Joe and Jane have found and purchased a home closer to their preferred elementary school, Alki Elementary in West Seattle.  Their old house in the Alaska Junction is currently vacant.  Between the utility bills and their mortgage, it is costing them about $2,500 a month to keep that house warm and showable.  Currently the housing market in West Seattle is averaging about 100+ days to sell a home.  That is just over 3 months of mortgage and utilities.

Their house in the Alaska Junction is comparable to other homes that have sold for 500k.  They set their listing price at 500k. They have a little savings and could, worse case scenario, keep both houses for six months tops. They could sell their home for as low as 470k to cover mortgages and selling costs. What is their BATNA?  Well they have to sell within 6 months or risk losing out entirely.   Every month they wait, they spend another $2,500.  When there first offer comes in at 30 days their BATNA is: 5 months * $2,500 + 470k = 482.5k

In other words, if someone offered 480k they would be better off waiting for another offer rather than settling for this one.  Of course this is not taking in to consideration a changing market, that is another topic all together. But as time passes their BATNA changes.  Their reserves dwindle, and their motivation to sell increases.  At 90 days their BATNA is: 3 months * $2,500 + 470k = 477.5k.

Wait a minute if they would have accepted the original offer at 480k they would have been better off right?  Yes, they would have.  But they would have lost the opportunity to receive an offer of 490k or even a full price 500k offer.  Not everyone has the stomach for negotiating when this much is at stake.  That is why it is so very important that you choose a Real Estate Agent whom you are comfortable with and has the negotiating experience to guide you through this process.

Basically what it comes down to is this.  How much do you want this house or sale as it may be. What would your next best choice be if not this house.  If you have to have a specific piece of real estate and no other will do, then you really have no business negotiating hardball style. Would you really want to risk losing  the home of your dreams. If it is a toss up between two or more homes then ask yourself ,what price would tip the balancing point between the two homes?  This would be your BATNA.  Let look at an example:

Joe and Jane would like to live near the Alaska Junction in West Seattle.  They have found a great town house for 430k and a rambler for 475k.  The town home is brand new, granite and stainless everywhere. While the rambler was built in 1950, linoleum and wall to wall carpet but a nice yard.  Joe and Jane would like to have a yard for their future children to play in, so the rambler is their first choice.  But money doesn’t grow on trees, how much is that yard really worth?  They decide that having a yard is worth 70k.  So their BATNA is: The town home + 70k = 500k.

So, at what price would the town home  be a better deal? They figure that they will have to pay for about 45k in remodeling to raise the rambler to a level in which they would want to live in it.  That brings the total price to 520k. So if they can negotiate the purchase of the rambler with the additions for under 500k they are a go. 

That means that their reservation price is 455k.  If they aren’t able to talk the sellers down to 455k, then they will buy the town home and enjoy the granite and stainless while taking the children to the park:)

Stay tuned for more as we discuss what this looks like from the Sellers point of view.

When an initial offer comes in the correct reaction is to “flinch.” You want the bearer of the offer to feel like they just dropped a brick on your foot. “Ouch!”  Then wait. Don’t say anything. Nothing. Silence, is the next move. Almost like you are waiting for an apology from the brick dropper. Wait until they talk next, no matter how long it takes. I have waited so long that people have asked if I was still on the phone, like it was a dropped call.

When I am shopping in the grocery store and I accidentally bump someone with my cart, my first reaction is to apologize. I have actually had agents, after dropping a brick on my foot, apologize for their offer. What?! Who is selling who? While agents often “feel” each other out over the phone to gauge where and how far they can push a situation, they should never apologize. Making an offer is not like bumping into someone in a grocery store. Apologizing is admitting that the offer is too low or high as it may be.

Negotiating real estate contracts are often a “quid pro quo ” game. I’ll give you this if you give me that. The flinch offers an opportunity to get a little for nothing. I have even heard of agents offering to increase their asking price right over the phone when faced with the flinch and a nice long pause. This is not the norm and many good agents know and understand these tactics. Does yours? Ask your agent what their response is going to be to this situation, before you hire them.

When entering into negotiations you had better know your Set Point. Without knowing your Set Point your just shooting in the dark aimlessly with no real stragety.  A good agent can smell this a mile away and counter effectively.  I will talk more about what and how to determine your Set Point tomorrow, stay tuned.

Barrier to emotion, is one of the benefits to using a real estate agent to negotiate. Any agent really, whether it is a sports agent or an actors agent, is a negotiating tool. When the seller, or buyer as it may be, comes back with an outlandish response, your agent is there to respond using wise tactics.

All too often agents either just say, “Thank you for the offer I’ll see what I can do” or they over react giving away their clients real position. Either way hurts their client, not good business skills. If a client is going to pay for full commission service, they should get what they pay for. A great real estate salesperson, who understands the selling process.

I am going to talk more about the negotiation process in the next few days so stay tuned for more.