A flexible buyer or seller makes for a dangerous negotiator. The more ammo you have, the more levers you can pull, the more tools in your belt creates opportunity to be creative.
In baseball, a pitcher doesn’t always have his best stuff from game-to-game. Some games he must find a way to get hitters out through more creative means – altering his timing to the plate, changing pitch selection, adding or subtracting velocity on his pitches. The same concept can be applied to negotiations when talks hit a snag.
Not all negotiations share leverage equally across the table. One side usually has the upper hand in one way or another. It may be slight, but sometimes it can be significant. Additionally, you can only control one side of the table. You may find yourself dealing with an unreasonable, or worse, an unethical negotiator. Either way, you must do your best to get to a “yes”.
So how do you navigate your way to an agreement in a negotiation where leverage is unequal? One way is by getting creative – adding or subtracting from you pitch.
As a baseball agent, I have been part of deals where the negotiation stalled so close to an agreement that it would have been a shame if a deal wasn’t reached. Both sides fearing the disappointment of making a bad deal, yet walking away would have been even more tragic.
Have you even watched as a hitter relentlessly foul off pitch after pitch in an at-bat?
That’s exactly where we are in the negotiation… it’s time to get creative.
Recently, free agent’s Manny Machado and Bryce Harper drew out their negotiations with Major League clubs through the entire offseason and into spring training. They both hit multiple snags in negotiations with multiple teams throughout the offseason. The players were so comparable in terms of the commanding salaries that neither player wanted to sign first, fearing it would result in a lesser deal. Both players knew their impending deals would likely reset the market for what elite hitters would be paid.
Machado signed first, a record-setting contract with the San Diego Padres that paid $30 million per year over 10 years. This was more money annually than any other baseball player in history. Harper signed with the Philadelphia Phillies days later with another record-setting contract that paid $330 million over 13 years. Harper’s contract set the record for the largest total guaranteed contract ever given to a baseball player. Both players achieved their goal of resetting the market for elite hitters by signing record-setting deals in their own respective way.
Where is the creativity you may ask? Well, after Machado’s signing, Harper and his agent likely saw obstacles in acquiring a contract with the remaining interested clubs that would pay more than $30/year over 10 years. They would have to change their motives if they wanted to obtain the record deal they were looking for by asking for less money annually but more money guaranteed over the life of the contract. Neither player can say with certainty that they received a larger deal than the other… it just depends on your perspective.
Just like in baseball contracts, there are a plethora of ways in real estate to creatively avoid a fatal negotiation due to a standstill. Whether you are competing for the best bid or vying for your offer to be accepted on a deal lacking competition, the key is to know what else you can negotiate. And in real estate, everything is negotiable.
Monetary flexibility and waiving a home inspection from your offer are two commonly used tactics to move a negotiation along. You have to ask yourself, where can you give a little to gain a little (or gain a lot)? What can you live without to get the deal done? Here are some creative examples:
As a buyer…
- Place a monetary cap on inspection – Include language in your offer such as “Buyer has the right to void the offer if more than $20,000 worth of material defects are discovered through inspection.” This could give peace of mind to a seller that the buyer isn’t looking to pick apart their home in an inspection.
- Eliminate an inspection item – All homes have items that eventually need to be replaced. If you can identify items that are not currently defective but will likely need replacing at some point in the future, then you can eliminate these items from your inspection as a concession. Some examples include the roof, the furnace, a central A/C unit, or hot-water heater. This is another way to provide comfort to the seller granting an inspection on their property.
- Closing flexibility – You may find a seller who is seeking a quick closing or a closing date that revolves around another event in their life (school schedule, divorce proceedings, etc.). By being flexible with your time, you may be able to create goodwill or even selling preference in the midst of competition. This is precisely why having your financing in order before placing an offer is crucial!
As a seller…
- Deliberately list less important items as “not included” on the listing sheet – Common items include appliances, lightly fixed electronics, and custom fit furniture. This potentially gives you more levers to pull in the negotiation if you find a buyer who values these items more than you do. If negotiations get tight, sometimes throwing in some of these items can inch you closer to a deal.
- Offer a Home Warranty – There may be nothing worse than a buyer who is holding a deal hostage based on the age or uncertainty of a roof or furnace that is fully-functioning. Offering a home warranty will insure these items after the sale of the home. They are not very expensive and can ease the buyers mind if they are worried about these items failing in the short-term.
- Closing flexibility – This works for the seller as well. You won’t always find yourself negotiating with an organized buyer. Whether it be issues with their financing or life events that get in the way of closing on your terms, these are opportunities to get more out of the deal by being flexible with your time. Easier said than done, but having a Plan B or C for how you will physically move to your next home can help a negotiation from falling through in certain cases.
Being prepared with alternatives can dislodge you from negotiation gridlock. Always equip yourself with more ammo, more levers and more tools ahead of buying or selling a home by knowing how to add or subtract from your pitch.
On-deck… Break on through to the other side