Real Estate Negotiation - The Art Of The Compromise

Real estate negotiation is a book-length subject, and one of those reasons why it can sometimes be a mistake to sell your property on your own. A good real estate agent, after all, should have some good negotiating skills learned from experience. However, there are some things you can learn a piece at a time, and this is one of them.

Of all the techniques of real estate negotiation, and of negotiation in general, the compromise is one of the most common. In fact, it is so much a normal part of negotiation, that people often forget that it is a "technique." Both sides expect to have to compromise on many points, and it is the easiest way to settle a difference. How you arrive at that compromise, though, is crucial.

Negotiating A Compromise

It is common for someone to say something like, "Look, we're only $6000 apart now. You want to $204,000, and I want $210,000. Why not split the difference and make it $207,000?" This idea of "splitting the difference" has become a cultural norm. Even if it isn't agreed to, it seems reasonable and non-offensive to suggest it.

The question however, for the smart negotiator, is how this "difference" is arrived at. Where did negotiations begin, and how did they proceed? Did you start at $230,000, and the other side $200,000? Did you give a little or a lot at each step? What about the other side?

Using the example above, suppose you had only dropped your price to $216,000, instead of $210,000. The difference between that and the $204,000 on the other side would be $12,000.  In this case, "splitting the difference," would mean a price of $210,000. You can see that it's important what you do before the compromise.

Obviously, extreme initial positions can help here - if you don't just chase the other side away. Buyers use this technique all the time, and it works. An investor doesn't expect to get a property for 20% less than the asking price, but offering that plants a seed of doubt in the sellers mind as to the value, and it lowers his expectations. He might be happy with a compromise that gets him 10% less than the asking price - even if he would have rejected it out of hand as a first offer.

Moving in smaller increments helps you win a better compromise. For example, as a seller, you can let the buyer come up $2,000 at a time from his first offer, while you drop your price by only $500 with each counter offer. At some point a compromise will be suggested, and it will be at a higher level thanks to your strategic moves.

Being too obvious in using a real estate negotiation technique like this can scare the other side away, though. To make it more subtle, you may want to also negotiate for other points that are of little concern to you. This gives you something to "throw back in the pot" when it's time for a compromise.

For example, if a buyer expressed some interest in having the washer and dryer stay with a house you are selling, you can dismiss the idea - even if you have no use for them. This gives you something for later. When the buyer hesitates over a proposed compromise, you can say, "Look, why don't you take the washer and dryer too, and we can sign this right now."

Certainly you should learn at least several real estate negotiation techniques if you are investing in real estate or selling your own home. Learning the art of the compromise is a good start.