The Negotiator Magazine
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Ask The Negotiator
Steven P. Cohen
We are delighted to have Steven P. Cohen return this month as a guest respondent for the Ask the Negotiator column. Mr. Cohen is the president of The Negotiations Skills Company. Inc., based in Prideís Crossing, Massachusetts. He is also a visiting professor at Brandeis University (Waltham, MA) and Groupe HEC (Jouy-en-Josas, France) and the author of Negotiating Skills for Managers (McGraw-Hill, 2002).

Mr. Cohen receives questions from his international clients and publishes them along with his answers on his web site at www.negotiationskills.com.

And now, this monthís letter...

Owner Strategies for Opening Property Sale Negotiations with Tenants

From: Helen, USA

My question stems from the fact that I am getting ready to sell my house in California in order to buy in Massachusetts. The current tenants have indicated they may be interested in buying the house. My thinking is that I should inform the tenants of my decision to sell, and tell them I am giving them the opportunity to make an offer prior to listing the house. I do not intend to tell them my price, wanting them to make the first offer, which might result in a higher price being offered than I would have asked. If their offer is below what I intend to accept, I plan to tell them so, reminding them of all the improvements the house has in comparison to others in the neighborhood, etc., and then let them make me another offer. Is this prudent, or do you think it is better for me at his juncture to counter-offer their original offer at a price somewhat higher than I am willing to accept? My dilemma originates from the knowledge that if I were in the buyer's position and had made an offer, I would definitely want a counter-offer myself. However, I don't want to show my cards too quickly, either. What can you advise me in this situation?

Dear Helen,

Before you sell your house or anything of significant value you need to do a good job of research to determine your bottom line. It makes a great deal of sense to determine the market value of your house as it is. You may do this yourself by looking at prices for comparable houses in your area or by discussing it with experts in the field. One possibility, since you are going to sell the house anyhow, is to invite several local real estate agents to give you a sense of what your house is worth in the current market, how long it may take to sell, and whether there are any inexpensive things you could do to increase its price.

In addition to your review of the local market, you need to figure out what you will need from the sale of the house for your move to Massachusetts. This should include checking with your tax advisor regarding tax consequences.

Once you have developed a basic sense of what kind of money you can expect to gain if you sell the house, you should add 10% to the sale price (or a different figure if a real estate agent thinks this makes sense) before you settle on your desired selling price.

You should tell your tenants, after you have determined what price makes sense, before you put the house on the market. Give them a fair, firm deadline for their offer. It is possible they may want a right of first refusal. In those circumstances, if it means they are not going to make an immediate offer, make it clear that the right of first refusal is something you are prepared to sell to them, rather than giving it away.

While it is perfectly reasonable to tell them you have not settled on an exact price, you lose nothing by saying that you are looking for a price in a certain range, as long as the bottom of the range you quoted exceeds the minimum amount you are willing to accept.

The old saw that the first person who mentions a price in a negotiation "loses" should not be taken seriously since, if it were true, no one would ever make the first offer. Your number one interest is to sell your house for a good price; not to play games with potential buyers.

If the tenants make an offer, it is unfair to them not to respond with a counter offer that "brackets" the range within which you would be willing to sell. Worrying too much about the choreography of offer and counter-offer is not a sign of your respect for them, but rather is likely to give the impression that you cannot make up your mind.

One crucial caveat; no matter how good your relationship with your tenants may be, unless they are extremely credit worthy and can offer collateral other than the house you are selling them, you should not "take back paper" but rather should treat the sale as an arms length transaction. If you leave yourself a part owner of the house by becoming their mortgage, you may end up owning the house again under ugly circumstances.

Good luck,
Steve.

Steven P. Cohen has been a frequent contributor to The Negotiator Magazine. His articles include Negotiation as a Paradigm for Business: Ethical Negotiations Lead to Ethical Business" (October 2002) and Because Itís Mine: Thatís Why that appeared in the September 2003 edition. A review of his most recent book entitled Negotiating Skills for Managers appeared in the November 2002 edition of this magazine. To contact Steve Cohen or learn about his company you may visit his web site www.negotiationskills.com..


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