February 5, 2018
Laura Thibeault, Your Peninsula REALTOR®
I read an article recently in Business Negotiations by Katie Shonk about four major challenges that come up again and again in negotiations between buyers and sellers. I think she's absolutely right about all four; I see it in my real estate practice all the time. As Katie says, "By bing more mindful of these traps, we can learn to avoid them and get better deals." I've paraphrased her full article below. You can read more of her work at Harvard Law School's Program On Negotiation Daily Blog at https://www.pon.harvard.edu
Pitfall #1: Overvaluing Your Possessions
Why is it some homes are plucked off the real estate listings within mere days while others sit for months or even years? Location, condition and curb appeal have something to do with it, but there's another factor -- one that sellers can avoid -- which is the tendency to overvalue one's property. Some sellers ignore the best advice of their real estate agent's carefully determined valuations and ask for much more than they should.
There's a name for this pitfall -- it's called the Endowment Effect. Basically we all overvalue just about anything we own, no matter how trivial, simply because we own it. If we were looking at buying a similiar article from someone else, we would have no interest in paying as much as we are asking. Think about the ads you see on Craig's List for old furniture with high price tags that you think should likely be given away or taken to the dump. See what I mean?
Sometimes the best thing to do, if you don't believe your real estate agent and/or a buyer, is have an appraisal done by an objective third party.
Pitfall #2: Focusing Too Much on Price
What's your most important goal when making a sale? If you're like most of us, getting the best price possible is foremost in your mind. It's normal for sellers and buyers to place a high premium on meeting their target price in a negotiation.
Sometimes that focus becomes so competitive and focussed that the end goal of actually making the sale or purchase gets lost in only looking at the price. Perhaps there are other sources of synergy that could enhance the agreement (and the bottom line) such as possession dates, inclusions of fixtures, etc. When you find buyers or sellers are obsessing strictly about price, try brainstorming ideas for adding more value to the deal on both sides.
Pitfall #3: Compromising Your Ethics
Whatever it is that you are selling, you know far more about that item than potential buyers do. Because of what Katie refers to as this information asymetry you need to be careful not to take advantage of the buyer because of this when negotiating. Anything that should be disclosed must be disclosed. Do not compromise your ethics. It's extremely tempting to "not mention" the leaky roof in the middle of a hot dry summer, and tell yourself that it's "buyer beware". If you are found to have been dishonest, you can pay a whole lot more down the road in legal suits and damage to your reputation than you gained in price.
Pitfall #4: Making Unappealing Offers
Many buyers pride themselves on making "lowball" offers just to show their negotiation skills. Unfortunately, that often insults the sellers, they become intransigent and negotiations go downhill fast from there.
It's difficult in some cases to provide a reasonable offer that doesn't look like a "lowball" if the seller's price is too high. (See Pitfall #1!) But in those cases, provide carefully thought out comparable sales examples and then present your offer in the best light. Try framing your offer as a gain over the status quo by showing that your offer is at least better than the one received down the street for a comparable property. Or mention the provisions you've included that don't address price directly but enhance the agreement in other ways that can effect the bottom line (See Pitall #2!)
Awareness of common sales negotiation pitfalls is the first step in overcoming them. It takes practice and effort but we can all get better results by removing the negative effects of the pitfalls mentioned above.