How To Have A Win-Win Real Estate Negotiation
Do not fall for the 'mythical middle' trap!
There is a common trap that Buyers and Sellers fall under when negotiating an offer. It's called the 'mythical middle trap' and it's something to be aware of before you start making deals or put your home on the marketplace.
When we participate in any sort of back and forth negotiations, we get connected to what we view to be a 'Good Deal'. We are also highly averse to feeling like we haven't made actually made a 'Good Deal' or been 'taken advantage of'. Many Buyers will never pay "Asking Price'. And conversely, many Sellers will never sell below a certain limit.
This manifests itself in numerous buyer-seller interactions, all over the world ...
- Seller sets an asking rate.
- Purchaser sees house online and is brought in by asking cost.
- Purchaser views home and likes it. "Finally, a home that suits our household!".
- Purchaser thinks (hmm, possibly I could get it for less than the asking cost).
- Purchaser encourages themselves that they need/want/deserve a great discount rate.
- Purchaser makes deal $50k - 100k below asking price (often lower).
- Buyer dreams of approval while awaiting an answer and then gets upset when the seller either doesn't negotiate, or only moves a percentage.
- Buyer tries to jeopardize: "Can't they at least meet me in the middle?".
- Seller has already set their 'rock bottom' asking rate on the advice and encouragement of their picked salesperson and does not want to move even more.
- Seller puts their stake in the ground too, with words like "We don't have to move." Or "We aren't desperate ...".
- Purchaser gets annoyed and does not want to 'cave-in' and come near the seller's cost.
- Purchaser leaves and has to keep searching for a home. Seller awaits another buyer. Everybody's time was relatively lost.
If either side is strongly motivated, then a deal can in some cases be reached in this sort of situation. But in most circumstances, Buyers don't HAVE to buy and sellers do not HAVE to sell. Undoubtedly, an impasse occurs. Pride obstructs a final agreement.
Yes, both sides have stood their ground, however no one is better to getting where they wish to go. The purchaser doesn't have a brand-new home and the seller is still waiting on a buyer.
So what's the answer? Is there a better way?
Why 'meeting in the middle' is over-rated.
It's easy to get captured in the 'mythical middle trap'. As a purchaser, you're goal is to not to pay too much. You, as a buyer, may also have a 'limit' on what you can comfortably afford to pay on a monthly mortgage.
It's important to remember, nevertheless, that a lot of sellers do not price their houses way over market price. If they did, nobody would make offers or pertain to. Also, the seller will normally have higher closing costs than the buyer. If the seller has a mortgage that needs to be paid off, plus closing costs, there is a limit of what they can reduce the price to to make a deal.
So you can't expect to walk in and secure a massive discount unless the seller is very motivated and in some way no other agent or purchaser has actually found this yet.
Likewise, that legendary middle-ground you are searching for was figured out by your initial deal, not by any basic convention. You might make your preliminary deal $1. Does that still suggest the owner should 'fulfill you in the center'?
If the asking cost looks like good value, do not hesitate to pay it. If you must, ask for a little discount rate (eg. 1 - 5% listed below asking rate). You might not be in a rush to buy, but if you do secure this house then you don't require to keep looking. Job done! Pleased household! There is severe value in making progress in life.
Keep in mind: If a home is overpriced, that's a different story and you should not automatically offer the full asking cost. A good experienced Buyer Agent should be providing you with a (CMA) Comparative Market Analysis, on any homes that you are very interested in. Your sincere feedback and thoughts should be discussed whether it's worth making an offer where you see market value.
There is also the threat that while you are waiting to 'meet in the middle', another purchaser comes along and strokes the home out from beneath you. We have actually seen this occur many times and it's constantly distressing for individuals included.
Is there something else you can offer to make a deal?
If you really need/want a discount rate, discover another problem you can resolve for the owners. You may secure a deal below-asking-price if you offer to let the owners remain on as occupants for 3 months while they search for a brand-new home.
Or you may secure an offer by providing them a quick (or long) closing. Ask your Buyer Agent what that specific owner is trying to find and if there are creative ways you can assist.
Sellers - don't succumb to this trap in reverse. Avoid the temptation to set your asking rate way above market value, wishing to leave space to negotiate. All you'll wind up doing is making your house appearance less appealing online, thus lowering the quantity of buyer offers you get. Outcome? It'll take far longer to offer your home than it should.
Whatever you do, whether purchasing or selling, don't let pride get in the way of negotiating a fair deal for all parties.