Negotiating For Your Interest
Many of us subscribe to the Old West credo that a deal is
finished when both parties shake hands on it. If that's your way
of thinking, then be prepared to get skinned alive when you buy
real estate. The modern credo is "Never stop negotiating"--even
after the deal is signed, even after escrow has opened, even
after escrow has closed and title has passed to you. If you
truly want to look out for your own interests, you won't stop
negotiating!
Yes, this is a bit of an exaggeration. Nevertheless, those who
do get the best deals in real estate are often those who keep
right on negotiating as long as, so to speak, there's anything
left on the table.
Negotiate as Part of Making an Offer
The entire process of making an offer involves negotiation. You
purchase a home at a certain price for specified terms,
including contingencies that allow you to back out in certain
circumstances. The sellers read you offer and then either accept
or, more likely, counter at a different price and with different
terms, perhaps eliminating some of your contingencies and
modifying others by limiting them for example, in terms of time.
Thus the sellers may agree that you can have an inspection, but
you must approve the report within, say, 14 days.
Back and forth it goes with counteroffers, and counters to the
counteroffers and counters to the counter to the counteroffers.
This is the negotiation process and, depending on how good you
are at it, you'll get a better or worse deal.
If you get a deal that's acceptable to you and is the best you
feel you can get, and if the same is true for the sellers,
there's agreement and everyone signs. The presumption is that
the deal is made.
Don't count on it.
Negotiate Over the Disclosures
A wise buyer knows that the really tough negotiations frequently
don't start until after the deal is signed. Usually the next
negotiation takes place over the disclosures. Within a few days
of signing, you should receive a list of defects in the property
as revealed by the sellers. (If you get the list before
negotiation start, then this point is moot.)
If your offer was properly filled out (or if your state gives
you rights here), you now can back out of the deal without
penalty. If something seriously wrong is revealed, you may want
to simply say no, take back your deposit, and move on.
Or you may want to negotiate some more.
You do this by letting the sellers know (through their agent, if
they have one) that you disapprove of the disclosures because of
the problem(s) they reveal. However, you're willing to go
through with the deal if the sellers either repair the problem
or reduce the price. If it's price you want, you indicate what
you consider to be a fair price (sometimes a figure
significantly lower than what was originally agreed upon), and
negotiations begin again.
Typically the sellers will balk, but if they want to sell and
there is a problem, they very likely will counter your offer.
Back and forth it goes until both parties feel they can live
with the same set of terms. If something significant was
revealed in the disclosures (or if you said that, in you view,
what was revealed was important), you may get a significant
price reduction or better terms.
Negotiate Over the Home Inspection
The next negotiation frequently occurs over the results of the
home inspection.
It's rare that a home inspection, even of a brand new home, will
reveal nothing. Usually there's something, even if it's just
leaking faucets. Depending on the severity of the problem(s)
discovered, savvy buyers now open negotiations all over again.
How can you do this? Remember, a good inspection clause is
actually a contingency that, in effect, makes the purchase
subject to the buyer's approving the inspection report. You
don't approve. There's no dealunless the seller is willing to
come down in price or up in terms.
Keep in mind that problems such as these usually arise two weeks
or so after the deal was originally signed. During those two
weeks the sellers have begun making plans to move. They may even
have put down a deposit and made a deal on another home. They
are counting on your deal going through.
Now, suddenly, there's a hitch. As the buyer, you are balking at
something that came up in the inspection. You can bet that the
sellers are going to be eager to smooth over the problem, if
they can. I've seen deals where the price was knocked down
$3,500 to handle a problem with paint, $17,000 for a problem
with a roof, and $35,000 to accommodate a problem with the
structure.
Why would the sellers be so accommodating? It's not that they
want to. It's just that once a problem is revealed, it will have
to be dealt with one way or another, either with you or with
other buyers. It might as well be you, since you're already
involved in the deal.
Further, seller sometimes simply get desperate to sell, Although
they were adamantly against lowering their price or giving you a
better deal during the initial negotiations, now they simply lay
down and roll over. I've seen it happen.
You may negotiate a cash settlement without actually having a
disclosure problem corrected, provided the lender doesn't
object. For example, the seller s may lower the price $5,000
over a leaking roof. However, instead of replacing the roof, you
have it patched for $500 and pocket the difference (at least
until the next rainstorm).
Negotiate During Escrow
Some buyers with a lot of what might be called gall negotiate
right through escrow. As the sellers get more and more used to
the idea of their home being sold, the buyers keep coming up
with new concerns that can be resolved only by further
concessions from the sellers.
I've heard buyers say that they drove by and became aware that
the window trim was damaged. They then wanted several hundred
dollars off the price to have it fixed. If not, they would
simply hold off on buying the home. Yes, these buyers stand a
chance of losing their deposit (and more), but the sellers won't
get it either without going to court. In the meantime, the
sellers' house is tied up. It simply becomes easier for the
sellers to acquiesce than to fight.
In a very slow market, buyers may demand a reduction in price
because of market conditions. They simply tell the sellers that
prices are going down. The house is no longer worth what is was
when the offer was accepted. Either the sellers accommodate with
a lower price or the buyers refuse the deal.
Once again, the sellers have options, none of them particularly
good in a down market. And many will acquiesce to placate an
irritable buyer.
The sellers could refuse a buyer's new terms, then demand the
deposit, or even demand specific performance (the buyer either
goes through with the purchase or, more likely, pays damages).
But few sellers really want to go to court and fewer actually
do. Buyer with gall and the willingness to risk a lot have
pulled off some amazing deals in this fashion.
Negotiate After You Own the Property
It is possible to get a better deal even after the escrow has
closed and you take possession of the property. This frequently
happens when buyers find something amiss, and demand that
sellers make it good.
In one case, the buyers discovered after they moved in that the
sellers had allowed their pets to run wild over much of the
home. A urine smell permeated the wall-to-wall carpeting in
several rooms. The smell had not been detected earlier because
the windows were always open when the buyers inspected the
property. Further, the sellers had failed to disclose this
problem.
It's important to understand that animal urine in carpeting
cannot really be removed. The smell will remain, often
permeating the padding and even the flooring beneath.
The buyers demanded that the sellers replace not just the
carpeting in the rooms with the problem, but also the carpeting
throughout the house, since it was all of a kind. They said it
wouldn't look right to have just a few rooms fixed. After
conferring with their agent, the sellers agreed.
Then the buyers picked out the carpeting, which was valued at
close to $15,000, installed. The sellers balked, but when
confronted with the cost and possible outcome if the matter went
to litigation, they sent the buyers a check for that amount.
As long as there are problems, you can negotiate with the
sellers. In some cases, even if the problem is something you
imagine, you can still negotiate and win concessions simply
because the sellers don't want to bother with the nuisance.
Remember, to paraphrase Yogi Berra, the deal isn't over until
it's over.
Don't pressure sellers too far. If you insist on unreasonable
demands, they may simply refuse and buckle down, ready to fight
you legally. That could mean you'd lose the house and have legal
problems to boot.