Successful Contract Negotiations
By Joe Gladden, Captain, USN (retired)

In numerous articles we have discussed the preparations involved in buying or selling a home to include: staging, pricing, and marketing for sellers, and financial planning, selecting lenders and loan products for buyers. Of course understanding the market conditions of the overall economy, government regulations, and interest rates, and the time element, such as when you must report to the new duty station or school dates for the kids, is important to both buyer and seller.

All of preparation leads to the final effort of negotiating the contract, which deserves as much thought and preparation as all preceding efforts.

This article will address general rules and observations of the negotiation process and the “Do’s and Don’ts” of a successful contract negotiation.

There are several key elements to a home sale contract offer that may be subject to negotiations, such as: Price, Occupancy and Settlement Date, and Contingencies (financing / home inspection / appraisal / termite / home sale contingency / other)

While the biggest flash point tends to be price, in many cases, the other factors may be far more important and both parties are well advised to clearly define their priorities and make sure their Realtor is aware of them. In fact, the strongest contract may very well be one in which price comes in second or third in priority for a buyer or seller. For instance, if either must pay storage and / or temporary living expenses due to “double move” caused by an unfavorable settlement / occupancy date, the price advantage may evaporate quickly. Or a seller may initially be ecstatic negotiating a great contract price only to find out that the house didn’t appraise resulting in reopening the negotiations.

Here are general rules for buyers and sellers to follow:

Just like you, the other party will always try to optimize their outcome.

Don’t take any offer / counter-offer or any aspect of the negotiations personally.

Emotions can hinder or completely doom contraction negotiations.

Try to understand what their goals are trying to accomplish.

Seeking Win / Wins provide a basis for a successful outcome for both parties.

Prior to beginning the negotiation, consider the three following outcomes:
Your ideal outcome
An acceptable outcome
Walk away thresholds or show stoppers

Then acknowledge that these may shift with time

Good intelligence wins wars and negotiations. Knowing as much about the other side’s circumstances is critical to optimizing your outcome. This is primarily a Realtor® function and good Realtors® listen carefully for clues about the other side’s motivation and needs.

Much like knowing the battlefield, knowing the market well is the most valuable piece of intelligence to a negotiation.

Low Ball offers and counter-offers are usually ineffective.

Avoid using the phrase “final offer” unless you are truly at your “walk away threshold.”

Low offers and counter-offers that will still elicit a counter-offer from the other side are generally the most effective and can be constructed with a good knowledge of the “battlefield” / market.

Multiple counter-offers are generally not effective. Any negotiations beyond the original offer, follow up counter-offer, and one additional counter-offer, dramatically reduce the chance of success.

Pricing a home well above market value will dramatically reduce the likelihood of an offer, and dramatically increase the odds that any offer will be a low ball. Keep in mind that the lender’s appraiser will weigh in on the final sales price. Virtually every contract will have an appraisal contingency that requires the home appraise at or above the contract sales price. If it doesn’t then the negotiations will reopen and almost always force the seller to reduce to the price to the appraised price.

Successful counter-offers typically give up something. For instance, a seller can meet the buyer’s settlement date if the buyer can meet the seller’s price half way.

We hope this helps. Please contact me if you have questions.

Joe Gladden