Understand the Art of Negotiation BEFORE You Make the Offer!

An unrealistic offer on a house that meets your needs and is priced correctly could end up costing more than it would with a realistic offer.

When it comes to Real Estate matters, the 3 most important aspects of an effective negotiation are:

1. Information
2. Preparation
3. Realism

• Information 

Once you have found a home that you are prepared to buy, the first step in your process of negotiation is to determine the fair value for the home. Your Agent can be of great help here, since Real Estate Agents have access to the information that you need: Comparable Market Analyses (CMAs). A CMA will show exactly what properties similar to the one in which you have an interest have sold for. These analyses are based on fact, rather than opinion, and that information will always be of more value to you. Generally, CMAs will list houses in a particular location that are currently on the market, have sales pending on them, have expired from the market, and have sold. Be forewarned: it is primarily the SOLD properties that you need to be concerned with. What houses are on the market for is not always a good indication of what their value is, those that have pending sales will only tell you what the listing price is (not what it is going to sell for) and those that have expired because they haven't sold may indicate that they didn't move because they were overpriced.

The CMA which you obtain will most likely give you some general information about the houses that will be compared: Number of bedrooms and baths, square footage, the listing price and the sold price. It is important that the CMA focuses on houses similar to the one you have selected.

•  Preparation

Just having the right information is not enough. You must prepare yourself in order to use it effectively. The most important factor in your preparation is your emotional frame of mind. Buying a house is emotionally charged enough, without adding more fuel to the fire by letting your emotions override your common sense. It is not unusual to be excited--in fact, it is normal--but you must keep your excitement in check or you will lose the value of all the information you have gathered.

In addition to your emotional frame of mind, your financial frame of mind should be in order. An offer to purchase will carry a lot more weight if there are no dangling financial problems and if you have been pre-qualified for a mortgage.

• Realism

Don't throw away all the information gathering and preparation you have done by making a ridiculous offer on a well priced home. Nothing will turn a seller off more than a low ball offer on a house that has been realistically priced. Often, negotiations will stop, rarely to be revived again. If they are re-opened, the sellers generally will show their displeasure at the initial low offer by locking at or near the listing price.