A couple weeks ago I promised an entry explaining how to get a head start on negotiating 101 by explaining the business/negotiating concept of the "BATNA".
There are probably very few Realtors that know what this is and use it in their business and in negotiating on their buyer's behalf. I try to explain this concept to First time home buyers especially because they tend to be highly motivated to close, which puts them in a weaker negotiating position then luxury clients, investor clients, or 2nd home buying clients.
What is a BATNA? A BATNA is an acronym which stands for "Best Alternative To A Negotiated Agreement."
If you go up against an opponent that has a BATNA while you don't, you will come out behind in the negotiation almost every time. What does this mean though in layman's terms? Having a BATNA basically means not "falling in love with one result to quickly. It means objectifying the process of home purchasing as much as possible by having back up alternatives that can realistically and objectively be pursued in place of your favored outcome.
This is why I said the zillow prospects that come to the table with one property that has been under researched in which they've already fallen in love with without being properly prepared usually ends poorly. Almost to the point of those prospects not being good business decisiosn for the Realtor taking those leads.
In a seller's market admittedly, this is harder to do. There isn't a lot of inventory. Prices are high. There are multi offer situations. In these instances I tell my clients that we really want to try and avoid multi offer properties as much as possible. Even the listing agents tend to perform poorly when dealing with multiple offers. Attempting a multi offer purchase as the buyer has a very high probability of failure in my opinion.
How to maximize your chances of getting a good lendable first time home at a good price? If possible have realistic backup properties that you would be happy with as a reasonable alternative, and be ready to take those properties as a backup scenario if necessary.
If this isn't possible? Do you have other alternatives? Can you hold out and save up for a bigger down payment? Can you wait for interest rates to come down? Can you wait for that raise at work that puts you in another property class bracket? Can your Realtor shop around for off market properties with a high statistical likelyhood of having owners willing to sell? What are all your non purchase related alternatives? A Realtor may not want to hear this, but as the buyer these alternatives also need to be considered.
Jonathan Huges and Danny Ertel writing for the Harvard Business Review state the minimum for a successfull negotiation is the following:
What business outcomes do we seek through this negotiation?
Who cares about those outcomes?
Who can do something to bring about those outcomes?
How can we engage directly or indirectly, with parties that share some of our interest in achieving those outcomes?
What are your best outcomes? What business partners on both sides of the transaction have a vested interest in the outcome? What can you do to maximize those outcomes? How can you engage with such vendors and partners to maximize your outcomes?
These are important questions to think through as you write your first offer!
Until Part 4! Writing the offer and starting Escrow!