Negotiating has become more complicated now that the market has shifted. Currently, there’s a mixture of homes that are selling quickly, with competing offers, as well as homes that are taking longer to sell, with perhaps only one offer.
This means you’ve got to sharpen your skills if you want to win every time!
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Mistake #1: Lack of Communication from both the Buyer’s Agent and the Listing Agent. If you want to win, you need a meeting of the minds. The definition of negotiation is the reaching of a mutual agreement that all parties are satisfied with. You have to actually talk to each other to make this happen!
Example 1: Listing agents, if you want to receive offers that are easy to say ‘yes’ to, put the desired terms into the agent-to-agent comments in the MLS, and/or actually call all those buyers’ agents back who haunt you looking for the details that will help them win!
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Example 2: Buyers agents: actually read all comments in the MLS and counsel your buyers to comply with as many of the terms as possible, if they intend to actually win!
If there are comments, you must find the listing agent and ask them, other than price, what will it take to win? Does the seller want a specific closing date or a lease back, or to keep the fancy chandelier? Find out and see if you can deliver a contract they’ll accept.
Mistake #2: No lender’s letter or proof of cash, a weak lender’s letter, or a boilerplate letter. If your buyer has financing, their lender’s letter needs to show ideally that they are loan-committed, or at least pre-approved. It needs to state that their ratios, credit, employment, and downpayment are all adequate and verified. Additionally, the lender should call the listing agent and ‘vouch’ for the buyer’s ability to close.
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Mistake #3: Not being specific about the seller’s concessions. This ranges from asking for a specific type of home warranty for a specific price, to asking for thousands of dollars towards buyer’s closing costs.
The first issue is easy. Check the box on the offer stating the buyer wants a home warranty, then state which warranty, that it’s for one year, and will cost $X.
The second issue is more tricky. If you’re asking for the seller to contribute $5,000 towards buyers closing costs, state (after speaking with your buyer and their lender), what those funds will go to. Buying down the interest rate, and paying prepaid costs like taxes, homeowners insurance, and prepaid HOA deposits are all appropriate. Ask for a good-faith estimate so you can be specific. Note: some lenders will inflate costs when they know the seller is contributing thousands to the deal.
Failure to be careful when you’re dealing with dollars will almost always bite you in the butt prior to closing and guess who’s going to pay the price if there’s confusion!
Mistake #4: Escalation Clauses, Escape Clauses, Appraisal Waivers, oh my! These are grouped together because the mistake is the same. There are two levels to this. The first one starts with the agent understanding these clauses or waivers, and what they actually mean, and the second part has to do with the buyers and sellers understanding. If you can’t explain it yourself, it shouldn’t be in the contract.
Example #1: Escalation clauses. If your contract states that your buyer will go $1000 above the highest and best other offers, it also needs to state, ‘not to exceed $____’, otherwise when your buyer finds out the price they have to beat, they may not qualify or be willing to deliver, and thus you’ve wasted everyone’s time. Note: make sure the buyer is actually qualified to go that high.
Example #2: Escape Clauses: These come in many flavors, the most common being a home sale contingency. ‘Seller accepts with the following contingency: Home will still be marketed and if an equal offer with no home sale contingency is presented, the buyer will be given 72 hours to remove their home sale contingency and proceed to close., or become a backup offer.’
Example #3: Appraisal Waivers. This is fine if the buyer is all cash (25% of recent sales have indeed been all cash!), but if there is financing involved, the lender better be ok with the waiver as well, otherwise you’ve got your buyer into contract on a home that the lender may not approve them for if it doesn’t appraise. If it’s an appraisal gap your buyer is guaranteeing, make sure they have the cash to support that, and up to how much before they’re dipping into their down payment money!
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