If you haven’t read Part 1 of Purchasing An Apartment In New York City, I recommend doing so. In Part 1, I addressed Preparation. Understanding the market, financial requirements to purchase (from both a down payment and debt-to-income perspective), as well as your strengths and weaknesses as a buyer are essential to “winning” an apartment in NYC – and your game plan will position you to seize the opportunity when it arises.
Ok, so maybe using a quote from the author of The Art of War is a bit harsh. Labeling our counterpart as “Thy Enemy” at the beginning of a negotiation sets up an adversarial relationship rather than one in which we can create and claim more value. The point is, instead of blindly deploying our strategy – or making assumptions – we must gather intelligence about our negotiation counterpart’s (a.k.a, the Seller) strategy, situation, strengths, weaknesses, goals, wants, and needs. All of this intel will help us understand the “Power Balance”, identify and rank the seller’s Value Elements so we can identify possible exchanges, and employ Integrative Negotiation techniques to create value.
We also want to understand the style of negotiator we are dealing with on the other side of the table. Knowing whether they are Collaborative, Competitive, or Compliant will help us devise our negotiation strategy and anticipate the tactics and approaches they might use throughout the negotiation.
Finally, we want to understand how the market factors will affect the Power Balance and behavior of our counterpart. Question – Is it a Sellers’ Market, Buyers’ Market, or Balanced Market at the time of your offer?
For instance, if we are in a Seller’ Market, there may be a higher level of competition from qualified, active buyers. Multiple bids are likely and the seller will probably have the edge on overall Power Balance. It doesn’t mean other sources of power are not valuable or relevant, but considerations such as financial hardship, a growing family or a sudden move on the part of the seller – which often create a negotiation opportunity for the buyer – may be less of a factor. In this case, the other bidders become your “competition”, and you are gathering information about the seller in an effort to separate yourself from “the pack”, make your offer unique, and satisfy the interest of the seller in a way the others can’t. And, although emotional factors can and will often come into play in this situation, pay close attention to one crucial variable and who holds it – Risk. If you are willing to take risk off the seller’s “plate”, your value proposition may increase drastically. This can come in the form of a higher down payment, a quicker close, the removal of financing contingencies, etc. Security is valuable.
To continue with our “Seller’s Market” example and offering deal security and surety to the seller, I wanted to share this point. I am sometimes asked by buyers, “Why does the seller care about my down payment amount? After all, aren’t they getting their money at the closing table, whether it comes from my pocket or from the bank?” Yes, that is correct…sort of. At the closing table the seller will be made whole, whether 80% of the purchase price comes from the bank and 20% comes from the buyer, or 100% comes from the buyer and there is no bank involved in the transaction. That said, what happens at the closing table is not the seller’s concern – it is the events leading up to the closing – and the subsequent negotiations, issues, setbacks, etc. – that determine why the seller considers a larger down payment attractive and valuable.
Meet me back here for the conclusion of Understanding Your Opponent. In the next post I will further tackle risk mitigation by bringing the term Mortgage Contingency into the conversation.