Sunday, March 16, 2008

Extreme negotiating tactics on Chicago Homes in today's Chicago Trib

Today's front page Real Estate section in the Chicago Tribune featured an article titled "Buyer Vs. Seller" about the eternal struggle between buyers and sellers during negotiation to buy or sell property.

One small paragraph - easily glossed over - mentioned the universally distasteful strategy of buyers negotiating on several homes at once - pitting sellers against each other. This strategy is particularly hardcore and almost always considered the worst in down and dirty negotiating tactics.

Mind you, negotiating on multiple properties is completely legal and is quite effective. But at the end of the process, there will almost certainly be hard feelings and a trail of brutalized sellers across town.

The point of negotiating on multiple properties at the same time is to extract the best price possible from a seller, and then use that best price to hammer on another seller on a different property to reveal his best price. Or perhaps even more. Frequently, it's possible to get a seller to reveal what he believed was his or her bottom line in short order, and then extract just a little more.

If you're on the receiving end of such tactics, there are a few techniques you can use to minimize your exposure to the tactic, but still have a shot in the negotiations. This post is all about protecting yourself when involved in negotiating with a buyer using this technique.

In our market, it's customary for a buyer to submit an offer on a property either himself or through his Realtor in writing on a standard contract form provided by the local Association of Realtors. But then, as negotiations go back and forth with different prices and terms, frequently the parties convey their counteroffers verbally. Either through their Realtor, or directly, depending on whether the house is listed with a Realtor or For Saly By Owner.

If you discover that a buyer interested in your property is bidding on multiple properties, you should employ a couple of distinct strategies.

First, as long as the potential buyer is still negotiating on other houses at the same time as yours, you cannot reveal what your bottom line price is. It's even better to not reveal a figure even close to your bottom line figure. In this instance, you will only negotiate a token amount off your asking price - even if it's something ridiculous like $500 off. The reasons are two fold: You don't want to provide the ammunition that this buyer is going to use to hammer away at another seller. Although at this point, this doesn't have anything to do with you, it will protect you in the next round of negotiations. When your buyer feels that he has extracted what he feels is the best price possible from the other seller, he'll come back to you to see if you'll beat it. At this time, you'll be able to decide if you care to make a better counteroffer, or if the amount is already too low, tell the buyer "No Thanks." Either way, you or your potential rival won't have given as much away.

Second, always require that your potential buyer submit his counteroffers in writing. This way, your adversary can't take your best number and tell you he's "thinking about it" - which means he's using this new low counteroffer to negotiate against another seller. If, by chance, this buyer submits a counteroffer to you that you find acceptable - in writing - all you have to do is sign it. The worst situation would be to reveal to this adversary that you would agree to his latest price or terms, but not have them in writing. At this point, you can pretty much say goodbye to this buyer as he'll be trying to extract a few hundred bucks more from the other seller in your neighborhood.

Keep in mind that these tactics are extremely advanced. The downside could be severe to the buyer. Most Realtors advise their buyers not to submit multiple bids as the slight possibility exists that they would wind up under contract on multiple properties. Though the likelihood that this might happen diminishes the more ridiculously low the offer price, this simply means that the buyer's Realtor will be wasting his time chasing multiple contracts all over town. You're not likely to encounter these tactics from a buyer working with a Realtor. But you'd be well advised to get the assistance of your Realtor or your lawyer if you're the seller in this situation.