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10 Negotiation Tactics To Help You Make The Sale

9 minute-readApril 21, 2022

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Fluctuations within the real estate market aren’t for the faint of heart. Whether you are brand-new to real estate or a top producer, its important to pay attention to the housing market and understand if your local market is experiencing a buyer or seller market. Sure, you won’t be able to predict every dip and flip but taking the time to survey the market for noticeable trends will keep you one step ahead of the game.

Right now, much of America is experiencing a seller’s market due to the high demand for homes, making it an incredibly competitive market for buyers. To help you navigate the choppy seas, we’ve pulled together 10 negotiation tactics to help real estate agents and brokers weather the storm.

When Representing A Buyer

In a seller’s market, buyer’s agents who embrace the challenge and prepare, have a better chance of getting their client’s offer accepted. Below are five negotiation tactics that will help you and your buyer client win.

1. Get Preapproved For Financing   

It’s important that your buyer understands each step of the home purchase process so they can make quick decisions with confidence. The first step to home ownership is securing financing. In a seller’s market, knowing what your client can comfortably spend will help you find a home they can afford to enjoy.

One way to ensure your client is ready to put their best foot forward is encouraging them to get prequalified or preapproved for a mortgage. It’s important for buyers to understand the difference between the two options. A prequalification is a good indicator of a client’s credit worthiness, but a preapproval could carry the extra weight needed to stand out when submitting an offer.

Getting prequalified can be done over the phone or online. The borrower will provide the bank or lender with a financial snapshot of their debt, income and assets. The lender is then able to provide a rough estimate of what they’re willing to lend.

A preapproval is a bit more involved and precise. The borrower will need to complete an official mortgage application and supply the lender with all the necessary documents to perform an extensive credit and financial background check. The lender is then able to offer a preapproval for a mortgage up to a specified amount.

With Rocket ProSM Insight, real estate agents and their clients can ensure transparency into the mortgage process with in-depth loan statuses. You can follow your clients’ loan to adjust their approval letter, upload documents, and communicate with the lender all the way to closing. With a Rocket Mortgage® Verified Approval, closing is more certain because credit, income and assets are confirmed upfront.

2. Start Negotiations From A Fair Market Value

Knowing your local market is vital to your brand’s success. Taking the time to discuss comparable listings that have sold in their area of interest and the kind of terms that are being accepted will help set the tone for your client’s home search. When your buyer is ready to make an offer, start with what you and your client believe is a fair market value based on your market research.

If your local market is a hot seller’s market, you should prepare your clients for a multiple-bid situation that could lead to an over ask offer. According to the National Association of REALTORS®, in 2021 home buyers typically paid the asking price of their new home and 29% of those home buyers paid over the asking price for their home. Your client might end up paying more than market value but starting negations at a fair market value will give you more room to negotiate. Caution your clients on lowball offers – sellers can be emotional too and may be offended by an incredibly low offer and won’t want to negotiate at all.

3. Include An Escalation Clause

An escalation clause, or “escalator,” is a section in a real estate contract that states that a prospective buyer is willing to raise their offer on a home should the seller receive a higher competing offer. The clause will state how much more the buyer is willing to pay than the highest offer and their spending limit. Essentially, escalation clauses offer buyers protection if other potential buyers outbid them.

If your client falls head over heels in love with a lovely little cottage with the perfect space for a garden, you know it’s time to get creative to stand out. An escalation clause could help get your client’s offer accepted but make sure they understand the deal terms and how much they are offering.

Let’s get into the simple math. The cottage is priced at $300,000, your client has a Verified Approval for up to $400,000. You and your client decide to offer the asking price of $300,000 with an escalation clause included. Your client is willing to offer up to $320,000 but you don’t want to start negotiations too high. The escalation clause lets the seller’s agent know your client is willing to increase their offer by up to $20,000 not to exceed $320,000.

For example, the clause could read: Client is willing to pay $5,000 higher than any written offer, not to exceed $320,000. Seller to provide a copy of the bona fide offer. 

If the seller gets three offers at the asking price and they decide to choose your client’s offer with the escalation of $5,000, the sale price for your client’s cottage would be $305,000.

4. Submit A Clean Offer

A clean purchase offer is simple and straight forward with few contingencies, conditions, and restrictions. A contingency is something that needs to be satisfied before the sale can be completed. A typical purchase offer can include contract contingencies for financing and inspections.

In a competitive market sellers know their home won’t sit too long on the market, so they often offer the home As-Is and are less likely to take care of any repairs a buyer might ask for. It’s not recommended to forego a home inspection because it’s important for buyers to understand the condition of the property they are buying. But you may want to caution your client if they intend to ask for a lot of repairs or a price reduction after an inspection, in a competitive market some sellers would rather put the house back on the market than make repairs or reduce the sale price.

5. Use An Appraisal Guarantee Clause

While no one wants to pay more than a home is worth, in a competitive seller’s market, it may be necessary. If your client is prepared to win their dream home and they have the funds to back it up, an appraisal guarantee clause could be the tactic to get their offer accepted. An appraisal guarantee clause states how much of an appraisal gap your client is willing to cover. Since there’s no guarantee an appraisal will match the agreed-upon sales price, it’s often something sellers look for as a sign the offer will still stand even if the appraisal comes in lower than anticipated.

Make sure your client has a clear understanding of the terms of an appraisal guarantee clause and what an appraisal gap is. An appraisal gap is the difference between the fair market value determined by a licensed appraiser and the amount your client agreed to pay for the home.

Let’s break down the math of an appraisal guarantee clause together. Your client’s offer of $305,000 was accepted for their dream cottage. From your market research, you felt the home’s value might come in lower than the offer price, so you prepare you client for a potential appraisal gap. Together you agree to include an appraisal guarantee clause for up to $305,000. The home appraises for $290,000, so your client will need to cover the $15,000 gap in market value and appraised value with cash at closing.

An example appraisal guarantee clause could read: In the event the appraised value comes in below the purchase price, the buyer agrees to pay up to $15,000 over appraised value not to exceed purchase price. Any such cash differential shall be applied to buyer’s cash at closing.

When Representing a Seller

A seller’s market isn’t a cake walk for listing agents or their clients. As we head into the busiest time of year for real estate transactions, sellers need to be just as prepared as buyers so they’re getting the most value from their home sale. Below are five negotiation tactics to help listing agents and their clients get the most value in a competitive market.  

1. Take Advantage Of The Coming Soon Status

With so few homes on the market, you’ll want your client’s home to shine the brightest. Putting the spotlight on early can help do just that. MLS boards across the country allow members to market new listings with a “Coming Soon” status before the listing is considered active and accepting offers. This allows extra exposure before the listing is live and gives more potential buyers time to get prequalified for financing and make viewing the home in person a priority. A home can be listed as “Coming Soon” for 7 – 14 days, depending on the MLS guidelines for your area.

2. Include An Expiration On Counteroffers

Deals fall apart when buyers drag their feet in responding to counter offers but it doesn’t have to stop the momentum of selling a home. When a counteroffer is outstanding, your client’s home is effectively off the market. With so much competition for homes, anxious buyers may submit offers on multiple homes and use a counteroffer to give them more time to negotiate with other potential sellers. This can be frustrating for you and your sellers who have worked hard to get their home ready for sale. To avoid these kinds of delays, include an expiration date and time on all counteroffers.

Let the buyer’s agents who submit an offer know that your seller is looking to close quickly by placing a deadline on your seller’s counteroffers. The deadline doesn’t have to be aggressive; you don’t want to turn off a potential buyer, but you also want to make sure your listing is getting the attention and focus it deserves. Adding a sense of urgency can be helpful in nailing down the deal.  

3. Remove Emotional Elements

Preparing your client for the emotional part of selling their home can save them the heartache and frustration. It’s normal for a seller to be emotionally attached to their home, they’ve spent a lot of time and effort making it their own. But most real estate professionals will agree, being too emotional during a home sale transaction can lead to poor decision-making, like overpricing the home or making choices based on feelings rather than fact.

Consider asking your client if you can present offers to them without personal letters and photos attached. Buyers often include a personal letter with their offer in an attempt to sway a seller to accept their offer. If your client is looking to get to the most value for their home, consider asking them to only review offer contracts and the terms with no personal information included.

4. Use A Rent-Back Agreement

If your seller is hesitant to get their home listed because they are concerned about finding a new one, you could suggest a rent-back agreement. A rent-back is a rental agreement between the home buyer and seller that allows the seller to continue to live in the home after the closing date in exchange for rental payments. In some areas a rent-back agreement is called a “sale and rent back” or a “post-settlement occupancy agreement”.

The buyer of your client’s home agrees to let the seller stay in the home, typically 30 – 60 days, after the home closes so your client can have more flexibility when looking for and moving to their next house. If your seller accepts an offer with a rent-back agreement, make sure they know to speak with their homeowners insurance provider to get any rental coverage they may need during the rent-back period.

5. Remove Personal Items From The Home

It’s always a good idea for a seller to clean and organize their home before the listing goes live so potential buyers can see how large rooms and closets really are. Others may need to do a bit more to get the most value for the sale. When a buyer tours a home, they are envisioning themselves living in that space. It can be hard for some to get a mental picture of the home if your seller’s personal items, photos, and special interests are on display. Over the top décor can be distracting and take away from the home’s true potential in the eyes of a buyer.

Talk to your seller about removing personal items and decluttering where possible. If your seller is an avid collector of sport memorabilia, ask them to put some of those valuables in storage for safe keeping. Being surrounded by their favorite team’s collectables may bring them joy but to a potential buyer it could be distracting, and they won’t be able to see themselves living there enough to make an offer.

The Bottom Line

Don’t be discouraged in a competitive real estate environment, be prepared. Spend your time wisely, getting to know your market and understanding how deals are being made. You won’t be able to predict every bump in the road for your clients, but you will have an idea of what the roadmap to their dream home might look like.

If you’re ready to dive in and learn more about current trends and tips for real estate professionals, visit the Rocket Pro Insight Learning Center for more.