How To Negotiate Your Best Deal In Real Estate
Jo Garner introduces Don Hutson and Terri Murphy
Don: DH talks about the philosophy of the One Minute Negotiator- we strive for collaboration – the most advanced of the strategic alternatives
- Tactics vs. strategy
- E-A-S-Y
- What is the single biggest issue when it comes to negotiation in real estate?
- Answer: Lack of preparation – discovering the real Red/Blue and Green Chips
- Discovering the homeowners real issues
- History of the listing – how long on the market? Other offers denied?
- True Stats
- What is the most common mistake?
- Ans: Thinking that splitting the difference makes everyone happy – it doesn’t!
Preparation – Research – knowing the area statistics, past sales, unrecorded sales, differences between similar properties – location, improvements, the age of the property compared to similarly valued property – when you know the facts you’ve got the power
- You talk about the power of multiple options –how can that help a transaction?
- Most buyers and sellers focus on the price – WRONG!
- Options: Paying for improvements, providing a home warranty, picking up closing costs, etc.
- Closing Dates – sooner is often better for the seller – less carrying costs – but can work as well if they rent back from the buyer – another RED CHIP/BLUE CHIP thing
- Carrying costs – when a property is empty, someone still has to pay to maintain it. If you want to negotiate, that seller may want a speedy closing to cut losses. – Taxes, utilities, insurance, all need to be paid even if not occupied.
- Repairs – painting – roofing – windows. . these cost money and time – and who pays for them is key in the negotiation process
- Devil is in the details:
- Look for clauses about inspections – how much for latent repairs?
- Require a property inspection by a licensed property inspector – ask for details – like viewing the attic, etc.
- Clarify personal property. Just because the personal property seems “attached” it may not be and may NOT be included – problems come with little items like basketball hoops, invisible fences (and the attachments) lawn ornaments, planters, light fixtures especially chandeliers
- Transfer of utilities can be an issue should the closing happen in cold climates –
Jo Garner adds: Look for the details on the mortgage. As a mortgage officer over the last 25 years, I have seen clients who made an initial offer to a seller really struggle with how far to go with a seller who has counter-offered with a higher price or refusing to pay the buyer’s closing costs that was part of the initial offer.
If there is any advice I have for homebuyers who are going to be negotiating with a seller, it would be to know where your comfort level ends on the amount of a monthly house payment or in the amount you are comfortably able to pay down on a real estate transaction.
As mortgage officers we use computerized underwriting systems to preapprove our clients, subject of course to their income and assets being properly verified. These computerized underwriting systems will sometimes approve a buyer for a loan that takes their total income-to-debt ratio over 50% with compensating factors. But my client may not WANT his house payment and other debt to be that much. As a conservative rule of thumb, keeping your total house payment, including taxes and insurance below 33% of your income and keeping your total debts including the house note under 45% of your gross income is usually comfortable for most people—but it IS up to the individual client what is comfortable.
As part of the preparation stage of negotiating, the homebuyers need to know how much their payment would be on the house they want to buy, because property taxes can be much higher than you think if the house is assessed by the tax office too high. A good loan officer can check the amount of the property taxes on the property you want to buy and give you a more accurate estimate of the amount of your house payment at different loan amounts which can help you determine how far up you can do on price with the seller.
The same with the down payment. You don’t want to sink your money into a down payment on a house that depletes your emergency fund or makes it difficult to meet current obligations. Can you get a gift from family? How much? Can you borrow against your 401K for the funds? These are questions only the client can answer. Better to know the answer BEFORE going into any negotiations.
Here’s another piece of advice for homebuyers who are comparing terms from different mortgage companies. The lowest rate is almost NEVER the best deal. A few homebuyers and refinance customers have come back to my office later, after deciding to close their loan with a company offering the cheapest rate. They’ve told me, “I wish we had just stuck with you, Jo. This other company’s rate and closing costs looked so much lower but when we got to closing we figured out too late that it was costing a lot more to get the rate. We should have taken a little bit higher rate and not had to pay out so much in cash at closing“
I had a client recently comparing my loan rate and terms offer with a couple of other mortgage companies. When she told me about the extra low rate and the very much lower closing costs, I suggested she look at the fine print and see if other costs appeared under other categories besides the one listed as “Closing Cost.” Sure enough, only the mortgage company’s processing fee was showing up on the category labeled “Closing Cost.” There were a host of additional cost appearing at intervals down through the disclosure page like the category “Third Party Fees” and yet another category labeled “Points.” On her $92,000 house, the competing mortgage company was charging her over $1,700 in fees than I was charging. She did agree to pay me a little more money down (not as much as the competing company was charging her though) to get her rate lower. That is what we did and now I’m her lender for life.
Back to Don and Terri:
- What are some of the most overlooked options when negotiating for a home:
- Move out dates can be a disaster –in some states the closing and exchange are simultaneous which means one must be out (without actually closing) while the other party is moving in – if the seller can remain in the house after the closing, that might be a big bargaining chip in the price.
- Each contract to purchase is different
- We always recommend a real estate atty review the agreement – choose an atty that is familiar with the local real estate practices
- Top Professionals know who to work with to get the job done and done right
- What should buyers know when they buy a property?
- Know the motivation of the seller – it is critical to the negotiation process. If they are highly emotionally attached, they may not be reasonable about market value, etc.
- Get pre-qualified by a lender so you are clear about your purchase power. If this is a property for your personal use, putting together a short informational letter for your prospective seller to begin building the relationship.
- If the seller is a third party (relocation) there are other factors to consider in the negotiation process. The company has already arranged a buyout price with the original owner/employee. Their flexibility depends on several points, that might include how long the property has been on the market, etc – There is generally less negotiation power because you aren’t dealing with a single owner, but a corporation that works 9-5 in a different time zone…so it will take more time and it is a bottom line thing
- If it is an estate sale- who is the decision maker? An Executor? A squabbling family?
- Is the property a distressed sale? If it is a short sale, unless the agent and the bank are on the same page, this could take MONTHS or NEVER close-
- If it is a foreclosure –depending on the state, your negotiation will be done with an entity – and generally not the owner – so expect less collaboration – it is a bottom line number for the institution carrying the paper
- Buyer: Be Prepared:
All too often buyers are not sufficiently prepared to understand the full impact of the monthly costs – PLUS the items they may want/need to actually live in the property – Example: New construction has limited or no landscaping – Big dollars
- No Deck? Costly
- Window treatments, Sprinkler system, cost to run a pool, fencing, all will be costs AFTER the sale. Buyers need need to know BEFORE they target a range of property pricing so that they can LIVE in the house. What you can afford and what you can pay can be vastly different.
- Homeowners Association costs – Can be hefty! EX: Buy a 150K condo – find out the monthly maintenance fees are $5-600 and that might not include parking Be certain what is included in the monthly fee: Water? Trash removal? Cable? – Gotta find out – these are all tips when comparing one unit to another in a different development
- Ask to review homeowners rules and regulations –
- some prohibit dogs over X pounds – Restrict the property owner from renting their unit EVER –(not attractive to an investor)
- If the building is old – what have they replaced recently, or are they getting ready to replace the parking lot, roofing, water heaters, etc. – these are critical to the negotiation process when it comes to PRICE
- What are the limitations for painting your own unit?
- Find out what’s happening in the area:
- Are businesses folding and moving?
- Are businesses starting and expanding? Example: Look at how the PINCH Area of Memphis changed when Bass Pro decided (after years) to lease the vacant Pyramid? Suddenly all the real estate around that area increases in value
- Have school districts changed? What school district is the property in? This affects VALUE and can be used as a bargaining chip
- Hire an inspection – and if you need one, civil engineer. Don’t be deterred by their report on specifics. If they cite an issue with the heating system, call in a heating specialist for more clarity. Inspectors can do a terrific job, but when it comes to a specific professional, you might seek additional information
- Know your numbers: If you are a buyer, know the most you can pay and still stay on target – the right property will always come along!
- Reduce the differentiation in the price to a daily cost. Example: If your transaction is $5,000 apart – it might only add up to $25.00 a month on the mortgage payment and over the years doesn’t make a significant difference in the long run assuming all other items work in your favor.
- Don’t insult a seller with a low ball offer if you really think this is your first choice property. It will set up a negative situation going forward. Everyone is looking for the best “deal” but starting off but don’t’ think you’ve got nothing to lose…you might lose in future negotiations. Some owners want to turn over their property to someone they like!
- If you are working with a real estate agent, be sure you have a buyer representation agreement. They can’t work on your behalf if you are working with the listing agent , who is bound to work solely for the seller.
What should sellers know before selling a property?
If you are a seller –
- Work through the numbers and know your bottom line – Review the costs with your real estate professional so when an offer comes in, you know what you will have after paying your costs: Mortgage, 2nd mortgage, real estate taxes, title, insurance, HOA, brokerage, atty fees, etc. Get accurate payoff costs for your mortgage, any liens, taxes or otherwise.
When an offer comes in, you will have a better idea of your bottom line because you’ve developed a seller equity sheet prior to the offer.
- When you get an offer that looks good, study the details so you can be accurate about predicting your net on the property.
Example: Great offer, meet your price, but you can’t close until October and it’s March – that means you must carry the costs of the property for 5+ months – if another buyer offered the same price with a closing in April – you make more $$
- Don’t get emotional when you get a low offer- just counter with a short time to respond and let it go. You don’t know who is coaching the buyer – could be a snarky investor who looks to scoop up deals- has nothing to do with you.
- Know that the property must appraise out if there is a mortgage lender involved. That means, even if you negotiate your higher price, the lender may have a different idea of the value of your home and refuse to lend the buyer the amount they need to meet your sale price.
Wrap:
- Be proactive – prepare, prepare, prepare
- Property values in the area
- Demographics/business in the Area
- Find a good Real estate Agent
- Hire specialized Atty/Inspectors/Contractor
- Keep the emotion out of it – know your real numbers – Don’t just focus on price
- Work to be collaborative – makes for better outcomes
- Build your team and choose top level professionals – Real Estate agents that specialize in your area, specialize in the type of housing, housing development etc. Attorney’s that focus on closing real estate transactions, inspectors, contractors, – loan professionals that are well versed in your finance needs: VA, etc.
Don talks about USLVirtual Training on Negotiations
Bio
For
Don Hutson
Don Hutson successfully worked his way through the University of
Memphis selling real estate, graduating with a degree in Sales. After becoming the #1 salesperson in a national training organization, he established his own
training firm and was soon in demand as a professional speaker.
Don’s client list includes over half of the Fortune 500, and he is featured in over 100 training films. He is CEO of U.S. Learning, Chairman of Executive Books, and makes some 75 speaking appearances per year. Perhaps you have seen him on national television where he has been featured on ABC, PBS and Fox News.
He is the author or co-author of twelve books, including The Sale, and his two Wall Street Journal and New York Times International best sellers, The One Minute Entrepreneur and The One Minute Negotiator.
He was elected by his peers to the presidency of the National Speakers Association, and has received its coveted “Cavett Award,” as member of the year. He has also been inducted into NSA’s Speakers Hall of Fame.
Terri Murphy
Author, Speaker, Consultant & Communication Specialist
Terri brings a depth of industry experience and education to the Real Estate Industry. Having earned the GRI, CRS and other designations has helped Terri perform at the top of the real estate industry… at a consistency of listing and selling over 100 homes per year for over 28 years in the Chicago area. Today she performs as a consultant to the real estate and general sales industry to help build communication systems and resources that foster relational capital that result in true clients for life
About Terri:
- An active member since 1988 of the National Speakers Association
- An active member of NAR since 1978
- NAR Game Changer Coach for 2 project initiatives, 2009-2010
- Currently the Chief Information Officer for U.S. Learning, Inc.-Memphis, TN.
- Founder-President: WomensWisdomNetwork.com
- Authored weekly newspaper column for Copley News & Lakeland Press – “Murphy on Real Estate”
- Served as 2006 Chairman of the National Association of Realtors Membership Information Committee
- Former Vice-President of Interactive Business Television Network (IRTV): Writer & Producer for Muzak’s Business Satellite Television 1995
- Staff Writer for RealtyTimes, Broker Agent News, FrogPond Publishing, Memphis Woman’s Magazine and Mortgage Originator Magazine, Mortgage Planner Magazine
- Hosts a Weekly Internet Radio Program: www.WomensWisdomNetwork Success Radio
- Former host of Weekly Radio Program – “Murphy on Real Estate” for WKRS/Chicago
- Staff contributor to www.RealBlogging.com
- Author of “Terri Murphy’s Listing & Selling Secrets” published by Dearborn Publishing in l995
- Author of “Terri Murphy’s E-Listing & E-Selling Secrets: for the Technologically Clueless” – published November 2000
- Author: Taking Charge, Lessons in Leadership, published by Insight Publishers – September 2003
- Contributing Author: Real Estate Confronts the Future – published by Thompson Southwestern – Real Sure – 2005
- Contributing Author – Donald Trump: “The Best Real Estate Advice I Ever Received – Rutledge Press – 2006
- Founder of the Illinois Lake County Chapter of Women’s Council of REALTORS® 1989
- Served as President of Illinois State Chapter of Women’s Council of REALTORS®
- NAR Executive Committee 1998
- Conducts continuing education and distance learning seminars – Program Information Available
Industry Consultant to: (abbreviated list)
National Association of Realtors
KODAK
ACUMA (American Credit Union Mortgage Association)
Mortgage Professional Training Network
Great Harvest Franchises
YRC World Wide
FedEX Institute of Technology
Harris Bank of Chicago
Countrywide Funding
RE/MAX International
MUZAK
First American Title Company
Entreport, Inc.
I-Succeed.com
Ben Franklin Savings Banks
First Midwest Banks
American Back Centers for Chiropractic Medicine
Intelitouch
Steelcase-MBI
New York Times
WREG-TV
MGIC
Mortgage Originator Magazine
Realty U
Dearborn Financial Publishing Company
Media:
ABC Sunday Morning News
NBC Sunday Morning News
CNBC – Expert Segment
Twin Cities LIVE
Focus On Lake County
Live@9 – Memphis
MPTN-Mortgage Professional Training Network
CBS-WREGTV–Live@9 Regular Guest
Staff Writer/Articles Featured in:
PC World Magazine
Frog Pond Publishing
Computer Age Magazine
Real Estate Professional Online Magazine
Broker Agent News (Staff Writer)
Mortgage Originator Magazine (Staff Writer)
National Association of Mortgage Bankers
Women’s Council of Realtors® Magazine
Executive Relocation Magazine
Copley News
Real Estate Executive Magazine
Memphis Woman’s Magazine
MCAR Magazine
Certifications:
- Licensed Real Estate Agent 1978
- Licensed Real Estate Broker 1979
- Graduate: Real Estate Institute (GRI)
- Certified Residential Specialist (CRS)
- Leadership Training Graduate (LTG)(PMN)
- Certified Counselor of Real Estate (CREC) 2001
- Illinois CRS of the Year 1993
- Licensed Continuing Education Instructor (Programs approved in 26 States – 2000-2007)
- 50 Women Who Make A Difference –Memphis, TN. 2008
- ReMax Hall of Fame 1994
- Coldwell Banker Intl. Elite Presidents Club 1997
- Alma S. Thorsen Award – 1987
- 50 Women Who Make A Difference – Memphis, 2008
- 50 Top Real Estate Women – Memphis, 2010
Websites:
TerriMurphy.com
MoreUnited.com (Mortgage Originators/Real Estate United.com)
MurphyOnRealEstate.com
CertifiedMilitaryResidentialSpecialist.com
USLearning.com
For more information: Visit http://www.TerriMurphy.com www.MurphyOnRealEstate.com or call 847-970-2717
Jo Garner is a mortgage officer with extensive knowledge in tailoring mortgages to her customers who are refinancing or purchasing homes all over the country. She offers conventional, FHA, VA or other loan programs for refinancing and purchases.
Jo can help you look at rent vs buy, when it makes sense to refinance, how to get the best deal on your home purchase financing.
Jo Garner has been in the real estate/financing business for 25 years in Memphis, TN. She got her start in Portland, Maine where she first began her real estate career. She received her real estate education from the University of Southern Maine and was personally mentored in San Diego, California by Robert G. Allen, author of Nothing Down, Creating Wealth and The Challenge.
On moving back to West Tennessee in 1987, she went into business buying and selling discounted owner-financed notes secured on real estate. In 1990 Jo went to work for a residential mortgage company and has been a mortgage loan officer for over 25 years. Her goal is to offer excellent, affordable service to her customers, tailoring the loan programs to the specific needs of her clients.
In addition to her work in the mortgage field, Jo Garner is the primary sponsor and founder of Talk Shoppe in Memphis. She hosts the Real Estate Mortgage Shoppe program on News Radio AM 600 WREC in Memphis and on IHEART radio 9A to 10A CST every Saturday. http://www.iheart.com/#/live/2145/?autoplay=true Podcasts from the show can be found at www.mortgageloansblog.com
For real estate financing solutions, plug into the Real Estate Mortgage Shoppe program. You can find mortgage rates, FHA Streamline refinance with no out-of-pocket costs, refinancing options, home purchase loan programs, answers and real estate, money-saving tips and more.