Tips & Traps for Negotiating Real Estate, Third Edition (Tips and Traps) - Softcover

Irwin, Robert

Softcover

ISBN 10: 0071750401 ISBN 13: 9780071750400

Publisher: McGraw-Hill Education, 2010

Synopsis

Fully revised and expanded, the classic guide to negotiating every aspect of any real estate transaction

Real estate guru Bob Irwin breaks down all the common negotiating "tips and traps" when it comes to buying and selling in real estate. Beginning with the golden rule of real estate--everything is negotiable--the all-new third edition of this easy-to-read guide helps homeowners and investors like you maximize profits by avoiding the common pitfalls standing in the way of getting the deal you want. Fully updated for real estate investors in any economic climate, this comprehensive guide delivers useful tools for every step along the way along with rock-solid advice for sellers and buyers on:

• Getting a better price in a down market
• Negotiating a quick sale
• Dealing with reluctant lenders
• Keeping the upper hand when buying a foreclosed property
• Talking a seller into financing your purchase
• And more

Robert Irwin is a real estate broker, investor, and author. He is a regular guest on many radio and television programs as well as the author of more than 35 books on all aspects of real estate, including the McGraw-Hill bestselling Tips & Traps series, which has sold well over a million copies. Irwin lives in Westlake Village, California.

About this title

About the Author

Robert Irwin has built homes from the ground up as well as completed dozens of major renovation and remodeling projects. He is best known as a real estate broker and the author of the best-selling Tips & Traps real estate series. He serves as a consultant to lenders, investors, and brokers. With over 50 books, including Buying a Home on the Internet and The Pocket Guide for Home Buyers, Irwin is recognized as one of the most knowledgeable writers in the real estate field today.

Excerpt. © Reprinted by permission. All rights reserved.

TIPS & TRAPS for NEGOTIATING REAL ESTATE

By ROBERT IRWIN

The McGraw-Hill Companies, Inc.

Copyright ©2011 The McGraw-Hill Companies
All rights reserved.

ISBN: 978-0-07-175040-0

Contents

1. Be a Winning Negotiator
2. Knowledge Gains You the Upper Hand
3. Remember, It's Strictly Business
4. The Rules of Time
5. The Psychology of Negotiating
6. Challenge Their Words
7. Five Basic Tactics Negotiators Use
8. Negotiate the Actual Offer (Including Counteroffers)
9. Get a Better Deal When Buying a Foreclosure
10. Fend Off a Lender That Wants to Foreclose
11. Sell Your Home When You Owe More than It's Worth (Short Sale)
12. Successfully Buy a Short Sale
13. Win a Bidding War
14. Negotiate a Lower Commission Rate When You Sell
15. Argue for a Better Appraisal
16. Negotiate Personal Property
17. Pressure a Builder over Price and Upgrades
18. Gain an Advantage from the Inspection Report
19. Deal Points When Buying Investment Property
Glossary: The Language of Real Estate
Index

Excerpt

CHAPTER 1

Be a Winning Negotiator

I was recently talking with a Realtor® friend of mine about a listing shewas trying to sell when she said, "Those darn buyers—I know they want theproperty, but they refuse to negotiate!"

"Refuse, how?" I asked.

"They offered low and they won't come up a dime on the price. They, in effect,are telling my sellers, take our lowball offer or forget the deal!"

"Hmm," I observed. "Sounds like they're negotiating very well."

She looked at me in puzzlement. "What do you mean? They're going to ruin thedeal."

"Maybe," I said. "And then again, maybe not. When you're in a strong position,as many buyers are in this difficult market, telling the sellers to 'take it orleave it' can be a very effective negotiating tactic for getting a low price.Provided, of course, the buyer is willing to risk losing the deal."

"So," she replied, "It's just a ploy? You think they will pop for a higherprice?"

"Your sellers will never know unless they turn it back on the buyers. They cansimply say, 'No.' Then they'll quickly learn how much the buyers really want theproperty. Either the buyers will leave, or they'll come back with a higheroffer."

"That's gutsy," my friend said. "The trouble is, it's the first offer thesellers have had in months and they're desperate to sell. They don't want tolose the deal."

"Then they've already lost the negotiations," I replied. "If they're unwillingto risk the deal to get a better price, they've already capitulated to thebuyer's lowball offer. Might as well just sign the papers and be done with it."

She nodded and said, "I'll put it in that light to the sellers. See what theyhave to say."

I later learned that the sellers did turn down the lowball offer and the buyershad indeed come up on the price. The deal was made.

Of course, that doesn't mean that this "tough" approach will work all thetime—or even most of the time—but it is a good model for one type ofnegotiating strategy.

You Can Negotiate Anything

If there's nothing else you take away from this book, I hope it's the knowledgethat anything can be negotiated. That doesn't mean you'll always be successfulin getting all that you want. You may be outclassed by the negotiator for theother side or defeated by the circumstances of the deal. But if you know andabide by the basic rules of negotiating (and we'll see them all), you should beable to hold your own with the best of them. You'll learn to do just that fromthis book.

When There's Apparently No Negotiating Room

A buyer I was talking with not long ago had a different problem. He wanted tobuy an REO (real estate owned, a property owned by a bank) that the bank hadtaken back through foreclosure. He had offered less than the bank/owner wasasking and was turned down.

He said, "I really want the house. But I can't afford the price the lender isasking and still have enough money to fix up the property—it's in terribleshape. And I was told the bank won't negotiate. So I guess there's just no wayto make the deal."

"Who told you the bank won't negotiate?" I asked.

"The real estate agent representing the lender," he replied. "She said the bankwouldn't drop below the asking price no matter what because of the amount theyhave into the property."

"Have you tried offering full price," I suggested, "and asking for money backfor fix-up work?"

He looked bewildered, so I explained. "It sounds like you don't mind the priceso much. You just can't pay it and have funds left to do the fix-up work. Sohave the bank pay for fixing it up.

"You can ask to have a certain amount of money held in escrow to be paid back toyou once you've completed the work. The bank gets full price, so the deal looksgood on its books. And you get the money to fix it up."

"Will that work?" he asked.

"You won't know until you try," I replied.

He did. And it did.

Everything Else Is Negotiable, Too!

Get the idea? Everything in real estate is negotiable. Sometimes you just haveto think outside the box to see how. Here are just a few of the things that youcan negotiate in real estate:

* The price paid.

* The terms everyone agrees to.

* Whether personal property is included, such as chandeliers and/or therefrigerator.

* Time when things will happen, for example, when the seller will move out orhow long the buyer has to get financing or an inspection.

* Who pays the closing costs. (Does the seller pay for the buyer or is it goingto be the other way round?)

* The seller's willingness to carry back a mortgage (to help the buyer withfinancing).

* The interest rate a lender will charge (to get a lower monthly payment).

* The escrow and title insurance rate charged (in some states).

* The size of the agent's commission paid (fully negotiable in every state).

* And a whole lot more ...

It all comes down to how hard you negotiate.

Is It Hard to Learn to Be a Good Negotiator?

You may be saying, "I'm not a negotiator. I don't know how!"

Actually, you can't be alive and not be a negotiator. All of us negotiate allsorts of things all the time. We learn as children to negotiate with our parentsover TV time, when we'll go to sleep, what we'll have for breakfast, whether wecan skip school—and a hundred other things.

Husbands and wives negotiate over sex, what to spend their money on, when andwhere to buy a house and how much to pay for it, where to go on vacation, whoserelatives to visit—and many, many more things.

So does everyone else. We all negotiate all the time. It just comes with livingwith and among other people.

Many of us, however, freeze up when it comes time to negotiate in a formalsetting, such as buying a house, getting a mortgage, paying an agent acommission, and so on. We somehow think we are unqualified to handle such bignegotiations. Sometimes we delegate negotiations to another person such as anagent or an attorney. Sometimes we don't negotiate at all; we just pay what theother party is asking. In essence, sometimes we just give up.

Not handling negotiations yourself is really a shame, because chances are you'llnever get what you really want unless you yourself negotiate hard for it. You'llhave to be satisfied with less, eternally kicking yourself in the you-know-wherefor being such a wuss.

What's important to understand here is that you, Mr., Mrs. or Ms. Negotiator,can get what you want even in the most formal of settings with contracts flyingback and forth and attorneys and agents whispering in your ear. You can learnthe techniques that will empower you and bring to the fore those native skillsthat everyone possesses. It is possible to learn to negotiatesuccessfully. And in so doing, you'll gain the confidence to do it to youradvantage.

Is It Really Worth the Effort to Negotiate in Real Estate?

How can anyone really ask? Is it worth getting a home for tens of thousandsless—or getting tens of thousands more, if you're the seller?

Is it worth getting a mortgage at 4 percent interest instead of 5? That can meana difference of hundreds of dollars a month on the payments.

Is it worth getting a lender to agree to a short sale so you don't lose all yourcredit?

Is it worth saving your money on closing costs?

It is worth paying a 4 percent commission instead of 6 percent? That alone canmean saving thousands of dollars.

Yes. Negotiating in real estate is definitely worthwhile. If you don't believethat and don't negotiate strongly, you are selling yourself short, leaving moneyon the table, taking less than your fair share.

Negotiate. Negotiate. Negotiate!

CHAPTER 2

Knowledge Gains You the Upper Hand

It wasn't that many years ago that when homes were sold, the operating principlewas caveat emptor, an expression taken from ancient Roman bazaars that means,"Let the buyer beware." It suggests that the buyer has no recourse against aseller if she later discovers that there are serious defects in the property,even when it dramatically reduces the property's value. The sole exception waswhen the seller actively concealed defects so there was no way the buyer couldhave discovered them. That, of course, was fraud.

In the past, however, even the threat of a fraud charge didn't stop many realestate sellers from unscrupulous acts. They risked dire consequences by doing"minor" cover-ups of defects. For example, they would caulk foundation cracks tomake them seem shallower and less serious. Or they would paint over water stainsthat would have revealed roof leaks. Or they would temporarily plug leakingpipes to suggest the home's plumbing was fine. Or they would disconnect a lightswitch to make it seem that it alone was broken, when the home's entirecircuitry might be defective—and dangerous. And so on.

For years, until about the middle of the last century, a cat-and-mouse game wasplayed between sellers who tried to hide their property's defects and buyers whohad to guess at what might actually be wrong. In effect, it was a game of whohad the knowledge. Whoever did was in a position of power. The one lacking theknowledge was going to lose.

Who Has the Knowledge?

That all changed when disgruntled buyers discovered they often had littlerecourse against sellers for hidden defects. Sometimes enraged because they had,in effect, been cheated, they looked for another culprit and sued the realestate agent, claiming that he should have known about the problem and informedthem.

Agents fell back upon the often-true fact that, in many cases, they had beenduped as well. However, even if they prevailed (and many times they didn'tbecause they were professionals and were supposed to know such things), theystill had the ramifications of having someone denounce their professionalism,not to mention sometimes the costs of mounting a defense.

As noted, of course, it was all a matter of knowledge. If the sellers hadknowledge of a defect and successfully concealed it, they might negotiate ahigher price. If the buyers (and their agents) learned of the defect before thesale, they had the leverage to negotiate a lower price.

So, pushed by agents, the rules of the game were changed. Starting in the 1960sand continuing today, in most states, caveat emptor was dismissed as a guidingprinciple, and in its place came two new principles: the first, "impliedwarranty of fitness," applies to brand-new homes. If there is a defect in a newhome, in many cases, it's up to the builder to fix it, even if the buyerdiscovers it long after the purchase.

For existing homes (resales), the principle has been changed to caveat venditor,or let the seller beware. Sellers are now responsible for making clear to buyersany defects that exist that might affect the value of the property. If they failto do this, the buyer might successfully demand the sellers fix it even afterthe sale, claim damages, or even get rescission (forcing the seller to take backthe home).

As a result, sellers in almost all states now regularly fill out disclosures, ahome assessment listing any defects they know about in the property, and presentit to buyers. In most areas, real estate agents do likewise. And sellers arecautioned not to cover up any cracks or paint over any revealing water stains ordo any temporary fixes to the plumbing, electrical, heating or other systemsthat would conceal problems. And so on.

Further, agents and sellers encourage buyers in almost all transactions toconduct their own professional home inspection. And most buyers do that. Theyhire a professional home inspector to go through the property looking fordefects that could affect the price. (For more on professional home inspections,see Chapter 18.)

All of this is done for one reason and one reason only, to gain knowledge aboutthe property being sold. Once you have the knowledge, you can negotiate from aposition of power.

Knowledge Is Power

What can a buyer now do with knowledge of a defect in a piece ofproperty?

We saw what sellers could do, if they chose to be unscrupulous. They could coverup the defect to get a higher price. But what about buyers?

Today, when you as a buyer make an offer on a home, chances are you will not yethave seen the seller's and the agent's disclosures about the property.(Sometimes, savvy agents will have these filled out in advance and present themto buyers at the time an offer is made—buyers still usually have severaldays to approve them.) You most likely won't have seen a professional inspectionreport, which is typically ordered after a deal has gone to contract.

Therefore, at the time you make your offer to purchase, your knowledge of thehouse is limited, as is your negotiating power. You make the assumption that itis in pristine condition, except for any obvious defects (such as if a window isbroken, a fire has gutted the kitchen, the pool has a big crack, and so on thateveryone can easily see) that might be noted in the purchase agreement. Youroffer, in fact, usually presumes no hidden defects.

In other words, if the seller accepts, you have a deal based on a lack ofknowledge about any defects.

Now you, the buyer, get the seller's disclosures. They reveal that there was aroof leak, now patched. You pay for a professional inspection report thatreveals that the water from the roof leak ran down a wall and caused black moldin the crawl space under the house.

The situation has changed. From a weak position of ignorance, you aretransformed into a strong position of power, by knowledge. You now know thatbecause of the defects (roof leak and black mold), the house is not worth whatthe seller and you agreed upon. It's worth something less.

After all, patching a roof leak, which may have cost a few hundred dollars, maynot cure the problem—perhaps only a new roof can, which can cost tens ofthousands of dollars. And removing black mold and replacing water-damagedboards, drywall, insulation, and so forth can cost tens of thousands of dollarsmore.

Armed with this new knowledge, you go back to the sellers and say that you'renot approving the inspection report. Indeed, before you go through with thepurchase, you want a $50,000 price reduction because of the home's defects.Further, you tell the sellers that you're aware that they must show yourinspection report to any subsequent buyers, lest they be accused of concealing adefect, so simply refusing to sell to you and hoping the next buyer to comealong won't discover the problem won't change their situation. (Some sellersactually hide previous inspection reports, to their own peril.)

What can the poor sellers do? If they want to sell, they will be forced toreduce their price, right?

Your acquisition of knowledge weakened their position. However, to gainbargaining advantage, the sellers may increase their knowledge base. They cannow call in a roofer and come up with an actual price of $12,000 to replace theroof. And they can bring in a mold mitigation company that tells them it can fixthe black mold for $15,000. Their new knowledge lets them know that a $50,000price reduction is uncalled for. The problem can actually be solved with a pricereduction of $27,000, at which amount they counter.

This thrills you, the buyer, because you know you can live with the roof patch.And this means that even after the black mold is removed, you can pocket anextra $12,000!

The deal is finally done. A final price is determined by negotiation aftereveryone is fully informed of the defects and what it will take to fixthem—and what the buyer and seller could live with.

Knowledge is king.

Knowledge Affects Negotiations in Every Aspect of a Real EstateTransaction

It's not just defects. Knowledge affects the negotiating power (who has it, whodoesn't) in every aspect of every real estate transaction. Here are some otherexamples:

Buyer's/Seller's Motivation

Why are you selling? Why are you buying?

It makes a big difference. It makes an even bigger difference who knows why andwho doesn't.

For example, you're selling your home because you've just landed a job athousand miles away after being out of work for a year. You have to be on thatnew job in two weeks. That's how long you have to sell your home.

You know you're desperate to get out and that you'll take the first offer thatcomes along, even if it's a lowball. But buyers don't know that.

It just so happens that a buyer is in the woods. An offer comes in. It's not allyou're asking for, but it's close. It's got some conditions you don't like, suchas the buyer asking you to leave your refrigerator behind as well as your babygrand piano in the living room. But you need to go, so you immediately agree.You don't try to negotiate any changes. You accede to every condition the buyerhas. You feel you really don't have any choice.

Now, the buyer becomes suspicious. She notes that you seem very anxious to sell.You agreed to her price without an argument. You agreed to give up therefrigerator, something she was planning to pay an extra $500 for, if only you'dasked. You even agreed to give up your baby grand piano, something she was fullyprepared to take off the table and only submitted as a bargaining chip.Something's not right here. Something's going on that the buyer doesn't knowabout, but she wants to find out. She wants to learn more. She wants to increaseher knowledge

The buyer goes down to the property and begins talking to a neighbor. She saysshe's buying the for-sale house next door and is curious about the seller'smotivation for selling. The neighbor spills the beans about how desperate youare to get out, your motivation for selling. Knowledge changes hands.

Now the buyer knows you're desperate. She happens to be unscrupulous. So shedisapproves of your disclosures, even though you didn't disclose anythingparticularly onerous. And she disapproves of the inspection report, even thoughit only found a couple of broken wall sockets. She does what it takes to get outof the deal.

Then she makes a counteroffer to you of $60,000 less. Yes, she'll go throughwith the transaction, but for less money than she originally offered, take it orleave it.

Because the buyer now has the knowledge that you, the seller, must take anyquick offer, she puts on the pressure. And what can you do? She now knows you'reover a barrel. She is negotiating from a position of power. You are forced toaccept.

Knowledge makes the difference.

(Continues...)

(Continues...)

Excerpted from TIPS & TRAPS for NEGOTIATING REAL ESTATE by ROBERT IRWIN. Copyright © 2011 by The McGraw-Hill Companies. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Edition details

• Publisher: McGraw-Hill Education
• Publication date: 2010
• Language: English
• ISBN 10: 0071750401
• ISBN 13: 9780071750400
• Binding: Paperback
• Edition number: 3
• Number of pages: 256