Real Estate Round-Up: Compromise is the key ingredient to good negotiating

I’ve spent the last five weeks writing about some of the big issues facing real estate throughout California. I wrote about availability and its impact on affordability, on rent stabilization, which is another word for rent control and last week on the electrification of housing. Big topics that need big solutions.

Today I want to return to something that is more personal to me, negotiating and compromise. I believe they are not mutually exclusive. In other words, negotiating generally means compromise, which generally results in winning for both sides. One may have a “big” win, while the other has a “smaller” win, but nonetheless, it’s a win for both parties. In a real estate transactions, negotiating and compromise runs throughout the entire process.

Let’s start at the beginning. When a seller meets a Realtor, the residential listing contract defines what the Realtor will do for the seller and what the seller will do for the Realtor. They negotiate the length of the contract, they negotiate the listing price and they negotiate the commission. They might negotiate the showing times, whether there will be a sign or a lockbox installed.

Decisions get made based on how well the Realtor explains the benefits of each of those items to the seller and in tandem with the needs of the seller. Compromise is part of the process.

It happens in much the same way when a buyer meets a Realtor who is going to represent them. Many Realtors utilize a buyer/broker agreement that spells out the relationship between the Realtor and the buyer. It’s a contract that defines what the Realtor will do for the buyer and what the buyer will do for the Realtor.

Without going into the details, it creates a “loyalty” between the buyer and the Realtor for a specific period of time, within a specific geographic area, with specific compensation. It may also include subtle details that are specific to the buyer’s needs. Negotiating and compromise is part of the process.

The next big negotiation begins when the buyer writes an offer on a property and presents it to the seller. The Realtors are the messengers and consultants for their respective parties. Add steroids to the first two contracts and you have a purchase agreement negotiation.

Price, close of escrow date, removal of contingency dates and defining who pays for what is only the beginning. The fun generally begins during the home inspection. Homes are sold “as is,” in their current condition, subject to the buyers’ right for inspection. In layman’s terms, that means the house is sold exactly like it is, however when the buyer does an inspection, if they discover something that they disapprove of, they can choose to cancel the purchase or draft a “request for repairs.”

Here’s the thing, the seller and the buyer must find a middle ground, a compromise, in this negotiation that works for both sides. Occasionally, one or both of the parties are very easygoing, so things go smoothly. But when one of the parties believes in a winner takes all, it may or may not get resolved, but that stand firm position adds stress and drama to a transaction.

We had this happen recently, over an appraisal. Appraisals usually come in at the agreed upon purchase price. In a transitioning market, this alignment can be harder to achieve. In this case, the seller countered the original offer with a higher selling price in order to pay for the buyer request of more than $19,000 in closing costs. That’s a very big ask by the buyer to the seller, but with an increased purchase price, both parties would get what they needed. Sounds like compromise to me.

An additional piece to the story is that both buyers and seller signed a “market conditions advisory” which addresses the ups and downs of the real estate market and that both buyers and seller agree that the price the home is in escrow for is the price the seller and buyer believe it is worth. Enter, the totally autonomous appraiser and all the goodwill was dashed against the rocks.

When the appraisal came in $19,000 low, it meant that once again some negotiating had to occur; however, this time, the buyers dug their heels in and despite everyone’s efforts to find a compromise, it was not acceptable to the buyers. This escrow canceled all because finding a middle ground was not acceptable to the buyers. They wanted a “big” win. So, no one won. The seller still has the house, the buyers are looking for a house and a seller who will be willing to pay their $19,000-plus closing costs.

I want to win, like everyone else, but in my humble opinion there is joy in finding compromise. It’s not weakness but strength that can give up a little to gain a lot and at the end of the day is so much more satisfying, and it truly is a win for everyone.

Kim Murphy can be reached at [email protected] or (760) 415-9292 or at 130 N. Main Avenue in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.