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Real Estate is one of the few places (along with the automobile business) in American life where some form of negotiation is the rule rather than the exception. Just because it is the norm, however, does not mean that most people are proficient at it. Sure,many folks feel that they are the best negotiators in the world, but in reality, it is a learned art. It takes a keen understanding of the process in order to be a good negotiator.
When it comes to Real Estate matters, the 3 most important aspects of an effective negotiation are:
1) Information
2) Preparation
3) Realism
Recognizing that being a good negotiator does not come naturally to most people--it must be worked at--is the first step in becoming one.
CMA's--Comparable Market Analyses
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. 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.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. A CMA will show exactly what properties similar to the one in which you have an interest have sold for.
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. If you are interested in a 4 bedroom, 2 1/2 bath, 2 story, a CMA that lists only 3 bedroom, 1 bath homes is of little or no value. Likewise, a CMA that includes a number of properties from a neighborhood 2 miles away will have limited value. To have a good CMA you must have all of the similar sales in the neighborhood in the last year.
Note: If you are dealing with the Selling Agent instead of a Buyer's Agent, you may not have access to a CMA. This is one of the many reasons that it is vitally important to consider Buyer's Representation.
Once you have the information in hand, it is important to drive by all of the properties that are listed in the SOLD column. Why? Because condition has so much to do with the ultimate selling price of a house. Does the home in which you are interested shine above or fall below the others that have sold. Size, number of rooms, and lot size can only tell you so much.Once you have seen various properties, make a realistic comparison between the condition of your chosen house and those that have recently sold.
Does the house you have chosen have more or less amenities than the comparable homes? Although amenities will not affect the value as much as location or condition will, they still can be a factor. For example, an indoor hot tub may be on your list of priorities; however, it will not necessarily raise the value of the property.
Obviously, one of the most important pieces of information you can have is the seller's reason for selling. Is it a case of having to sell or wanting to sell? Or, is it a case of "lets throw it on the market at a goofy price, and if somebody bites, we'll move?" An effective negotiator will gather as much information as is available on the house and the sellers. If your Agent represents you in the transaction as a Buyer's Agent, they may or may not be able to secure this information for you (it depends on what the seller and the Seller's Agent want to reveal). If you are working with an Agent that represents the seller in the transaction, they cannot disclose this information without the seller's consent. Even if this information cannot be revealed to you, a friendly discussion with one of the neighbors may give you a feel for the situation.
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-- it is normal--but you must keep your excitement in check or you will lose the value of all the information you have gathered. 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.
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 you have no dangling financial problems and you have been pre-qualified for a mortgage.
If the price is not to your liking (or worse, above your budget), you need to be able to walk away. It is important for you to set a realistic limit and then stick to it. Overpaying for a house is epidemic among buyers who let their emotions rule their better judgment. It becomes very easy to regret paying too much for a house when you make a mortgage payment every month. Unlike a product that you overpay for once when you buy it, a house reminds you every 30 days that you made a mistake! Don' be afraid to let a specific house go by if everything is not realistic for your needs.
Finally, plan your work and work your plan. Organize your information and have it quickly available. When it comes time to make an offer, you don't want your research to come to naught.
Don't throw away all of 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. An unrealistic offer on a house that meets your needs and is priced correctly could end up going to someone else if you are not realistic with your offer.
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