Intel First

So the wife and I go out, trudge through a billion houses, and finally we find one just at the edge of what we want and need. The price is $450,000 rather than the $400,000 we want to pay. Now we’re ready to negotiate.

Uh, no, not yet. We need to gather intelligence.

The most common mistake in a complicated negotiation—and you see it in house sales all the time—is to confuse your decision-making process with intelligence gathering. Knowing roughly how much you want to pay and the number of rooms, etc., has NOT told you anything about the house and what it should be worth. I’m going to focus on money here because it’s easier to talk about, but in fact there are usually a whole range of issues involved. You can’t negotiate them until you’ve done your intelligence.

So that’s what my next step is. I ask the real estate agent for comparable sales, which shows me price ranges. And I hire a house inspector to look over the property.

I’m going to guess that if you’ve ever bought a house, you waited until after the deal was done to bring on the inspectors. The problem is that by then the information is of much less value to you. Oh sure, maybe you got an adjustment for a few outrageous items, but think of how much more ammunition you would have had if you went into the negotiations with the inspector’s report.

To use my $400,000/$450,000 example—let’s say, for the sake of discussion, that the inspector’s report comes back and says, well, you need a new roof and the dishwasher is x years old and this and that and that and this. All told, he comes up with roughly $20,000 worth of items that need attention or at least are worth looking into.

Things to talk about? You bet. And not only do you have intelligence in this case, but you also have a supposed outside party supplying the information, someone you can use to bolster your position. (He’s not really an outside party, since you wrote the check, but inspectors are often treated as if they’re neutral, for some reason.)

When I make a counteroffer to the other side, I present them with information to back up my position. My inspector has identified these items; I’m going to be out of pocket for them, time involved, etc.—what can you do for me?

By the way, I make it clear I want to buy the house at my price. In my case, my price is my price, just as it was in the car negotiation. You may feel more comfortable leaving yourself a little bit of a cushion, but that’s not really all that important. As a practical matter, you’ll probably end up using that cushion anyway—if it’s there, most of us are going to take advantage of it.