There’s no denying that the supply and demand pendulum is swinging in the direction of homebuyers in the Las Cruces area. While sellers whose homes are “best for the price” continue to enjoy strong demand, sellers at the other end of the spectrum are now finding it necessary to improve their offers. Price reductions, closing cost incentives and repair allowances are all on the table. Just like the art of negotiation. The story you are about to read took place in this space a little over a year ago. Given the significant changes happening in our market, I thought it would be a good time to give it another shot.
An agent I worked with years ago got a call from a frantic homeowner who needed to sell his house – now! He had purchased a newly built home in Arkansas, but would lose it to another buyer unless he was able to produce a bona fide purchase agreement for his Las Cruces home within fourteen days. To add some perspective to the story, the time it took to sell a similar house in his neighborhood at that time was in the order of 150 days.
Once the agent understood what the seller wanted to accomplish, she came up with a plan to help him get the job done. His idea was to identify the highest possible price at which buyers would be willing to compete for the property. After that, an aggressive marketing plan was used to alert estate agents and the public to the terrific purchase that was literally around the corner. Long story short, the plan worked and the seller received three offers within 72 hours of listing the property.
Two of the buyers included information about their loan qualifications and ability to perform in their bids. The third offer was from a buyer who “really wanted the house because he had relatives living down the street” but had not yet applied for a mortgage. Moreover, his offer was well below the asking price and backed up by a very small earnest money deposit. We in the biz call this a weak bid. After eliminating buyer number three, mainly due to a lack of qualifications and commitment, the seller negotiated with the two remaining buyers and finally reached an agreement with the one whose combination of price and conditions met the better to his needs.
After the negotiations were over and the news of the outcome spread to the three buyers’ agents, the seller’s broker asked agent number three why his buyer’s offer was so low. After all, there were two competing offers and the buyer really wanted to live on this street. The agent’s response: “My job is to get him a good deal.”
What buyer’s agent number three didn’t realize was that without a clear understanding of the seller’s needs, there was little chance that their buyer could win. In this scenario, the seller desperately needed a qualified buyer in order to secure his new replacement home. While the buyer in question may have been well qualified, he and his agent totally missed the opportunity to incorporate that fact into the offer. In the end, a qualified buyer was clearly more important to the seller than the price he received.
One of the best examples of the importance of understanding the needs of a negotiating partner involves a single fruit – an orange. The juicy fruit was the subject of a Massachusetts Institute of Technology Basic Negotiation course outline involving two picky chefs who worked at the same upscale restaurant. Each prepared a VIP recipe which included a whole orange as one of the ingredients. All was well until the chefs realized there was only one orange left in the fridge.
The two argued vigorously over who would get the fruits. After much haggling, the decision was made to cut the thing in half. What neither leader considered, however, was why the other needed the orange. If they had taken the time to find out about each other’s needs rather than knowing who deserved the orange more, they would have realized that one of them needed the juice of a special sauce that he was preparing, while the other intended to use the zest in a dessert recipe.
Thanks to the leaders’ inability to communicate effectively, neither got what they wanted. The chef who needed the juice only got half of what was called for in the recipe. It was the same for his cohort, who had only half the zest provided for in his recipe.
What some negotiators tend to forget is that there has to be something about the offer that appeals to the other party. One of my favorite observations is that if an agent can figure out how to give each person what they want, they will rush to sign before someone changes their mind. That’s what I call a win-win situation. The opposite of this scenario is win-lose; in which one party imposes its will on the other, without the benefit of any positive for the imposed party.
The bottom line here is that buyers and sellers are each entitled to “good deals,” whatever that means to them. In the book Done Deal: Insights from interviews with the world’s top negotiators, by Michael Benoliel (Platinum Press, 2005), the best negotiators agree on three areas of negotiation:
- Negotiate on both sides of the table. To be a master negotiator, you must come to the table with a clear understanding not only of your objectives, but also of the other party’s interests and goals.
- Develop your strategy. Before entering into any negotiation, be aware of all the possibilities that exist. Look at all the options and determine which are most likely to help you achieve your overall goal.
- Increase your bargaining power. The outcome of any negotiation will not be determined by who has the most total power, but who has the most power specifically relevant to the current negotiation.
Whether you’re buying, selling or cooking, it’s never too late to learn how to trade successfully. Learning to identify what makes the other party happy can make it much easier to achieve what makes you happy.
See you at closing time!
Gary Sandler is a full-time realtor and president of Gary Sandler Inc., real estate agents in Las Cruces. He loves answering questions and can be reached at 575-642-2292 or Gary@GarySandler.com.