Tuesday, February 24, 2015

Best Practices for Negotiation

by Osman Parvez
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After yesterday's post on bad faith negotiation, here's one to point you in a better direction. Remember that sophisticated negotiations are not a yelling match, they're a chess game. 

Best Negotiation Practices for Listing Agents

Step 1: Analysis. This includes a deep review of the most recent and relevant comparable sales. It's not complete without an analysis of appreciation trends for specific property type, price range, and location. There is no short-cut, it requires analytic skills and market knowledge. 

Step 2: Strategy selection. Lay out recommended strategic options for the seller and the most likely results of each approach. There are risks and rewards to several common techniques.  

Step 3: Professional marketing. A sophisticated approach is to target all potential buyers; the internal sphere and external buyers. Professional photography, a well advertised open house, a private and public marketing period are essential components. Agents should personally invite high volume brokers and their clients to see the property. Make sure the property is listed on as available on the MLS for a reasonable period of time.  

Step 4: Communicate key information to interested parties about incoming offers. Provide supporting information (evidence) of the caliber of competitive offers. This dramatically increases buyer confidence and drives the purchase price upward while simultaneously reducing buyer contingencies and increasing the probability of a successful closing. Anything less is short-changing the seller and leaving money on the table.    

The use of selective transparency to increase trust is one essential component of Negotiauctions. Virtually every sophisticated high-end asset transaction is a negotiauction. Shut-down moves, which limits same side competitors to 3-5 parties, is another essential component. There is no benefit to more than 5 offers; it's a smoke screen. 

Step 5: If bidding is particularly active, we strongly advise our sellers to allow us to negotiate a gazumping provision into the contract. This levels the playing field. Otherwise, once sellers have signed the deal, they lose virtually all leverage over the process. If the buyer flakes, the seller eats the cost in the form of lost time on market and a tainted listing.

Step 6: Don't forget the 80/20 rule. A minority of agents in Boulder do the vast majority of transactions. We find ourselves negotiating with the same counter-parties again and again. That's why we provide all bidders with key information, including the high water mark.   This cements our reputation as a negotiator with integrity, not a self interested used car salesman. 

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Note: We had a detailed discussion of buying and selling best practices at the last Boulder Real Estate Meetup. Missed it? Don't miss the next one. Learn more and RSVP.


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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

image credit:  Elias Levy

3 comments:

  1. Solid tips here, especially on the 80/20 rule. It's so important to keep in mind when negotiating. Thanks for sharing!

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  2. Can you explain how the gazumption clause works, and whether it would require an attorney to review. Adding extra costs to a transaction could be more trouble than its worth.

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  3. Gazumption is not typical in real estate in the United States. You can read about it here: http://en.wikipedia.org/wiki/Gazumping

    Yes, I would strongly recommend an attorney draft the clause in the additional provisions. Just remember that you bring it to the attorney after you discuss the key elements with your Realtor.

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