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Talk it over: Because so many sellers have overpriced their houses in a changing market, negotiability can be expected to continue until listing prices fall in line with current market conditions

Sellers sat back as ever-higher bids rolled in, and buyers quickly learned that they had to put together every cent they had to make sure theirs was the best offer.

But in the calmer market that has taken hold, brokers for sellers and buyers say that negotiation is slowly creeping back into the equation. The two sides are beginning to talk, if not to each other, then through their brokers.

'We're certainly not where we were in the irrational, exuberant days,' said JoAnne Kennedy, the chief operating officer of Coldwell Banker Hunt Kennedy. 'Sellers have become more realistic and buyers are finding they have more time to select, and they can make an offer that's not asking price, and it will be considered.'

If negotiability can be measured as the difference between the listing price and the selling price, it was 3.5 per cent in Manhattan during the second quarter of 2006, according to the Miller Samuel appraisal company.

'We're certainly not where we were in the irrational, exuberant days. Sellers have become more realistic and buyers . . . have more time to select.' - JoAnne Kennedy, Coldwell Banker Hunt Kennedy COO 'You should always be able to walk away from a deal. Fall in love with three houses, not just one, because if you have to have it, you're going to pay for it.' - Max H Bazerman, Harvard Business School professor

That is higher than the average of one per cent that held sway at the height of the market in 2004, said Jonathan Miller, the company's president, 'but anything under 5 per cent still means not much is happening'.

It is also a far cry from the 15-20 per cent discount off list prices that was the norm during the early 1990s, he added, meaning that it is not yet a market in which buyers can ask for and get huge concessions.

But because so many sellers in this changing Manhattan market have overpriced their apartments, Mr Miller said, negotiability can be expected to continue to rise until listing prices fall in line with current market conditions.

So now, it would seem, is the time for all parties to brush up on the finer points of negotiating.

There are a number of factors that can be part of a negotiation, including the buyer's qualifications, a mortgage contingency, flexibility on a closing date, a leasing arrangement if the seller cannot move right away, and the furnishings and appliances that stay with the apartment.

Biggest mistake

But the major factor - and the first to be negotiated - is price. Brokers say that the biggest mistakes they are seeing now are committed by sellers who won't budge and buyers who begin the negotiations too low, hoping for the deal of the century.

Ms Kennedy said that sellers are often happy to get any bid, but a buyer who submits a very low offer and then engages a seller in several rounds of counteroffers risks losing the apartment. 'That buyer may feel very clever going back and forth in a ping-pong negotiation,' she said. 'But the seller gets annoyed, and since the listing agent is obligated to keep showing the apartment until a contract is signed, that great negotiation will go up in smoke as soon as another buyer comes in.'

Eugene and Katya Baron avoided protracted negotiations with the help of Irene Kruglova, a senior associate broker at Bellmarc Realty.

After apartment hunting for about a year and learning the hard way that their dream two-bedroom for less than US$600,000 just did not exist, the Barons shifted their sights and looked at an Upper West Side apartment on the market for US$799,000. They decided to make an offer of US$725,000, a discount of about 9 per cent, even though Ms Kruglova tried to coax them higher.

'I told them - if you start there, you will never finish it,' Ms Kruglova said. The sellers wouldn't respond to the low bid, but Ms Kruglova pleaded with the sellers' broker to take the Barons seriously. So the sellers countered with US$760,000, but the Barons refused to go any higher.

'Then the sellers got offended and stopped talking to us,' Mr Baron recalled. 'We gave up in depression.'

Ms Kruglova went back and urged the other broker to ask the Barons for a best and final offer. 'I felt we should not be going back and forth and making a bad impression,' she said. With the seller's demand for a final bid in hand, she persuaded the Barons to raise their bid to US$750,000, about 6 per cent off the asking price, and they got the apartment.

'Irene forced us to go to 750, and maybe we could have gotten it for less,' Mr Baron said. 'But we don't know what would have happened - we might have lost the apartment.'

Another lesson buyers must always keep in mind is who is working for whom. Buyers often forget that while a seller's broker may be their intermediary in a deal, the broker's first allegiance is to the seller.

Renee LePore, an agent at Beryl Z Realty in New Rochelle, New York, recalled a recent negotiation in which she knew both how high a buyer was willing to go and how low the seller would go, and she used that knowledge to the seller's advantage.

The buyer offered US$380,000 on a house listed at US$435,000, but told Ms LePore that US$400,000 was her limit. The seller rejected the bid and told Ms LePore she could go as low as US$390,000. When the buyer offered US$390,000, Ms LePore urged her to go higher, even though she knew the US$390,000 would have been accepted. The house eventually sold for US$400,000.

'I was working for the sellers, and my job was to get the best price,' Ms LePore said.

Buyers, especially first-timers, often feel manipulated and pressured by the negotiating process. And why not? Brokers, after all, are salespeople.

In the six months since Alex Cass and Jessica Krnc started shopping for a two-bedroom house in Park Slope, Brooklyn, they have had two negotiations fail, one that involved negotiating through a broker and another directly with the owner.

'The one with the owner was a much more positive experience because we were dealing face to face with them,' Mr Cass said. 'But in the other one, we felt like our broker and the seller's broker were playing off one another just to get us to pay more.'

Ms Krnc was even more suspicious. 'I think they set us up,' she said.

Neil Binder, an owner of Bellmarc and the author of The Art of Selling: A Scientific Approach, said buyers have every right to be wary. 'A seller's broker's duty is to get the best price for the seller, and if I'm a buyer's broker, my duty is to deliver a fair deal,' he said. 'Brokers have an agenda, and it's different from buyers',' who are trying to buy wholesale.

Negotiation techniques

At a recent class on negotiating techniques for new agents, Mr Binder gave the trainees a quick lesson in psychology. To earn a client's trust, he said, 'tell them you're happy to advise them, but remind them that you have a vested interest in the outcome, so you're getting them to trust you by telling them you can't be trusted.'

Gerard Nierenberg, founder of the Negotiation Institute, which has taught negotiation techniques for the Pentagon and for the United Nations, said that because real estate deals were largely negotiated through brokers, 'it's important to get a broker you can depend on'. But whether you are a buyer or a seller, he said, studying the market carefully and knowing what a property is worth is crucial.

'Find out what previous sales in the area were,' he said. 'You should always examine the market yourself because you can't always believe the figures a broker's giving you.'

Once price is settled, other issues can come into play, and any one of them can be a deal breaker.

Donna Ward, a Bellmarc sales associate, said she recently worked with a couple who took the concept of what is negotiable to new heights. The husband and wife, who were from Las Vegas and were looking for a pied-a-terre, fell in love with a one-bedroom apartment in a landmark building on the Upper East Side, but the bedroom was clearly too small for their king-size bed. 'So they asked if they could spend a night or two in the apartment to try out the smaller bed,' Ms Ward said.

The sellers said no, and that killed the deal. Even though it was Ms Ward who carried the message, she said she was 'shocked that the sellers' broker even asked them about the bed'.

But if a test drive - or was it a free night's lodging? - isn't negotiable, what is?

A buyer with a long work history, significant liquid assets and the ability to put down more than the typical 10 per cent or 20 per cent deposit should play up these attributes, said Deanna Kory, a senior vice-president of the Corcoran Group. 'Especially in a co-op, sellers can be willing to take less money if the person has better qualifications and is sure to pass the board,' she said.

Being willing to drop a mortgage contingency can also make a buyer more appealing, because it means less risk for the seller. A mortgage contingency allows a buyer to cancel a contract and get a deposit back if a loan commitment isn't obtained by a certain date.

Prevent misunderstandings

Furniture is often the last thing to be discussed, but deals have been known to fall apart over what stays and what goes, Ms Kory said, so it is important to put together an exhaustive list to avoid misunderstandings. Kitchen appliances and built-in shelves typically stay, she said, but items open to interpretation include blinds and draperies, air-conditioners, washers and dryers, chandeliers and other light fixtures.

Elaine Clayman, a senior vice-president of Brown Harris Stevens, recalled a US$4.5 million deal that nearly unravelled over a metal sculpture that had been custom-made to fit inside a curved stairwell. 'If you had taken that sculpture out and put it anywhere else, it would have impaled you as you walked by, but the seller kept saying he had a place to put it,' she recalled. 'That sculpture really couldn't go anywhere else, but it was all about control for the seller.'

Appraisers were brought in, and the two sides eventually settled on a price for the sculpture and other furnishings.

'We brokers just hate negotiating furniture,' Ms Clayman added. 'Because you're dealing with million dollar properties, and you hate to lose a deal over a futon.'

In a weaker market, buyers might ask sellers to pay some or all of the closing costs, including points on a mortgage and fees for the appraiser or the lender's lawyer. But brokers said they had not yet seen any of these costs brought into recent negotiations.

In a new apartment building, developers are increasingly willing to pay transfer taxes, said Dawn Tsien, the president for new developments at Coldwell Banker Hunt Kennedy. On a US$1 million apartment, city and state transfer taxes, plus the state mansion tax (which applies to all units US$1 million and higher), come to about US$28,000 and would traditionally be paid by the buyers.

'A developer might pay one or all of the transfer taxes, depending on the stage of the sale and the momentum at the moment,' Ms Tsien said.

Max H Bazerman, a Harvard Business School professor and an author of Negotiating Rationally, warned against using brokers as advisers at all. 'The broker's most important goal is to close the deal, and that's not necessarily your goal as a buyer or seller because you care more about the quality of the deal,' he said.

Since brokers are naturally biased, he added, they also should never be told exactly how high or how low you'll go because they might use that information against you.

Prof Bazerman had one final piece of advice. 'You should always be able to walk away from a deal,' he said. 'Fall in love with three houses, not just one, because if you have to have it, you're going to pay for it.' - NYT