control.

When Selling A Home

• Price the home to sell.

Knowing the market is just as critical when selling a home as it is when buying one. Pricing the property correctly when you initially put it on the market will determine how much you ultimately get and sometimes whether it sells at all. You typically receive your best offers during the first few weeks a house is on the market. You'll want to price a house so that it will attract offers. Once a house has been on the market for a period of time, people begin to wonder if there's something wrong with it. Brokers stop showing it. It becomes, in the words of the brokers, "overexposed."

A frequent mistake is to put a house up for sale at a price that can't be justified, just to "test the market." If you aren't ready to sell, don't put the house on the market. If you do, and the house doesn't sell, you'll have difficulty moving it when you actually get serious about selling it.

Most brokers suggest that you price a home slightly above market. If you price it too high, it will discourage potential buyers. But if you price it too low, you won't have any room to negotiate when someone makes an offer. In real-estate transactions, except when the market is red hot, people expect to bargain. Whether the buyers you're dealing with go two, three, or more rounds, you need to set your initial asking price at a reasonable -- but slightly high -- level, so you have room to bargain.

• Appeal to the buyers' emotions.

As a seller, you want potential buyers to fall in love with the property. Buying a house is often an emotional decision. If buyers become emotional about the property -- if they aren't able to walk away -- then you'll be able to negotiate a better price. How a house looks, and the feeling it gives off, play a role in making this happen.

Do whatever inexpensive cosmetic work is necessary to make the property look warm and inviting. A fresh coat of paint, new carpeting and some landscaping can do wonders. Keep it neat and clean at all times, so that you can show the property at a moment's notice. Clean the windows. Make sure the house smells nice and have soothing music playing in the background when people are looking at the house. Some brokers even suggest you have bread or cookies baking in the oven. Do whatever you can to get potential buyers excited about wanting to live there.

• Create competition for the house.

As a seller, you always want to get more than one buyer interested in the property. That encourages bidding competition. Moreover, people want what others value. The fact that someone else is interested in the property often will result in a buyer rethinking how he or she originally valued the property. This can result in a higher offer.

For many people, selling or buying a home is the biggest negotiation they'll ever engage in, making the basic Convince, Collaborate and Create principles of negotiating especially applicable. And, because of the size and complexity of real-estate transactions, using these principles often will give you an advantage.