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Section 3 - Chapter 10 (continuation)
Element # 2 - Information
Whoever has the most relevant information is in the better position. If you can, gather information before negotiation starts. Then gather information during the negotiations. Gather the right information, and you'll be in the strongest position.
Prior Research
Your looking at a home for sale. What information should you be gathering before you start negotiating or make an offer? All the information you can, including;
- Why is it being sold?
- What are the seller's potential deadlines?
- What is most important to the seller (price, fast sale, terms, liking the buyer)?
- Have there been other offers; for what price and terms; and why were they rejected?
- What problems or potential problems does the home have?
- What problems does the neighborhood have?
- What have nearby homes sold for?
- What's the appraised value?
Suppose the seller is starting a new job in five weeks on the other side of the country. He doesn't need cash and would rather make 7% interest financing the buyer than 3% in the bank. He's asking $150,000 and has rejected an offer of $140,000 because the buyer's offer was contingent on getting an uncertain bank loan, and he didn't have the 10% the seller wants as a down payment if he finances it. Can you see how much help this information might be in structuring an offer and negotiating?
During Negotiations
From the start of the home shopping process, take notes. If it isn't appropriate or comfortable to be writing them down at the moment, as when casually talking to the seller, do so soon after. Information gathering should continue throughout the process.
To better gather information as you talk to a seller (or anyone else involved), you should first establish good rapport. A lot has been written on this topic, and you should read some of it if you want to be a more effective negotiator. Some quick tips:
- Smile.
- Follow his/her lead. If they don't smoke, you don't. If they don't drink alcohol at a business meeting, you shouldn't.
- Match the pace of his speech, and the volume of his voice.
- Dress like he does (Get this information beforehand).
- Sit more or less as he does.
- Make small talk. Let him decide when it's time to talk business.
- If there is something of interest in the room, ask about it. A fish on the wall, for example. Listen with true interest.
- If you have any common interests, mention them. "I understand you're a chess player like myself."
- Listen well.
- Watch carefully for what irritates and what pleases him.
Once you have established rapport, you want to ask questions throughout the negotiations. Do this in a casual way that makes it easy for him to respond. You'll get more information that way. For example, if you ask "Why is your price so high?" you may offend him, and he's likely to give you a short answer, like "We think it's a fair price." On the other hand, you'll probably get more information if you ask "This is a tough home to pin a value on. I'm curious, how did you arrived at the price you're asking?"
You're not telling him the price is wrong. You're asking an innocent sounding question about how they came to that price. Innocent sounding, but the answer can give you a lot of useful information.
If he tells you he saw other similar homes sell for that much, you know that precedent is important to him. You'll use that knowledge later. You might find examples of similar homes that sold for much less, and show him those examples. You might also casually mention homes that went unsold for years.
If he says he knows nothing about valuing a home, and let the appraiser or real estate agent tell him what it's worth, he obviously gives some credence to the professional opinion of "experts." You can get your own appraisal too, and your expert might put a lower value on it. If you are working with a buyer's agent, you can have him pull some "comps," to show a lower value. You can even bring an appraiser to the negotiating table to explain.
Continue in this way throughout any negotiations or even friendly conversations. Know beforehand what you will ask, and what you are looking for. Then, between meetings or negotiating sessions, review your notes to determine how to best use the information.
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