Real Estate Negotiations
Louisiana Real Estate Negotiations
Negotiating to buy or sell real estate can be complicated if a buyer or seller is not well informed about the many points of value and stages involved in a real estate transaction. A major advantage in any negotiation lies with the one that has the most knowledge about the critical components and players in the negotiation process. This what Tribute Real Estate strives to provide its clients, the most up to date and relevant market research. We also take great care to offer our clients a strong knowledge base in Louisiana real estate transactions and home valuation.
Understanding Louisiana Property Ownership and Transactions
Louisiana is unique in its property law and how it defines the property rights associated with a piece of land. Louisiana also has unique rules and contracts, such as “Bond for Deed” contracts, that may impact the ownership and possessor’s rights to real property. It is also distinguished from the rest of the United States by not sanctioning many of the various estates or tenures found in common law jurisdictions. Some of the “real rights” that Louisiana recognizes are ownership, personal servitudes and predial servitudes ( See LA Civ Code Ann art 476).
Ownership of a tract of land includes with it the ownership of everything that is above or under it, inclusive of air space and the underlying soil (See. LA Civ Code Ann art 490). Prior to negotiations, it is critical that a buyer or seller understand all of the rights associated with real property so that they can assess the value of each component of the properties ownership and how those right match up with their expectations and desired use for the subject property.
Dis-membership of Ownership
Louisiana law establishes three rights of ownership that make up perfect ownership. These three rights include the right to use (usus), the right to enjoy the benefits or production of the property (fructus) and the right to dispose of the property (abusus). Each of these components carry a specific value component because they have a direct impact on how an owner can exercise his property rights. An example of this idea is a “Conventional Predial Servitude” or a “right of way”. If a previous owner has conveyed a right of way through a conventional predial servitude in their property to another, this right may run with the land and control the ability of subsequent owners to construct improvements on the land. Complete knowledge of who owns what rights to a specific piece of land is essential knowledge to have prior to entering into negotiations.
As mentioned above, perfect ownership includes the rights to the soil beneath a piece of land. Theoretically this right runs to the core of the earth. In Louisiana the mineral rights associated with real property are regulated by the Mineral Code. Owners are able to sell all surface and air rights to a particular piece of land and still retain the sub-surface mineral rights. With an abundance of oil, natural gas and other valuable minerals, the sub-surface rights may have significant value. It is important to understand if the sub-surface rights are going to be conveyed in the act of sale, and whether the seller even is the rightful owner of the sub-surface rights. Sub-surface rights play an important role in most Louisiana real estate negotiations.
One of the most significant regulations that can impact real estate value is zoning. Zoning designations regulate many aspects of how an owner may use their land. The zoning of adjacent parcels of land may also impact the value of its neighbors. Sometimes a property may have a special zoning designation that is different from all other properties in the same area. Sometimes called a “conditional use” or “spot zoning”, such special designations directly impact the value of the land. Understanding the zoning of a subject property and the zoning of neighboring properties is critical in assigning current and future values during a real estate negotiation.
Other Land Use Concerns
There are many other laws and regulations that impact property values. A few examples are the Louisiana Homeowners Association Act (LA R.S. 9:1141.1 et seq.), the Louisiana Timesharing Act (LA R.S. 9:1131.1 et seq.) and the Louisiana Condominium Act (LA R.S. 9:1121.101 et seq). Each of these property regimes have their own set of rules, and can have significant impact on property value, future costs, land and building regulations and negotiating positions. Smart buyers, sellers and agents will inform themselves of the impact that land use laws and regulations have on the value of land during the planning stage of a real estate negotiation.
Preparation is key to a successful real estate negotiation. An agent should provide their client with detailed market information, and fully discuss their clients expectations and goals.
Understanding Your Goals and Position
Understanding your negotiation position is the first step in preparing for a real estate transaction. Some important considerations for buyers and sellers include sales price, time, financing, closing costs and inspection response strategy. For sellers, a good first start in understanding your goals and your negotiation position is to work through a “estimate net proceed worksheet“. This worksheet will help in identifying the various costs associated with a transaction, and will better prepare a seller in pricing their property and responding to offers. Buyers should use a similar tool called a “estimate net cost worksheet”.
Another fundamental element of negotiation preparations is to develop what is often referred to as a BATNA (best alternative to a negotiated agreement). Identifying your best alternative to a negotiated agreement (BATNA) can help focus a buyer or seller on the importance of each negotiable term and condition of their deal, what alternatives are reasonably feasible, and will give the negotiator a distinct advantage in any negotiation. Your BATNA may include the option to buy another property, delay a response to an offer, lease or simply not purchase at all.
Understanding Your Opposition
Successful agents gather ample information about your competition. This can be information pertaining to the financial condition, motivation and background of the opposing seller or buyer. One should make every attempt to gain information that relates to the oppositions BATNA, and to comprehensively identify a properties position and competitiveness in the market. If your opposition is a seller, and their property is not well positioned or competitively priced, their BATNA to a transaction may be that their property sits on the market for a long period of time. If their property is competitive in the market, a component of their BATNA is to reject an offer in hopes for a higher one. Delivering strong market information and relevant research should be a primary concern of your agent. Arm yourself with the most relevant information possible prior to responding to or making an offer on real estate, and use the information you gather to provide your opponent objective criteria to support your position. A reasonable offer justified by objective references is very difficult to argue against.
When Possible, Keep Your Options “Open”
There are many provisions that can be added to the standard real estate contracts that will give a seller or buyer protections and advantages during the time that a property is under contract. Most buyers and sellers understand that agreements to purchase real estate are often conditioned upon such things as appraisal, inspection and financing. On the other hand, not many sellers enter into a contract under what is sometimes referred to by many agents as an “Open Predication” clause. An open predication clause allows the seller to continue to show and offer their property for sale after they enter onto a purchase agreement. If the seller receives a valid offer during the “open predication” time period, they must notify the first buyer of the offer and give them time (usually 48 to 72 hours) to match the second offer. This provision in a contract operates in many ways like a “right of first refusal”, however, right of first refusals can serve many additional functions in relation to real estate sales. For buyers, when you must first sell the home that you currently own before going to act of sale on the property that you have under contract to purchase, using an open predication clause is often necessary. Typically this type of open predication give a buyer a specific time frame to sell their home and to remove the predication if the seller receives another acceptable offer.
Use Inspections to Your Advantage
The inspection process is a best friend to a buyer. Sellers can also take advantage of the inspection process by extending the open predication period through inspections. The first thing to do in preparation for a real estate negotiation is to know good inspectors. Most agents recommend that buyers engage a building , termite and plumbing inspection prior to act of sale. Buyers purchasing commercial real estate are also well advised to investigate environmental inspections. Today, most properties that are sold in Louisiana are being sold “as is where is with waiver of redhibition”. To make sure you are buying a property that is in sound condition, make thorough inspection through professional inspectors. After you complete inspections, you are then armed with that all important “objective criteria” to ask for additional concessions in price or to have the seller remedy deficiencies. Use time to your advantage during the inspection period, especially if the purchase agreement calls for the property to be taken off of the market when under contract. If you are a seller, you may want to reserve the option to show your property and entertain other offers subject to a right of first refusal in favor of the buyer. Experienced real estate agents know how to assign value to items that are found during inspection, and can effectively present a demand for a concession in the contracted price or request that the buyer remedy defects. With most communication in life, the well know adage ” it is not what you say but how you say it” is especially important in inspection responses for seal estate transactions. Agents at Tribute Real Estate are offered and encouraged to read some of the very best in negotiating technique literature so that they understand the importance of effective negotiating communication.
Make a Deal With a “Win Win” Approach
“A good deal is a deal that is good for both parties”- anonymous-. When you develop your BATNA, explore the oppositions BATNA and finish diligent market research, one is prepared to identify factors that can lead to utilizing the “win- win ” approach in negotiations. Real Estate negotiations almost always require some give and take. Social psychologist have written many articles and books on the win-win approach to negotiations and communication. Remember that cooperation amongst all parties to a negotiation leads to efficiency and positive results. The seller and buyer that can identify the importance of each factor in their oppositions negotiation equation, and can balance their own factors with their oppositions, is in a superior position to “win” where it is most important to them.
Know When to Cut and Run
Your time is valuable. Not every negotiation will end favorably, so know you limits, when and how they are reached, and be prepared to cut and run. Each negotiator has different limits that they cannot exceed without losing in their negotiation; sometimes its time, money, or the ability to walk away from a transaction without incurring significant losses. One of the most detrimental things one can do is to continue negotiations that they cannot win; this can cause a buyer to miss opportunities to buy other properties and may cause a seller to bypass other offers. If a negotiation is likely to go beyond your limits, cut and run before you end up sacrificing more than you can afford.
Have a Supportive Team
The team you assemble for a real estate negotiation can be the deciding factor in how well you make out in the end. This is the very thing that Tribute Real Estate strives to provide all of its clients, a professional, knowledgeable and hard working team of real estate professionals that can help assemble the right resources for any real estate transaction. Contact us today for a free consultation.