Negotiation Exercise

Negotiation is the process of making amicable decisions between individuals or groups. In this assignment, I will discuss a negotiation that did not result in the best possible solution for all parties. This negotiation was related to my work experience where I was a realtor who was representing a buyer in negotiation of the property’s price, mortgage loan rate and terms. I am a real estate licensee and also a member of National Association of Realtors. I have been practicing my license for seven years now. Seven years of experiences in real estate industry and two years of experience as an escrow assistant have prepared me to establish concrete foundation in today’s real estate market.

Two years ago, a buyer who was a mutual friend of mine hired me as a realtor to represent for purchasing a property. Since I was representing the buyer, my best interest is to get the best deal for the property. In real estate business, negotiation is critical to gaining a contract. Regardless of representing the buyer or seller, my main goal is to win the game and sustain a quality agreement between the buyer and seller. Whether I represent the buyer or seller, I always do research valuable information prior to presenting them.

For instance, most clients are interested to know a little information other party motivation, tax records, history of property, how many days on the market, how many offers are already placed on the table, why the seller is moving out, what type of buyer (cash or finance), and what type of sale (standard, bank-owned, short sale, probate, trust or auction). When I have all or some of this information in hand, it helps meeting my clients’ expectation at first glance. Also, these types of information provide most buyers to get a brief understanding of the current condition of the property.

Likewise, I helped my client by conducting all necessary procedures that most typical agents carry out their fiduciary duties as a realtor. After we went through for a house hunting for a couple of months, then, the buyer found a property, which was listed for $429,000. It was a foreclosure property. The buyer acknowledged that the property needed some minor repairs. After I ran this property for Comparative Market Analysis (CMA), then, I submitted an offer in the amount of $410,000 based on fair market value. The seller had counter offered $10,000 more than what I initially offered. The counter offer consisted other terms and conditions.

This was the situation where my negotiation had begun. I was advised that my client was willing to increase another $5000. Therefore, I informed the other agent who represented the seller/bank in regard to the buyer couldn’t be able to accept the counter offer but the buyer was willing to willing to increase $5000. I asked the seller’s agent if this were acceptable number, I would draft a counter offer to the seller based on our oral agreement. The seller’s agent asked me to give him 24 hours to get an answer back from the seller.

By next morning, the seller’s agent telephoned me that the seller was willing to accept my counter offer of $425,000 under the additional terms and conditions. The additional terms and conditions comprised that the property would be sold “As Is”. This means the seller won’t imply for any warranty and fix any repairs. The escrow period should be 30 days or less. The buyer should conduct the property inspection within 7 days after the acceptance. The buyer must remove the appraisal contingency within 10 days after the acceptance. I made sure that the buyer understood the seller’s request for the additional terms and conditions on the counter offer.

Based upon both parties’ agreement, I drew another counter offer and sent back to the seller with the increased price of $425,000 and acceptance of additional terms and condition. We had formed a purchase contract within the same day. From the given situation, I believe that purchase contract negotiation involves clarification and mutual agreement on the structure and requirements of the contract and I acknowledge the positions of both parties to gain the first step of forming the contract. I utilize active listening and collaborative communication techniques at the first stage of forming a contract. These techniques allow me to focus on both sides must recognize basic areas of contract agreement and the importance of other terms and conditions.

Two days after the escrow opened, the buyer conducted the home inspection. As the home inspector recommended that the buyer needed to spend addition costs for minors repairs. According to the additional terms conditions, the seller was not responsible for any repairs and the buyer was completely satisfied with the current condition of the property. Two days later, a certified appraiser assessed the property, it valued turned out to be approximately $422,000, which was less than the contracted price. According to the standard terms in California purchase contract, the buyer has the right to renegotiate the purchase price if the appraised value is less than the offer price. In this given situation, the seller was willing to lower the price down to appraised value of $422,000.

In the event of the seller wasn’t able to lower the purchase price, then, the buyer has the rights to cancel the contract. However, both parties agreed to draw an addendum in regard to purchase price amendment. Since the appraisal and home inspection terms had met and satisfied both parties, the buyer was asked to remove the inspection contingency within 24-48 hours. Until this point, I had exercise with my best negotiation skill to move forward the transaction with fair compromises under other terms and conditions.

The real conflict had awakened when mortgage broker manipulated about the loan rate and terms. I was involved in a situation where I shouldn’t be. Because my client was my friend’s friend and I was asked to perform the tasks that were beyond the scope of my duties. I tried to negotiate the loan rate and terms on my client’s behalf. The buyer provided all necessary information to me in order to obtain a loan from the bank. Then, I provided my client’s information to a mortgage broker in order to move forward with loan process. The buyer was obtaining a conventional loan just like other typical borrowers.

Due to some stricter lending guidelines, the buyer didn’t get loan approval from a major bank. However, the mortgage broker found other alternatives that my clients could get loan approval from a private investment company. Thus, the mortgage broker got a loan deal with private investment that made a loan with extremely high interest rate and 6 years term. The buyer had never asked for this type of loan program.

During loan processing, the seller’s agent kept asking the buyer to remove the loan contingency. I advised the buyer not to remove the loan contingency. According to the standard contract term, if the buyer removes the loan contingency, the buyer will lose the initial deposit in the event of the buyer fails to obtain a loan. For that reason, the buyer had never removed the loan contingency. Although I had limited knowledge about the process of loan approval, I knew there might have been some issues with loan approval. Unfortunately, I didn’t get to know what it was. The mortgage broker did not inform me two days before the buyer was going to sign the loan documents.

The mortgage broker was unethical and negligent to inform all material facts but the broker pulled other alternatives just to get the commission. At all times, neither the buyer nor myself acknowledge a private investor loan. The buyer didn’t ask for a private investor loan with high interest rate and short term. Therefore, the buyer refused to sign the loan documents and requested to cancel the escrow. I had tried my best to protect my client’s initial deposit. It is extremely important for an agent to advise the buyer if there is possible chance of failing to obtain a loan, the buyer shouldn’t remove loan contingency.

According to the standard term, the buyer had passed 14 days period to obtain a loan and the buyer never removed the loan contingency. I informed the seller’s agent that the buyer had requested to cancel the escrow and the buyer had no longer interest to obtain another loan. The seller was very upset with the situation and refused to cancel the escrow. The seller demanded the escrow to keep buyer’s initial deposit for liquated damages. The buyer was being accused of breaching the contract and the seller threatened my client in numerous ways in a similar action of bring a lawsuit to a court. As a real estate agent, I had limited jurisdiction in legal perspectives.

Afterward, I obtained some legal advices from my broker and National Association of Realtors, it wasn’t at the buyer’s fault and the buyer had the right to cancel the escrow and the buyer could ask the escrow to return the initial deposit right away because the buyer’s intention was to get conventional loan and the buyer had never signed on loan contingency removal. Although the seller knew that it wasn’t the buyer’s fault, the seller had attempted to threaten my clients just to keep the initial deposit. Finally, the escrow returned buyer’s initial deposit and the contract was off the table.

This was a situation where all parties didn’t get desirable outcomes. I notice that no two transactions are the same. All transactions are unique and required attention to detail from the beginning to closing escrow. I try my best to keep moving the transaction smoothly but it is also important for me to keep track on other important areas of the contract where other parties are required to meet some terms and conditions of the contract. Otherwise, I may lose the deal after I make all the effort. Information is the key for all parties to understand thoroughly prior to form a contract. Effective communication fosters a better understanding between the parties and builds healthy relationship and trust. From my new learning from the course about negotiation, I must refrain from engaging in disrespectful manner. Also I am responsible to confront those who are engaging in disrespectful manner. I must actively listen others’ perspectives and be willing to understand others. My negotiation must be in good faith and my decision should be impartial to the best interest of all parties.

Reference:
California Association of Realtors (2013). California Residential Purchase Agreement and Joint Escrow Instructions. Retrieved November 30, 2013, from California Association of Realtors: Gregory A. Garrett. World Class Contracting, 5th Edition. Bookshelf. Web. 01 December 2013 . MindTools (2013). Win-Win Negotiation: Finding a Fair Compromise. Retrieved November 30, 2013, from MindTools: http://www.mindtools.com/CommSkll/NegotiationSkills.htm National Association of Realtors (2013). Retrieved November 30, 2013, from NAR: http://www.realtor.org/