How to Negotiate: 7 Real Estate Negotiation Tips

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I love to negotiate! Whether it’s buying furniture off of Craigslist or being part of a multi-billion dollar corporate merger team (I’ve done both), I love the challenge of trying to get a great deal for myself while at the same time making the other person feel like they got a great deal too.

And while you may think that the skills required to negotiate small purchases are much different than the skills required to negotiate the purchase of big-ticket items (like cars, real estate and companies), in reality, the basics are the same.

While you can spend your entire lifetime trying to perfect the art of negotiation, learning a few key negotiation strategies can put you far ahead of most of your competition, and can help navigate those times when you’re up against an unmotivated seller, a savvy buyer or a head-strong contractor.

This article will offer seven powerful negotiating tips that you will likely find very useful while pursuing future real estate deals (or any other deals, for that matter). Here are 7 Essential Real Estate Negotiation Tips:

Tip #1: Let the Other Party Speak First

You’ll often hear people say, “Never make the first offer…let the other party do it.” This is great advice, but do you know why that will help your negotiating position?

There are two reasons:

1. First, it allows you to define a mid-point. Many inexperienced negotiators will find themselves “splitting the difference” in their negotiations; for example, if one inexperienced negotiator starts by asking $200 in the negotiation and another inexperienced negotiator starts by offering $100 in the negotiation, the negotiation result generally will end up somewhere around $150 (the mid-point). This is human nature not to want to give more or less than you’re getting, so people tend to increase or decrease their offers by the same amount as the other party.

But, when the other party states their position first, you have the ability to define the mid-point of the negotiation!

In the example above, if the seller had stated the $200 ask first, the buyer could easily have offered $60, thereby reducing the mid-point of the negotiation (where they expect to end up) down to $130. On the other hand, had the buyer offered $100 to open the negotiation, the seller could have increased his ask to, say, $260, thereby increasing the midpoint to $180. As you can see, the person who states the first position is at a disadvantage to the person who waits, as the person who waits can define the mid-point.

2. Second, it’s quite possible that the other party’s first offer will be better than the first offer you would make. For example, let’s say you want to hire a plumber, and your budget is $500 for a particular project. While you could state upfront that you have $500 to spend on the plumbing work (in the hopes that the plumber doesn’t ask for more than that), what if the plumber was only planning to charge $300? You’ve now told him that you’re willing to pay $500, so he has little reason to quote you anything less than that. By stating your position first, you’ve given away valuable information to the other party (you maximum price), and he will use that information to extract the most money possible from you.

Tip #2: Stop Talking and Start Listening

One of the strongest maneuvers when negotiating is to keep your mouth shut. Unfortunately, it’s also one of the most difficult. People are naturally uncomfortable during a negotiating silence, but this is exactly why you should work to ensure those silent periods occur. If you’re uncomfortable, you can be sure that the person you’re negotiating with is uncomfortable as well. And the common result of this uncomfortable situation is that one party will make a concession to break the awkward silence.

Next time you are negotiating and the person on the other side of the table throws out an offer, make a point to say nothing. Whether it be 10 seconds or 10 minutes, make the other person break the silence. You’ll be surprised to find that he or she will often interpret your silence as anger or disappointment, and will break the silence by revising their offer or offering a concession. Master negotiators will use this tactic to get less experienced negotiators to make successively lower offers without ever having to throw out a counter-offer themselves.

This may be the most basic — but most useful — negotiating tactic you’ll ever employ.

Tip #3: Information is Power

I’d estimate that in 95% of all negotiations between experienced negotiators, the one with the most information (pertaining to the negotiation) will walk away with the better outcome. When negotiating, it’s important to know as much as possible, not just about the object of the negotiation, but also about the party you’re negotiating with and their motives.

Most people tend to assume that negotiation is always about money, but often it is not. Smart negotiators realize that in many cases, it’s more important to solve a problem than to offer the most money.

For example, let’s say two buyers show up at an open house and both want the house. The first buyer assumes that the seller wants the most money possible, and offers full asking price, but needs two months to close in order to get financing in order, get inspections, etc. The second buyer asks the seller why he is selling, and the seller says that he has received a job offer in another state, and needs to move in the next two weeks; the second buyer makes an offer for $10,000 less than asking, but agrees to close in two weeks, and has no financing or inspection contingencies. While the first buyer offered more money, the second buyer likely solved a problem that was more important than the difference in the offers. All because he gathered some information from the seller before making an offer.

Tip #4: Always Get the Last Concession

Part of being a good negotiator is “training” the other party to do what you want, without them even realizing it. Here is one way to do that with someone you will be negotiating with multiple times: Always make sure you ask for and get the last concession in the negotiation (a concession is something the other party gives in a negotiation — a price drop, better terms, etc). By always asking for — and getting — the final concession, the other party will, over time, learn to stop asking for things once he essentially has what he wants/needs from the negotiation.

If the other party realizes that every time he asks for something, he will need to give something, he will naturally shy away from asking for more than what he needs in fear that he will be asked to give up something important in return for additional (non-essential) demands on his part.

For example, when negotiating with a contractor, let’s say that he throws out a final price that you both agree on. Instead of saying, “I agree with that price, we have a deal,” instead try saying, “I agree with that price, if you can start first thing tomorrow morning.”

Maybe he’ll come back with, “I can’t start tomorrow, how about the following day?” Your response could be, “That works, but I’ll need you to finish in three days instead of four.”

As long as he counters your request, continue to ask for additional concessions. Eventually, you will train the other party that by “resisting,” they are encouraging you to ask for more and more; they also learn that by just giving in, they end up giving up less in the end. It should be obvious how this will help in future negotiations with this person.

Tip #5: Implement a Penalty for Asking for Concessions

Have you ever been on the phone with a customer services representative from some company negotiating some point (for example, your on the phone with your cable company trying to get your monthly fee reduced by $20), and find that every time you ask for something, the rep puts you on hold for 10 minutes while they “check to see if they can do that.”

You can bet that it doesn’t really take them 10 minutes to determine whether they can give you $20 off your bill. But, they realize that when you ask for $20 off, then wait for 10 minutes, and then they come back and counter-offer you $5 off your bill, you’re going to be less likely to go another negotiating round (“How about $15 off?) if it means you’ll have to wait another 10 minutes to get the response. What they’ve done is implemented a “penalty” for each time you ask for a concession; while you’re sitting on hold, you’re powerless — you have the option to wait for some unknown amount of time, or hang up and get nothing.

If you want to discourage others from asking for concessions in your negotiations, do the same thing — implement a penalty each time they ask (though don’t let them know you’re doing it on purpose). And the penalty doesn’t need to be same for each “offense.”

Making them wait (like the example above) is a great example of a penalty. Perhaps you say, “I’ll have to think about that, I’ll give you a call tomorrow and we can discuss further.” Or perhaps the penalty is that they have to fill out a bunch of forms to get their desired concession. Or perhaps they’ll have to drive somewhere to pick up that extra thing that they want.

If you make the penalty for asking more cumbersome than what they asked for, it’s quite possible they’ll decide it’s not worth the effort — like having to wait 10 minutes to find out if you can save $10 extra.

Tip #6: Friction is Your Friend

On the surface, a negotiation that ends quickly and smoothly without too much back-and-forth appears to be a good one. But this isn’t necessarily the case.

Can you remember the last time you went into a negotiation, and the other person quickly accepted your offer without too much protest or countering? How did it make you feel? If you’re like most people, you probably felt like you didn’t get as good a deal as you could have. You probably felt that, because the other party didn’t put up too much resistance, they were likely very happy with the deal, and therefore, you got the worse end.

Oftentimes, though, the other party feels the same way! There wasn’t enough friction in the negotiation to make both parties feel like they earned a great deal. And because of this, what you will often find in negotiations that go quickly and smoothly is that one or both parties will want to back out of the deal. So, if you really want to ensure that the other side doesn’t back out after the negotiation is finished, make them work hard to get to a common agreement; this hard work will often translate into feelings of successful outcome for the other side.

This is especially important in Real Estate Investing, when the other party often has several days (if not weeks) to back out of an agreed-upon deal.

Tip #7: Check Your Ego at the Door

Oftentimes, we assume that the other side is looking for something tangible in the outcome of a negotiation: more money, better terms, etc. But, a lot of people who pride themselves on their negotiating skills are more interested in having their ego stroked than they are in any real tangible outcome. While some people are going to be all about getting every extra penny in the deal, there are those who will happily give a discounted price (assuming they are still above their minimum threshold) in return for some solid ego stroking.

In Real Estate negotiation, this might mean telling a contractor how highly recommended he comes; it might mean reminding a potential investor/buyer how good he is at rehabbing on a shoestring budget; or it might mean “confessing” to your wholesaler how much you hate buying from him because he is such a good negotiator. You’d be very surprised how far some sincere flattery will go in getting you a better negotiating outcome. Not only will it encourage the other party to put their defenses down, but they will feel an obligation to “return the favor” in some way — make sure you give them a way to return it right then in terms of a lower price (or whatever else you might want).

Remember the last time you negotiated with someone who was really nice? How about the last time you negotiated with a complete a**hole? Which one did you feel better about “sticking it to them?” And which one were you happy to give a break to?

Photo: Aleutia

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31 Comments

  1. These really could be called the golden rules … this is a great list. I really like them… especially the first 2. Too many people TALK TOO MUCH. They keep selling after something is sold … and unsell it. They don’t listen and miss an opportunity completely and so on.

    The only one I don’t totally agree with is where you always push for the last concession. The thing is, I really like to build relationships and sometimes I think it’s better to work together to find the best resolution and even leave something on the table for the other person. If you’re always squeezing that last bit of juice out of the fruit it doesn’t make the other person feel very good. And I think that is how it could feel if you are trying to “win” by pushing for the final concession. If you’ve ever been squeezed like this you know it doesn’t feel good and next time you will probably go somewhere else or you will pad your proposal … and you probably won’t tell your friends to work with that person…

    I think when you get something that works for you … stop. Maybe it’s not the absolute best deal for that moment but I think for the long term it’s going to be way more beneficial and way more profitable.

  2. Dang it!

    I just gave away a huge clue to those that I may do business with on BP…
    Don’t get any ideas, I’ll be much tougher now!

  3. Many times I cut to the chase to avoid the time it takes to negotiate a deal. I like how you actually talk about building a relationship out of the negotiations, which I have to admit happens more ofter than not.

    Negotiating a deal in the mortgage business these days is tough, especially since most borrowers want to negotiate before their loan is approved, and some many variables can cause a loan to be turned down these days.

    Thanks for the insights,

    James Mucci

  4. Great article! These are very helpful indeed! I especially like the tip about how to give the other side the opportunity to make the first offer. I can’t wait to use these in my next negotiations.

  5. I think everyone needs to read this. Too many people don’t realize how good negotiating skills are important to get a better deal. Whether it’s investing in RE, buying a car, or having someone perform some simple work.

    I used some of the skills above and was able to purchase a car right at wholesale price a year ago. These skills truly work.

  6. Awesome posting. You’ve taken the best information from hundreds of negotiating books and boiled it down to 7 simple tips. I put a link to this posting on my calendar, and I re-read it every Monday. It’s the ONLY article or blog posting that I read on a regular schedule. I also forwarded it to my staff who loved it as well. Tip #1 saved me a few hundred dollars last week because I was about to name a price (but resisted the temptation) and he came in with a price that was well below what I had planned on suggesting. Nice! Thanks for a great contribution to the BiggerPockets community.

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  12. This is one of the best articles that I’ve read because it sums up many of the points that I’ve told others to do, all in a succinct way. There are two other areas that I are important to include:

    Tip #8: Understand the other party’s best alternative to a negotiated agreement (BATNA). If I am buying real estate, an offer placed right before a cold winter has more leverage since the seller’s best alternative may be to wait out the winter for an offer if they don’t have any other bids.

    Tip #9: Use benchmarks to bring values back to earth. Comparable prior sales in the area are a good example to quickly re-orient a seller’s pricing.

  13. I work in real estate, and i cant agree more with tip #2
    agents love to talk way too much, everybody likes to talk but if you like to sell you must be prepared to listen,
    good post

  14. I must close my mouth. The wise Bill Tan once reminded me that we have two ears and one mouth so we should use them with that in mind. The saying is smoother than that, but I can’t remember. You get the point.

  15. Steve Johnson on

    Great article. I have no experience really negotiating. I can tell over time reading stuff on BP and just absorbing ideas has helped some but this article is way helpful. I’ll have to find more books on the art of negotiation. The way you sum your points up will really help me identify when people are doing it on me and how effective those tactics are.

    And, after reading #2 I felt pretty good. I’m much more of a listener than a big talker. I find those awkward silences not too awful usually because over the years I’ve definitely noticed other people feel just as uncomfortable. Its kind of a like a game of tennis. There may be two really good players against each other and rather than trying to kill the opponent with an awesome shot you simply wait for them to foul up. Of course the killer shots look much more impressive but most points are won via the other guy messing up.

  16. Great article! Very informative and to the point-Thanks! I read it because I’d say that I’ve been getting better at negotiating, but I certainly still have room to improve my skills. I have one suggestion to add here, based purely on my own experience, specifically in this case for negotiating with someone you will be or have already done business with multiple times, such as a contractor who’s services you’ve used on multiple projects.

    My advice is to avoid being the guy/girl that just always automatically wants something knocked off of the top, no matter what the price is and what the other party presenting their opening offer has to back up their price point. The other party (as I mentioned, this is specifically tailored to negotiating with someone you would be haggling with multiple times, so by now they know what to expect from you) will get so used to you automatically wanting a lower price that I’d think they’d start automatically including an extra cushion on top of what they’d normally open at, because by now they know darn well that you will ALWAYS want a lower price no matter what.

    I learned this when I was working with a former partner years ago who’d always do just that. So, if we were meeting with the plumber for example and the plumber was bidding the job either at a preset price or even for time and materials, all of the repeat contractors would just pad their estimate or their rates because they knew darn well my partner would want it lower, based on nothing at all, just wanted it lower. So, I’d say when that contractor names his opening price, come back with at least some rational basis or reason WHY you need it lower. (and of course, keep it brief) That way, they know that you’re really basing your negotiating on something solid, not just because you ALWAYS just won’t pay the opening price, thus they will open with what is really their opening price instead of their opening price PLUS the automatic extra 20% or whatever they learn to tack on!

  17. Tip #2: Stop Talking and Start Listening…

    “Next time you are negotiating and the person on the other side of the table throws out an offer, make a point to say nothing. Whether it be 10 seconds or 10 minutes, make the other person break the silence. ”

    “This may be the most basic — but most useful — negotiating tactic you’ll ever employ”

    I just about died laughing from the imagery and yet, it makes so much sense. Once you apply and get used to the awkwardness of it I would imagine this tactic would be quite enjoyable if only just to see your buyer/seller sputter their words. Of course, someone with less diabolical intentions would eventually make them feel comfortable.

    But I’m curious, @J Scott what was the longest you stayed silent and what exactly did you do in between?

    Awesome tips I’ll be sure utilize.

  18. I just read The Small Big on Influence and current research shows that whoever makes the first offer is more likely to have the final deal land closer to their number than to the other party’s number. So, always make the first offer.

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