Real Estate Negotiation Strategy – Create a structured negotiation blueprint with the processes we outline in these two tested negotiation models.
Do you have a real estate negotiation strategy? Today I’m going to show you two different real estate negotiation strategy models that I’ve used throughout the years.
Why follow a real estate negotiation strategy model?
You want your client to:
- See what you’re doing on their behalf and demonstrate your value as a real estate agent
- Allow them to feel like they have an active part in the negotiation process
Most real estate agents can’t tell you what their process is. When asked, they won’t be able to point you to a negotiation model they follow, or even show you notes on their tactics. This is one easy way that you can be a step above your competition and demonstrate why you bring the most value to your clients.
Most people have never seen any negotiation structure or model, ever. It’s very, very rare.
There can only be one winner
If you are trying to be friendly and work everything out so that each side is happy, I’m not sure you have the right mindset to advocate on the behalf of your client. You are going into battle. Use a real estate negotiation strategy as your guide.
This is your duty – to do the best you can do for your client. You have no duty to the other party. Respect is important, yes. But you need to work.
This isn’t easy, and certainly not something where you can just “wing it” and satisfy your fiduciary duty to your client.
Strategy 1: Meet in the Middle Model
In negotiation, you never want to meet in the middle. That’s a concession. You never want to just meet in the middle, because that is lazy.
That said, I named this model “Meet in the Middle” because you want to establish where the middle is and pull the middle toward your side. By identifying the middle and following a set strategy, you can carefully and slowly influence the negotiation in your favor. It’s almost like a tug-of-war where you are pulling the middle closer and closer toward your goal.
So, let’s say the list price is $600,000 and we have an offer come in at $500,000. That means the seller and the buyer are $100,000 apart. If you represent the seller, you need to be okay with the middle point number. In this case, that would be $550,000.
That’s the number you would be okay with accepting. If you are okay with this middle number, you will entertain this offer or counteroffer.
You are always going to come up from your original offer. Negotiations move the number closer to the middle. If you are in a strong buyers market, it may move toward the $500,000 side. If you’re in a strong seller’s market, it may move closer toward the $600,000 side of the middle. But you must always talk about that middle point because that’s the expectation and perception from the other side, too.
Your seller is always going to say that they’ll never move down to $500,000. And you can tell your seller that it only needs to be closer to the middle point.
The real estate negotiation strategy process
- Your job, if you represent the seller, is to counter with an offer between the middle number and your original price. In our example, the middle point is $550,000 and the original price is $600,000. The number between these is $575,000, and that would be your counter offer.
- If you do counter with a higher point like $585,000, that creates a new “middle”. One of two things will happen. Either the buyer will chase you up to that new middle, or the buyer will hold and be stubborn and try to keep the middle at $550,000. OR, the buyer will realize that you want a higher offer and they might fear losing out to another buyer, so they may decide to get more aggressive and make a higher counter offer. They may come up to $535,000, for example. Now we have successfully moved the middle from $550,000 to $560,000.
- Next, you find the point between your counter and the new middle AGAIN. Subtract your last counter offer from the new middle. In this example, that would be $585,000 – $560,000, which is $25,000. Half of $25,000 is $12,500. Subtract this amount from your last counter and land at your next counter of $572,500. This would keep you on course for the $560,000 middle. However, you could also tell your seller that you want to move this middle even further. Instead of offering $572,500, your next counter could be $580,000. If you counter with $580,000, your new middle would be $567,500.
- You can keep doing this with each counter, and keep showing your progress to your seller so they can see your work and negotiation and how it is pulling the middle up.
Don’t get stuck at the middle up front
Pull the middle toward you throughout the process and show these conversations to your seller. Talk to your client and talk them through your strategy constantly.
In the example above, you can see that the longer your negotiations are in play, the more power you can accumulate for your seller. By dragging the offer and buying more time for multiple offers to come in, you are strengthening your position in each of your negotiations.
Strategy 2: Icenhower Negotiation Method
This method was created by my father, who was a real estate broker for over 50 years. He was a very smart man, and an expert negotiator. He had models and structures for everything he did.
I love the book “Never Split the Difference” by Chris Voss. It isn’t designed for real estate, but it contains high level strategies that can be easily adapted and applied to real estate. In this book, Voss outlines a strategy that is very similar to the real estate negotiation strategy that my dad used. It’s called The Ackerman Model.
The Icenhower Negotiation Model is an offer-counteroffer real estate negotiation strategy designed to move negotiations to your side of the middle-point in between each party’s prices.
The real estate negotiation strategy process
- Set your target price (your goal)
- Set your first offer at 85% of your target price
- *Calculate ahead of time. Note: Hard to plan negotiations like this with multiple offers, since competitors can be unpredictable with varying urgency
- Calculate 3 future raises at 92%, 98%, and 100% of your target price
- Use as much tactical empathy to say “no” a lot to get your opponent to counter-offer before increasing each offer
- Use a precise, non-round number for your final 100% offer
- For example, $237,893 instead of $240,000
- It gives the number more credibility and weight
- Also with your final 100% offer, try to throw in a non-monetary item (that you may not care about as much) to show that you’re at your limit
*Note: they are in decreasing increments as you proceed with negotiations.
The seller has a triplex he wants to sell for $500,000, and you want to buy it. Note: Not listed on the market.
- Set your target price: $450,000 (difficult in a hot seller’s market)
- Calculate first offer at 85% of $450,000 = $382,500
- Must keep negotiation alive!
- Feel uncomfortable yet?!
- Calculate next 3 counter offers ahead of time at:
- 92% of $450,000 = $414,000 (will show good movement)
- 98% of $450,000 = $441,000 (still good movement)
- 100% of $450,000 = $450,000 (adjust to $449,357.00)
A precise and non-round number shows intense calculations have been done. Maybe this is the number you need to ensure that you get the positive cash flow you need. Note: Markets vary. Some are hotter than others, so you might have to adjust the percentages accordingly: 92% -> 96% -> 98.5% -> 100%
Make the other side feel that they “won”
Nobody wants to “lose” a negotiation. This is why we throw in that non-monetary item at the end. It makes them feel like they “won” something, even if it isn’t a very valuable item. And, by using a non-round number, you are showing that you have given everything you possibly could give.
Show them you tried as hard as you could. This will also make your opponent feel like they have pushed you and gotten as much as they could out of you.
More notes on real estate negotiation strategy
Here are a few general takeaways that you can use regardless of the real estate negotiation strategy you choose.
Always show your work
You must show your work. This is vital. Show all of this to your client. Explain the steps and show them your notes. Tell them you’re following a specific model that will help get them their target price.
Highest and best isn’t highest or best for your seller
Yes, it is easier to say, “Highest and best!” and choose the best offer. But, you can get more for your client by negotiating with each offer, one by one. It is more time consuming. It is not easy. But, it will pay off for you and for your client.
When you are representing your buyer and the seller agent asks you for highest and best, what should you do? First, ask how many offers are on the table. Usually if there are a ton of offers, the seller will not have time to address each offer and negotiate individually, so they will feel pressed to ask for highest and best up front. Or, perhaps, the client doesn’t want to deal with the stress of negotiations. So, I would only actually offer the highest and best in this situation, where there are a ton of other offers on the table already.
FREE DOWNLOAD: Meet in the Middle Strategy PDF
Today, we’re giving you access to download our Meet in the Middle Strategy PDF for free. This graphic will help you learn the process and learn how to best negotiate for your client.
Real estate negotiation strategy summary
- Negotiate on behalf of your clients
- Don’t be afraid to go back and forth many times
- Keep more offers in play
- Use a real estate negotiation strategy and keep your clients involved throughout the process
- Win more negotiations!
Want to learn more?
- Read The High-Performing Real Estate Team. You can buy Brian Icenhower’s best-selling book on Amazon.
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