How to be part of a win-win real estate negotiation
Don't fall for the 'mythical middle' trap
There is a common trap that buyers and sellers fall into when negotiating a deal. It's called the 'mythical middle trap' and it's something to be aware of before you start making offers or put your home on the market.
When we enter into any sort of negotiation, we get attached to what we perceive to be a good deal. We are also highly averse to feeling like we have been 'taken advantage of' and hate being on the end of an unfair outcome.
This manifests itself in countless buyer-seller interactions, all over the world...
- Seller sets an asking price
- Buyer sees home online and is attracted by asking price
- Buyer views home and loves it. "Finally, a home that suits our family!"
- Buyer thinks (hmm, maybe I could get it for less than the asking price)
- Buyer convinces themselves that they need/want/deserve a great discount
- Buyer makes offer $50k - 100k below asking price (sometimes lower)
- Buyer dreams of acceptance while waiting for an answer and then gets upset when the seller either doesn't negotiate, or only moves a small amount.
- Buyer tries to compromise: "Can't they at least meet me in the middle?"
- Seller has already set their 'rock bottom' asking price on the advice and encouragement of their chosen salesperson and doesn't want to move further.
- Seller puts their stake in the ground too, with words like "We don't have to move." Or "We aren't desperate..."
- Buyer gets frustrated and doesn't want to 'cave-in' and come up to the seller's price.
- Buyer walks away and has to keep looking for a home. Seller waits for another buyer. Everyone's time was seemingly wasted.
If either side is strongly motivated, then a deal can sometimes be reached in this kind of situation. But in most circumstances, buyers don't HAVE to buy and sellers don't HAVE to sell. Inevitably, an impasse arises. Pride gets in the way of progress.
Yes, both sides have stood their ground, but no one is closer to getting where they want to go. The buyer doesn't have a new home and the seller is still waiting for a buyer.
So what's the answer? Is there a better way?
Why meeting in the middle is over-rated.
It's easy to get caught in the mythical middle trap. As a buyer, you are determined not to pay too much.
It's important to remember, however, that most sellers don't price their houses way over market value. If they did, no one would make enquiries or come to visit. So you can't expect to walk in and secure a massive discount unless the seller is extremely motivated and somehow no other agent or buyer has discovered this yet.
Also, that mythical middle-ground you are looking for was determined by your initial offer, not by any standard convention. You could make your initial offer $1. Does that still mean the owner should 'meet you in the middle'?
If the asking price looks like good value, don't be afraid to pay it. If you must, ask for a small discount (eg. 1 - 5% below asking price). You might not be in a rush to buy, but if you do secure this home then you don't need to keep looking. Job done! Happy family! There is serious value in making progress in life.
Note: If a home is overpriced, that's a different story and you shouldn't automatically offer the full asking price. Give the salesperson your honest price feedback and discuss whether it's worth making an offer where you see market value.
There is also the risk that while you are waiting to 'meet in the middle', another buyer comes along and swoops the property out from underneath you. We have seen this happen countless times and it's always upsetting for the people involved.
Is there something else you can offer?
If you really need/want a discount, find another problem you can solve for the owners. You might secure a deal below-asking-price if you offer to let the owners stay on as tenants for 3 months while they look for a new home. Or you might secure a deal by offering them a quick (or long) settlement. Ask your salesperson what that particular owner is looking for and if there are creative ways you can help.
Sellers - don't fall for this trap in reverse. Avoid the temptation to set your asking price way above market value, hoping to leave room to negotiate. All you'll end up doing is making your home look less attractive online, thereby reducing the amount of buyer-enquiry you get. End result? It'll take far longer to sell your home than it should.
Whatever you do, whether buying or selling, don't let pride get in the way of progress.