Real Estate Negotiation Skills: What Are They And Who Has Them?

It’s not hard to find real estate agents who hold themselves out as “expert negotiators.”  There is even a certification – Certified Negotiation Expert, or CNE – that agents can obtain to further enhance their skills and reputation.  But really, what makes for a great negotiator when buying or selling real estate?  And who has those skills?

At it’s most basic level, “negotiation” is a subset of the art of persuasion.  An expert negotiator knows as much about the opposite party as possible, and in particular their motivation for entering into the proposed transaction and their desired result.  For example, when negotiating a purchase, the negotiator should be asking herself, “What is motivating this seller?  What can my buyer do to address the needs of this seller?”  The negotiator uses this knowledge to meet the seller’s needs as much as possible, which of course will help to facilitate the sale.

There are other elements to being a great negotiator.  For example, a negotiator may be able to extract a significant concession by setting up and standing on a bluff.  This is the “poker-face” aspect of negotiations.  Depending on the circumstances, a good negotiator may play it “close to the vest” and not reveal much about the party for whom she is negotiating.  This is, to a certain extent, the flip side of knowing the other party’s motivation.  If you don’t reveal your motivations, the other party will not be able to exploit them (although they won’t be able to address them either).  That said, this is  not a particularly helpful skill in real estate because the negotiations are in writing and not face-to-face.  Plus, there is always risk in bluffing, because if your bluff is called your position will be weaker in the future.

Empathy is also a good negotiation skill, particularly in the context of residential real estate.  Buyers and sellers of their homes have a significant emotional investment in the proposed transaction, and therefore they may not act “rationally.”  For example, a buyer may think he is requesting a modest concession following the inspection, but the seller is highly offended by the effort and the deal craters as a result.  A good negotiator takes this emotional component into account.

Finally, there is the most important negotiation skill (particularly in a highly competitive market like this one): The ability to assist the client in relinquishing some contractual rights and assuming some contractual risks in order to strengthen the offer.  Admittedly, this skill is only relevant, generally speaking, when there are multiple potential buyers and multiple offers.  But in that situation, there will be one winner and a whole bunch of losers, and everyone wants to be that winner.

When drafting an offer, a buyer generally includes several contractual terms that protect the buyer at the seller’s expense.  For example, there is a financing contingency, so if financing fails the buyer gets back his earnest money; there is an inspection contingency, so if the buyer is not satisfied with the condition of the property the buyer gets his earnest money back.  A good negotiator will have an intimate understanding of these potential contractual terms.  That negotiator will explain to the buyer how these terms protect him, and how buyer can forego some or all of those protections (like, for example, by foregoing the protections of the financing contingency).  The buyer can then make an informed decision about which protections, if any, to forego.

The expert negotiator can then specifically structure the offer, such as by using an addendum to alter the  terms, to make the offer much more attractive to the seller (basically eliminating the buyer’s protections so if buyer doesn’t complete the purchase for any reason the buyer must forfeit the earnest money).  In doing so, the negotiator will significantly increase the buyer’s chances of beating out other buyers.

So who has such skills?  Of the four examples above, a good real estate agent should fully understand and be able to apply the first three.  The fourth?  That is the practice of law.  Agents are neither trained nor authorized to apply this skill.  If you rely on a real estate agent for this service, you do so at your peril.  If you want a negotiator who has this skill, you should hire an attorney to assist you in the negotiations.

7 thoughts on “Real Estate Negotiation Skills: What Are They And Who Has Them?

  1. Sellers really need their real estate agent to educate them a little on market conditions and buyer expectations before putting their home on the market. A little “heads-up” in a heated marketplace may help them net a higher amount by not jumping at the first offer.

    I’m sure real estate trainers across the country just rolled their eyes at that statement especially since the concept of “your first offer is probably your best” has been drilled into agents (the front line grunts) forever. It is a risk, but, in a heated market strategies have to change.

    You are right that there is a high level of emotional investment here. Helping sellers negotiate an offer (or offers) on their house requires a level head, careful review and education, plus a strategy that works to achieve their goals.

    On a side note… all that “expert negotiating” can be for naught if the appraisal is super low, the home inspection discovers a spring in the basement, or the buyer gets angry at the whole nasty experience and defaults.

    • Thank you Doug! Regarding your “side note,” it seems to me that good negotiating skills are exactly what is needed when a buyer finds a defect or gets angry at the process. “Negotiation skills” in my mind include not only getting the home under contract, but keeping the home under contract until closing. So I wouldn’t call that out as a “side note” at all, rather that is at the heart of the issue. The low appraisal? That too would likely benefit from a good negotiator – i.e. someone who can keep calm and keep everyone’s focus on the common goal – although the nexus isn’t quite as tight.

      Regarding “first offer, best offer”: If the housing market historically appreciates, then time is on the seller’s side. Your comment reminds me of the “Freakonomics”take on the issue…

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  4. Great article. This is the first that I have read in a long time that address negotiation in the real estate business. Professional negotiators know that their are successful when both parties walk away satisfied with the transaction. Perhaps they did not get everything they wanted, but there was enough give and take to make both the buyer and the seller (in this case) feel like they were not taken advantage of. A skill that is not easily developed.

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