Real estate transactions are not simple and need to be handled with immense care. While negotiating a deal, it must be remembered that it is best for both parties to find a common ground. However, it is important to be aware of various market trends, pricing history, socio-economic and political updates, for making a successful home or commercial transaction. Astro strategist Hirav Shah comes with personal experience of having handled his father’s realty business. He feels that both sellers and buyers must follow certain etiquette and have relevant negotiation skills to make the most of the deals and avoid being short-changed
A key requisite in a real estate deal is to find the most creative and powerful negotiation strategies. Attracting clients is just the first step in real estate business. The next crucial step is to negotiate with the other party. In almost all real estate deals, the sellers want the highest price and the buyers want a good deal. So, it is important that both parties meet on a common ground and close the deal. In fact, real estate negotiation is an art where both parties meet midway. It’s worth your time and energy to know how to negotiate a real estate offer.
It’s not just home price negotiation tactics, one needs to know the tricks of commercial real estate negotiation and real estate negotiation strategies to save on monies. But first, let’s begin with home buying negotiation tactics.
Home price negotiation tactics
You could be a first time home buyer or a seasoned buyer, always remember that no real estate agent will do the job of negotiating for you. So, make sure you are not missing out on the opportunities to bargain for what you want. In the worst case scenario, the seller will say no, but it is totally worth your time and money to ask.
You could ask for closing costs covered, house being repainted or extended move-in date.
1) Get the seller to pay all of or percentage of closing costs: Most first-time buyers don’t realise they would need extra cash to complete a purchase. Depending on where the property is located and its value, buyers tend to shell out 2% to 5% of the purchase amount. But it must be remembered that closing costs can be paid by either the seller or buyer. Also, in a buyer’s market, one can negotiate for the seller to pay the closing costs. Also, it is in the best interest of the buyer to make sure that the seller completes all work before closing the sale.
2) Negotiate on anything that is important and safety-related: Make sure to always ask for a home warranty wherein the repair of items such as air systems, plumbing or appliances is included. Also, do a thorough check of the property to rest assured that all safety concerns are met. If you find faults, you could negotiate big time on the price and get the faults repaired later at a much cheaper price.
3) Flexibility on closing dates or possession dates: This works both ways. For example, if a buyer needs time to move into a property, then it is best to negotiate closing or possession dates. The seller can also be motivated to adjust the price. Similarly, if a seller needs more time to hand over the property, it is up to the buyers to grant them extra time in return for a lower price.
4) Furnishings and household items: A buyer can negotiate with regards to furniture, fixtures, re-grouting of sinks and showers, landscaping, etc. In most cases, the sellers give in to the request of buyers as they do not want to carry certain items with them. Such gestures help buyers who are cash-starved following a purchase.
5) Mortgage loan points: While negotiating the market price of a property is a given, a buyer can also bargain on the mortgage loan points. If the seller has a mortgage on his property and pays a certain interest rate, then a buyer can take over the current mortgage of the seller and get lower interest rates. This will result in the buyer saving quite a bit of money each month.
Commercial real estate negotiation
Investing in or buying commercial real estate can be a huge risk and many entrepreneurs end up making costly mistakes by overlooking unseen expenses. It is ideal to do all the necessary homework and be well-prepared to negotiate with the seller. Else, there is a risk of getting struck with more building space, unwanted environmental mess or worse still having no bank finance.
1) Evaluate your needs: Check how much space you would require now and in future. Anticipate growth. Also, location is of primary importance, especially for retail business. Accessibility, parking space, convenience for shipping, zoning issues, room to grow, must be considered before putting in the money.
2) Have a set budget: At the outset, be clear of your budget. This will help you in deciding what you can afford. Remember, when it comes to commercial real estate, you need to think beyond spending on building price. There will be other liabilities such as renovations, environmental and structural assessments, taxes, legal fees, realty commission if any and an amount for contingencies. Also, check with your bank as to how long it needs to review the transaction before approving finance and what conditions need to be met.
3) Find good advisors: To begin with, hire a good local agent who knows the market and understands your needs. Also, ask for suggestions and recommendations from your accountant, lawyer, banker, advisory board and other entrepreneurs. It’s best to hire a commercial lawyer who handles such deals day in and day out.
4) Think broad to save on price: It’s very important to find ways to negotiate a lower purchase price.
A) You could be looking for a quieter place that is not centrally located. This could mean cheaper real estate.
B) It’s better to narrow down on special-use properties. These are properties designed to house a bank or chain of restaurants. Since they are distinct, they are harder to sell and will come at a reasonable price.
C) Look for spaces in used industrial buildings.
D) Look for owners whose properties aren’t on sale in the market. But they will sell nevertheless. This way, you can close a deal privately and need not spend on agents.
E) If a property is larger than you expect, then think of leasing the remaining space to another business. However, your bank might want to see the lease documents before releasing finance.
5) Check the space thoroughly: The more informed you are, the better you can negotiate. Check the dos and don’ts. If you are looking for future expansion, check if the space can accommodate such operations. Get your contractor and key employees to look over the space. Get an idea of the money that needs to be spent to suit your needs. Figure out who the neighbours are and whether the area is declining or developing. Also, if there are any tenants, check when their leases will end. Check all serious concerns beforehand, so you can make an informed deal.
6) Put forth an effective offer: Once the homework is done, decide on your budget and needs. Never compromise on structural and environmental assessments though.
7) Just as you close the deal... Ask the seller for all property tax statements, utility bills and list of recent repairs, etc. It’s also ideal to ask the seller for any recent environment assessments to make sure there is no contamination of the site or if it contains hazardous building material. At this stage, it is also important to get building condition assessment and a title search. Also, wait until your bank reviews the contract. Do not be in a hurry. If you finalise the deal and the bank then disapproves of the building or space, then it would be too late. So exercise caution.
The following are some real estate negotiation strategies that will keep you at an advantage
- Price: A buyer wants to have the best deal possible with as many amenities added as possible. While the sellers want to ensure that the deal fits their financial plan.
- Closing cost: A buyer could in some cases ask the seller to pay a flat amount towards closing costs which can add up to 2-3% included in the mortgage.
- It pays to be proactive and not reactive: It is often seen that many people talk quite a bit while closing a deal. However, it is best to listen and then come to decisions. It is also important to communicate clearly. It helps if one is not negative and reactive.
- Ask a lot of questions: Do not shy away from asking as many questions as your doubts. Both the sellers and buyers need to be in an adjustable framework of mind in order to close a deal.
- Sound counselling: If one seeks the services of an agent, then it is the responsibility of the agent to negotiate a deal that suits all parties involved. Closing a deal has an emotional element attached to it. Having a sound knowledge of negotiation framework and methodologies will help one to understand the situation accurately and respond effectively.
- Have sufficient information: There are buyers who feel shelling out maximum monies is essential to close a deal. But, smart negotiators understand that it is important to solve the problems that come in the way before signing the dotted line.
- Closing date: The seller might put pressure to have an early closing date to get the capital out fast. However, this could hit the buyers’ monthly cash flow, once they own the property.
- Set yourself apart: Develop good negotiation skills and respond actively. This will give one an edge over competitors and will make the clients happy. Also, chances are you might get referred to others.
- Negotiate in person, not over phone: It’s important to have clear communication when negotiating a deal. People can get hurt by a typed message that could have been funny, neutral or favourable. Do not take chances.
- Body language: It’s best to have an open posture and have a smile on your face. Make yourself trustworthy by looking into the eye as much as possible.
- Be emotionally detached with the deal: Do not display fear of missing out. This can be noticed by others and can lead to missing out on the deal.
- Having a good sense of humour helps: It’s good to show your sense of humour as and when required.
- Always close the deal on a good note: Before closing the deal, make sure everyone is left feeling positive. Shake hands, thank each other and talk positively about next steps.
Real estate negotiation tips for sellers
A deal is about two parties. Just like the buyer, a seller also needs to understand the nitty-gritty of closing a deal without being at a loss. Check out some tips that could help a seller in the process:
- Be knowledgeable and in control Stay abreast of market dynamics, current capital values, price trends, existing market trends, so that you are in a good place to negotiate. Do not reveal any details that a buyer could use against you such as reasons for selling, any financial issues or the timeline by which you intend to sell your property. Avoid looking or feeling desperate while closing a deal as this will make the buyer dictate terms of the transaction.
- Shift focus to value addition In case, the buyers feel that the asking price is high, then shift focus to the amenities that are on offer and how your property is better than others in the market. It’s best to make the buyers visualise their life on the property. Once the buyer has an emotional connect, it is easy to sell a property.
- Don’t make a habit of rejecting offers If you are not sure about early offers, then ask for time before coming to a decision. Being arrogant puts off potential buyers. Having many buyers will lead to more bids and this will help you close the deal at a higher price.
- Do not make drastic price cuts Inexperienced sellers could slash the price to sell the property at the earliest. If the property has been in the market for a long time, then the sellers lose the confidence and tend to drastically cut the asking price. However, this will turn away serious buyers.
- Stay polite This sounds like an etiquette lesson. But it is pertinent that the sellers should not appear rude or brash. It is best for both parties to remain calm and behave well towards each other. There are chances of a deal being called off due to the seller’s dis-courteousness.
Following the above tips and strategies will help you sail tricky negotiations.