Negotiation Skills and Agency Law

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To give you a best example of merit negotiating, let's look at something most people are familiar with, and that's the purchase of an automobile. Some people, when they go in to purchase an automobile, will sit there and work with the salesperson until they are absolutely convinced that the salesperson is providing them the best price that the dealership will allow. That is very much an example of positional bargaining. It is appropriate, for those people who wish to do so, to purchase an automobile using positional bargaining. Very honestly, the relationship that the buyer may have with the sales representative after they purchase the car may be of very little significance to the buyer. However, another method of purchasing an automobile may be to have a pre-determined amount in the buyer's mind for the car and a pre-determined monthly payment that they are willing to pay for the pleasure of driving that automobile. They will then sit down with the sales representative and they can reach an agreement that allows them to make the down payment, that they had already determined was comfortable to them, and allows them to make a monthly payment that fits their budget. They may, at that point, agree to purchase the automobile.

They also will have a better relationship with that sales representative for any future need for possible repairs, problems with the car, whatever may come up. So in a very day-to-day type example; when you are trying to explain to your seller and buyer clients the difference between positional bargaining and merit negotiating, we offer that this is just one of the best examples to use.

B. Definition

Merit negotiating is very much a situation where someone may look at a home, as a buyer, place a personal value on it, sit down using real estate agents on both sides, or one real estate agent and communicate their desires to the seller. At that time, when the seller has arrived at the level that the buyer had pre-established as a point at which they would agree to the contract, then the negotiations terminate and the agreement is finalized.

As you listen to that, we're sure you will know this is drastically different than many of the negotiations that take place in the real estate today. But on the other hand, negotiating on the basis of merit and not on basis of position will allow buyers and sellers to work out differences that may arise later on in the closing phase. The process will be much more amicable and much more effective. With that in mind, let's take a look at merit negotiating.

First of all, there are three primary benefits to the system of merit negotiating.

It considers the interest of the participants to the transaction. When you start to work with your clients, whether they are buyers or sellers, the first thing you do in establishing a relationship with them is to determine what their interests are in the transaction. Those interests will carry forward to the negotiating process when it comes time to determine the terms of the purchase and sale agreement. Merit negotiating, very much considers the interests of all the parties to the transaction.

Secondly, it maintains a working relationship between the participants after the negotiations are concluded on the purchase and sale agreement. People are often commenting on the complexities that are growing continuously in real estate transactions today. Sometimes, in the real estate world, there are situations where people will sell a piece of real estate, then they will finalize the purchase and sale agreement and, in many cases, there will be no contingencies other than financing. There are no termite inspections, there are no radon tests and there are no home inspections. These incidences weren't that long ago.

The reality is that as all those contingencies have increased in contracts to the extent that, after we have finalized the purchase and sale agreement, we truly have many obstacles to get through before we can have a closing and actually transfer ownership of a property. For that reason, we have to focus on relationships.

We would strongly encourage you to explain to your sellers and buyers what we term "life after the purchase and sale agreement" so that they can keep that in mind when they are negotiating the contract and attempting to maintain quality relationships with the other party.

The final benefit of negotiating on the merits is that an agreement is reached efficiently. I think too often people are spending hours and hours getting emotionally involved with their contracts through positional bargaining. In reality if they had sat down and looked at what their needs and wants were when they came into the transaction and once those needs and wants were met and the transaction was concluded; you will find that the efficiency with which you can reach a purchase in sales agreement will increase dramatically.

When you sit down for the first day with your seller and talk about what her needs and wants are in the sale of the property, let us recommend to you that you document that discussion. Then when it comes time to negotiate the purchase in sales agreement, you can go back to the seller and remind her of what it was that they had established as the primary and secondary objectives in the sale of the home. If, possibly, they are starting to get into a defeatist attitude or a compromise attitude, you can simply say to them, "If one of the things you wanted to accomplish was a price of a certain amount...", and then you can remind them of what it was that they had said they would be willing to sell their house for.

They may also have indicated that it would be important to them to be able to move out of their home and close on a certain date -- say on the 15th of August, so that they would be able to move into their new home in time to get their children established in a new school system. Remind them of those issues because in merit negotiating, what happens is that you're going to look at the offer that the buyer brings in, remind the seller of what their initial needs were, and compare the offer made by the buyer to the needs of the seller.

As close as you can get those two things to match then a contract, at that point, should be finalized. Should the seller attempt to abandon the needs and wants they had originally established and continue to drain the buyer for either concessions or price, then be careful that you are not watching your client get into the defeatist mode where they are simply trying to take everything they can from the other party in the transaction.

So again the three benefits to merit negotiating is that it considers the interest of the participants, it maintains a working relationship between the participants after the contract is negotiated, and the agreement is reached efficiently. We should also mention at this point that although we talk about negotiating a purchase in sales agreement, there are other types of negotiations that will come up during the closing phase.

Let's take, for example, a situation with a home inspection, where possibly there was a contingency in the contract that made the contract on behalf of the buyer subject to a satisfactory home inspection. The results come in and in the mind of the buyer; the inspection report was not satisfactory. Therefore they wish to renegotiate the purchase of the property.