The delicate art of negotiation

When Jody bought his condo, he beat out a competing offer that was $10,000 higher. How? A little strategic psychology.

Jody White is one happy man. Just before the holidays our resident web guru (he writes the Proving Grounds blog for MoneySense.ca) became the proud owner of his first condo. The amazing thing is that he nabbed it with a bid that was $10,000 less than the nearest competing offer. As a first-time home buyer, Jody chalks his win up to a great real estate agent who really understands the power of negotiation. Turns out there’s an art to buying property as well as a science. And as Jody discovered, using a little psychology when you’re sitting across the table from the seller can pay off with a winning bid that’s thousands less.

Know more than the other side
When you’re buying a house, knowledge is power. Ask any successful home buyer and she’ll tell you that the key to a successful negotiation is to walk into the room fully prepared. In particular, you should find out how close the property in question is to public transportation and major roads. Look at the taxes and neighbourhood crime rates. Consider the quality and proximity of schools, community centres and stores. All of these factors can have a big impact on how much a house is worth.

Most importantly, though, get to know the sale price histories of similar homes in the area. That way, if you think the price of the home you want to buy is too high, you could point out, for instance, that an almost identical house down the street just sold for $20,000 less and it has a second bathroom. Use this to negotiate a lower price.

Don’t stop there
Richard Irwin, author of Tips and Traps for Negotiating Real Estate, says the next step is to keep researching until you find out why a person is selling. He says the easiest way to get this is to casually ask the seller directly during an open house (don’t make it feel like an interrogation). If the seller isn’t accessible, do a little digging. “Ask neighbours or the local homeowner’s association,” Irwin suggests. Explain that you’re interested in buying and you want to get a feel for the area. Once you’ve chatted for a bit, spring the question. “Nine out of 10 times you’ll find out the reason.”

Once you have that information, you’ll have a big leg up in the negotiation. You can focus on what’s important to the sellers, says Irwin, and that gets you closer to a deal. If you know that the sellers have already bought a new house—conditional on the sale of the house that you’re looking at—you can push them harder on the price. On the other hand, if they’re just testing the waters, you might not want to haggle too much.

Chattel chatter
What if you’ve done your research, made your offer, and there’s still a chasm between your offer and what the seller wants? Does that mean a deal can’t be reached? “Absolutely not,” says Irwin. “Because in real estate, everything has value—which makes everything negotiable.” As a buyer, you can use personal items as a way to bridge the gap. For instance, if the seller won’t settle for less than $350,000 and you think the home is worth $340,000, then add your own incentive. Agree to the seller’s price, but only if they throw in the stainless steel stove and fridge—and perhaps the washer and dryer too.

The key, says Irwin, is not to get too attached to individual items, or you could scupper the deal. For instance, while negotiating the purchase of a West Vancouver home last year, broker Sarah Daniels ran into a snag when the buyer and seller began to argue over the possession of a built-in cappuccino maker. “I couldn’t believe a $500 appliance threatened to derail the sale of a $1.5 million home.” The deal didn’t fall through immediately, but Daniels is convinced that bad blood from the cappuccino tiff tainted the sale. The buyers eventually walked and the sellers couldn’t sell until months later—for $100,000 less than the original offer.

Focus on the deal, not the dollar
Of all the advice on successful negotiating, probably the most important is that you’ve got to draw out the sellers’ motivation so you can make them feel like a winner. That’s what enabled Jody to get his condo, despite his lower bid.

Jody’s agent knew the condo would sell quickly, so rather than faxing in the offer, he showed up in person. By doing so, he was able to tease out the motivation behind the sale: the sellers had recently become proud new parents and needed more space. A quick phone call, and half an hour later Jody was sitting at the negotiating table. That’s when Jody’s realtor stopped trying to buy the condo—and began trying to sell his client.

Jody was presented to the selling couple as a hardworking young man, recently separated. The agent talked about how Jody was looking to get a new dog to keep him company and how he loved the nearby park. Within an hour, without even looking at the other faxed-in bid (for $10,000 more), they had a deal. Jody could move in within 90 days. (At which point the husband in the selling couple leaned over and reassured Jody in hushed tones: “There’s a lot of single women in the building.”)

The strategy worked. The sellers formed an emotional connection with Jody, and they could picture him enjoying the condo they loved just as much as they had. In other words, both parties walked away feeling good, feeling like a winner. And that’s worth a lot more than you’d think.

Originally published in MoneySense Magazine in February 2011