FSBO Negotiation Mistakes to Avoid

Negotiation. It's especially important for you to know all the negotiation tactics that you need to be aware of that you could use or that could be used against you when you're trying to sell your home without the assistance of a realtor. So you're trying to save commission fees by selling your home as for sale by owner or FSBO, and I'm going to walk you through the most common negotiation mistakes that for sale by owner sellers make and more importantly, how to avoid them. And if you stick with me till the end, I'm going to share a really, really important tidbit. All this is breaking news, folks, all new. And it's an outgrowth of what has happened as a result of this lawsuit and how buyer's agency commission is being handled. It impacts sellers in a big way. And if you're a for sale by owner, you're not as intimately involved in all the goings-on. And so you don't know about how these changes and how buyer's agency commission are being you likely don't know how that's going to impact you as a seller. So stick around and I'll give you that insight at the end of the video, but there's a lot of great content in between. So without further ado, let's get into it. Okay. Mistake number 1, being too emotionally attached. One of the biggest mistakes FSBO sellers make when negotiating is letting their emotions take over. Selling your home can be an incredibly emotional process. Believe me, Shannon and I have gone through a number of sales. Each one of them has a different emotional component, and it's to be expected. After all, this is your home filled with memories. But here's the hard truth, is that buyers don't care. They don't care about your emotional connection to your home. So you need to know that going in. So that's the issue, is if, if you're too emotionally attached, you might feel insulted by a lowball offer, or You might get overly defensive if the buyer points out things that they want changed. This can especially come out during the inspection period if buyers start to nitpick or make requests for repairs or a price reduction during that inspection period. We'll get into more of that when I talk about the contingency phase, but your instinct might be here to push back too hard, and that can easily derail the negotiations. Here's what you do instead. You need to detach emotionally from the transaction. You need to treat it as a cold business deal, not as a personal sale. One strategy is to focus on the numbers, and we'll get into more of that about knowing your bottom line. Know your numbers and remind yourself that this is an investment transaction. If an offer comes in that doesn't feel great, Take a breath before reacting. Review the offer calmly, counter it if necessary, but never react emotionally. As a check for you emotionally, you may want to consult with a family member. I always used an agent, but if I were trying to do it without an agent, my brother would be somebody that I would call, or a close friend who can kind of provide you a little bit with that emotional detachment. It's just worth having someone to bounce it off. If you're trying to sell it without an agent, you obviously will not have agent to do that with, but find a trusted person, maybe someone who's done a number of deals themselves, bounce it off them. They can help you keep that emotional detachment that's going to be really necessary for you to be an effective negotiator. Mistake number 2 is not knowing your bottom line before you start negotiating. You need to know how much you're willing to accept. This means that you need to have a clear understanding of your financial situation, and know the lowest price that you're willing to sell for. Why this matters? If you don't have a bottom line figured out ahead of time, you'll be more vulnerable during the negotiation process. The buyer might make a strong case for a lower price and you could end up agreeing to a deal that doesn't make financial sense for you. So here's what you do instead. Before any offers come in, sit down with all the numbers, figure out what your home is realistically worth, factor in any costs you'll need to cover, like closing costs, repairs, moving expenses, etc., and set a firm bottom line based on that information. One of the key things that'll help you in that determination is doing what's called a seller net sheet. I have shot a totally separate video where I walk you through an online tool that I use as a realtor for my seller clients, and I provide them with these seller net sheets. And that really helps them then determine their bottom line. Remember, that bottom line is the bottom. You want to negotiate above that bottom line, obviously, and get the very best deal for yourself, but you want to establish that bottom line, and anything above that line would be a bonus. That bottom line then is the non-negotiable for you, and knowing that bottom line will help you stay grounded during negotiations. Mistake number 3 is overplaying your hand in negotiations. This happens when sellers are so focused on getting the highest price possible that they overestimate their bargaining power. Now, it's great to aim for the best deal, but pushing too hard can backfire and you just need to be prepared for that. Here's what I mean. You might think, I'll start with a super high asking price and work my way down, or I'll never agree to any of the buyer's requests. The problem with this is that buyers might feel discouraged or even worse, walk away from the deal, especially if your home has been on the market a while. Remember, days on the market are killers for sellers. Whenever I have buyer clients, the first question I'm often asked is, how long has this been on the market? That is their first window into how the negotiation will go. And there's just this built-in thing in a buyer's mind that the longer it sat on the market, the more malleable, the more negotiable the price So remember that days on the market, that is a huge factor in negotiation. The longer that your home has been on the market, then that impacts you being too rigid in your negotiations. It can send the wrong message to buyers that you're not serious or that they're wasting their time. Here's what you can do instead. You have to strike a balance between standing firm on your must-haves and being open to reasonable compromises. For example, let's say that the buyer asks for a repair after a home inspection. Rather than just outright refusing, you could offer to split the cost or provide a credit at closing. This keeps the negotiation going while still protecting your interests. And remember, it's not just about the price. You can negotiate things like closing dates, repairs, contingencies, and even appliances. So while the price may not move much, you can make concessions elsewhere. And this is a key in negotiations, by the way, things that may not be very important to you, but you get a sense that they are very important to the buyer. You can get things in exchange for those. The buyer doesn't know that they're unimportant to you. So why just give them away? Get something in exchange. So that's where communication is very important during the negotiation process of really seeking first to understand is one of the 7 Habits of Highly Effective negotiators. It's really from Covey's book, The 7 Habits of Highly Effective People, but it is a key in negotiations. Seek first to understand the buyer's perspective, and that will help you in your negotiations. Another key thing to keep in mind when it comes to negotiations is how seller's disclosures impact that. And this comes up during negotiations. I'll cover that when we get to the contingency part. You're going to want to be mindful if you've gotten that far in the process and the buyer is essentially reopening negotiations after inspections, you're going to have to be mindful of your lawful duties under the Seller's Disclosure Act. Mistake number 4, not being prepared to walk away. Another big mistake is not being ready to walk away from the transaction. Negotiations can be very, very stressful, and it's easy to feel like you want to accept an offer just because it's the only one on the table at the time. And remember, this goes into the pricing strategy of your home. That's really your first step into the negotiation process before you're actively negotiating with a prospective buyer. Setting the stage for that negotiation is key with how you price your home and the pricing strategy that you have in mind. If you want to delve more into what I mean by a pricing strategy and how that pricing strategy will really influence your future negotiations, you want to check out my video that I shot on setting a price for your home and developing that pricing strategy. I'll have a link to that in the description. But here's the thing. You will lose all of your negotiating power if the buyer senses that you're desperate to sell, or if they know that they're the only buyer interested. There is such a world of difference between a negotiation with only one buyer versus negotiations with two or more buyers. You as a seller absolutely are in such a better negotiation position if you are dealing with more than one interested buyer. So be careful if you're really only dealing with one buyer, they can feel like they get the upper hand and that could lead them to be pushing for more and more concessions and a lower and lower price. Here's what you can do instead. Always be willing to walk away from a deal that doesn't work for you. And this is where knowing your bottom line really, really comes in handy. If an offer falls below that number, or comes with too many strings attached, too many contingencies that you just don't like, don't hesitate to say no. Walking away is a powerful negotiation strategy, and it shows the buyer that you're serious about getting a fair deal. Mistake number 5 is mishandling counteroffers. Mishandling counteroffers is another common mistake that sellers make when trying to sell their home without the assistance of a Realtor. A counteroffer is when a buyer makes an offer and instead of accepting it as that buyer has written it, you propose different terms. And while that may sound kind of straightforward, many for sale by owner sellers struggle with counteroffers for several reasons. Number one, they don't understand really how the counteroffering process works. One of the things you really need to keep in mind as a seller working in these contracts, these legally binding contracts, without the assistance of a realtor is that you do not have a deal until you have a deal. You do not have a deal until both parties agree to the same exact set of conditions. So as long as you're going back and forth with counteroffers, there is no deal. So that's really important for you to keep in mind because you could be going back and forth, you don't have a deal, and you really don't have an obligation. Okay. This is where keeping your emotions out of it is also very important. You could be going back and forth with this deal and another buyer could come in with a much superior offer. You're allowed to take that offer at that point because you do not have what's called a fully executed agreement. If you do get a fully executed agreement, in other words, you and the buyer agree in writing to the same set of conditions, and then a new offer comes in that's superior. You cannot break up with this offer and come here. You could try, but you're exposing yourself and you'll lose in court every time. So you need to understand the nature of contracts. And that means that you do not have a fully executed agreement until both parties agree on the same set of conditions, the same set of contents, all the contents within that contract. Okay, so now other common mistakes that people selling homes without realtors make is they could take too long respond. They could also make multiple counteroffers at once or fail to understand the buyer's motivations. Why this matters: if you take too long to respond to a buyer's offer, or if you overwhelm them with too many counter— multiple counteroffers, you risk frustrating them or making them feel like the deal is not moving forward. Also, not understanding why the buyer is countering can lead you to pushing back on issues that aren't very important to the buyer. Here's what you do instead. When you receive an offer, respond promptly, ideally within 24 to 48 hours. And by the way, this is why knowing your bottom line and kind of doing some practice runs for the negotiation— that's one thing that I do with my sellers that I represent. We will kind of run through the negotiations. I'll cover different scenarios, give them a few practice runs. I think that's very important to do. So if the offer doesn't work for you, submit one clear counteroffer addressing the terms that you want to change. You can include lots of different things in one counteroffer. Okay. Be thoughtful about those. And remember, you don't have a deal until you— both parties agree. So you can go through a series of counters back and forth. But let me tell you, that could go on forever. But I don't think that that's a solid strategy. Be thoughtful and try to keep the amount of back and forth to a minimum if you want to get a deal done with that particular buyer. It can get exhausting. And I've seen more than one buyer just throw their hands up and walk away because it was just getting to be too much and they wanted to move forward. Remember, buyers want to buy a house. They want to move to the area. And you're not the only fish in the sea, right? So if you've got a buyer on the hook, especially if they're close to what you want, if they're not close, then you wouldn't be going through a counteroffer situation anyway. But if you're close, it's usually worth the effort to keep them engaged in a back and forth and try to reach an agreement. The other thing is, before you counter, try to understand why the buyer is making certain requests. If you can address their concerns while still protecting your interests, you're more likely to keep the negotiation on track, and you're more likely— the more you seek to understand the other side, the more you're able to get things in return that may not be that big a deal for you to give up. But you'll be able to get something in return. For example, if the buyer is asking for quicker closing, they may be on a tight schedule due to a job relocation. You can use this information to negotiate other terms that benefit you. All right, mistake number 6, forgetting about the contingencies. Contingencies are conditions that must be met for the sale to go through. Common contingencies are the inspection contingency, a financing contingency, and a part of that financing contingency is an appraisal contingency. Now, if it's a cash sale, then typically an appraisal is not necessary. One thing to really be careful of as a for sale by owner seller is making sure if a mortgage is going to be involved and that buyer has a preapproval from a lender, you're going to want to understand just what is going on there. Sometimes these letters are not worth the paper that they're printed on. And I could talk about horror story after horror story after horror story that I have heard from other realtors. I haven't experienced it myself because when I'm representing a seller, one of the things that I'm doing is I'm calling that lender, that loan officer, whoever's originating that loan on behalf of the buyer, and I'm really interviewing them to get deep understanding of how qualified they are as a buyer. Some of these loan officers, they're just spitting out these pre-approval letters and they really haven't done their own due diligence to determine just how qualified that buyer is. And believe me, you don't want to be under contract with a buyer who really cannot perform in the end. They won't be able to get financing and you've lost out on other potential buyers out there that would have paid you as much or more for your property. So keep that in mind when we're talking about contingencies. For sale by owner sellers often focus so much on price that they forget about these contingencies, and these contingencies can derail the sale if they are not handled properly. Here's what you do instead. Always factor contingencies into the negotiation process. For example, if a buyer requests a contingency for the sale of their current home, you need to assess whether waiting for that sale, that timeline of them selling their other home is worth it to you. Or if there's a financing contingency, as I mentioned before, you need to make sure that that buyer is prequalified and what the terms of that prequalification, what went into that determination on behalf of the loan officer who wrote that. It's just not about accepting the offer. It's about making sure that the offer will actually close. Remember, you don't have a deal until you have a deal and a transaction technically is not closed until funds have been transferred. That's a basic premise of contract laws, that consideration has to have been given. By consideration, I mean money has been transferred in this case. So even though you've sat down at a closing table, you've signed all the documents at the title company, until funds have been transferred, you do not have a closed transaction. All right, one other thing that you need to be cognizant of during your negotiation process is that inspection period. Okay. And quite often, especially if there's not good pressure on that buyer, if that buyer knows that there aren't other buyers waiting in the wings to swoop in, if the deal falls apart, if they know they're the only show in town, then they're likely to use the negotiation period to get a second bite at the negotiation apple. And they'll come back with a list of things that they want repaired or money off to cover the cost of those repairs. And here's a key issue. You have a lot to consider with that, including what your bottom line is, what the level of interest outside of this particular buyer is. But one thing that's often missed by people trying to sell their home or property without the assistance of a realtor is that how this inspection and the results of the inspection that are shared by the buyer to you affect your requirement under the Seller's Disclosure Act. So remember, the Seller's Disclosure Act requires that you disclose all known defects after receiving the results of their inspection. Now, you might have new information, you know, additional things that maybe you didn't know before. So that's going to affect what you do in the future. And this really has an impact on your negotiations because if they come back with a series of defects, and they're still interested in buying the home. They just want money off or they want these items fixed. Remember, if this deal falls apart, you now have a new obligation to disclose those defects that were found during that inspection period. So you need to keep that in mind. If you were to not disclose that new information that was discovered by that buyer, now you are liable under the Michigan Seller's Disclosure Act. All right, let's get into the changes in buyer's agency. What you as a for sale by owner seller need to understand how these changes in buyer's agency are going to impact you and how key that is in the negotiation. Okay, so now here's what's changed. Buyer's agents now are required. They are required to have an upfront conversation with their buyers and have an agreement in place. And in that agreement, it stipulates how much that buyer is going to compensate that buyer's agent. So in other words, if I'm working with a buyer, it's now required before I can show them any property, whether it's vacant land or a home, whatever, before I show them the property, I'm required to sit down with them and have a buyer's agency agreement in place. Here are the services that I'm going to provide in exchange for that. I'm going to receive X compensation. So that conversation will already have taken place with the buyer's agents that are calling you as a for sale by owner seller.. And so they're going to ask you, what, if any, buyer's agent compensation are you offering? And if you right up front say 3% or 2.5%, etc., you could be giving away tens of thousands of dollars. And now why do I say that? Well, because it could be that they've, in that sit down that they had with their buyer where they signed that buyer's agency agreement, they agreed to 1% and you're offering 3%. So you're just giving away 2%. And if I know most for sale by owner sellers, the reason you're selling it on your own is because you're very concerned about the amount of commission that you're going to pay someone to represent you. See, that's the biggest difference here is in this case, you'd be paying a buyer's agent commission and you're paying that buyer's agent to negotiate against you. Just let that sink in for a second. You're paying the opposition. So that's something you need to think about. Are you comfortable? If you were in a court battle, you don't want to be paying your opposition's legal fees. And in this case, that's kind of what you'll be doing if you're offering a buyer's agent commission. Do you really want to be giving away 1, 2, 3%? So here's what you do instead, is that instead of just coming right out and saying, yes, I'm offering X, You can just say something like, you know, it'll come down to the totality of the offer, the price, terms and conditions, and what I will net as a seller. And so you can just have that agent put their compensation into the purchase agreement or the buy-sell agreement. And that's what I've recently done when I've represented buyers. I have a deal going on right now where I sat down with them, we signed— prior to me showing any homes, I'm following the rules— prior to that, I had them sign a buyer's agency agreement, and it says in there that I'm going to earn X percent. Okay. And we had a conversation and I said, I'm going to use my negotiation skills on your behalf and we're going to have the seller pay that X percent. You won't have to pay that directly out of your pocket. It will be included in the price of the sale of the home. By the way, do not insert yourself into a contract between two other people. Okay? You don't have a right and you really don't want to get in the legal mumbo jumbo of asking them what they've agreed to already. Instead, just say something along the lines lines, like I said before, of it'll all come down to the bottom line. It'll all come down to what the total dollar figure, the, the amount that I will net at the conclusion of the sale, and the conditions that are involved in the contract. And so feel free, buyer's agent, to include whatever compensation you are seeking in your offer to purchase. That's your sort of response to that. Otherwise, again, if you just offer up I'm doing 2.5% or 2% or 3%, whatever. You don't know that they could have already agreed to do it for free for 1% or less. So that's why you need to know all about these changes that, again, any buyer's agent coming and talking to you is required to have this buyer's agency agreement in place. And a requirement of that buyer's agency agreement is they have agreed upon that compensation that will be due to that realtor. So you need to know that going into the negotiations. All right. Keep that in mind. That is breaking news. All right. So there you have it. The top negotiation mistakes that for sale by owner sellers make and how to avoid them. If you're planning to sell your home on your own, negotiation is one of the most critical parts of the process. Remember, being prepared, staying calm and emotionally detached, knowing your bottom line, knowing how this new breaking news, how buyer's agency is being handled. Knowing all of these things can help you avoid very, very costly mistakes and put more money into your pocket, which is what this is all about, right? That's why you're concerned about how much the sale of your home is going to cost you. So avoid these costly mistakes because not knowing them is money out of your pocket. And the reason you're taking on the weight and all this responsibility and a lot of hard work of selling the home on your own is to avoid costing yourself money. Hey, if you found this video helpful, remember, subscribe to the channel. In particular, if you're trying to sell your home without the assistance of a realtor, you're really going to want to check out my playlist dedicated to FSBO sellers. And another thing that I've got coming up, I put on free webinars where we dive deep into these for sale by owner strategies, live webinars. They have Q&As involved with them. I also offer a free consultation. Following the attendance of the webinar. So if you're someone thinking about selling your home for sale by owner, check out the link in the description to my free webinar. And until I see you in the webinar or until the next video, thanks so much. I'm Sander Scott, your full-service realtor.