Chap 14 - Real Estate

24/12/2016 C14-Real Estate Negotiations: Commercial and Residential 1
Lecturer: MBA | Trần Khánh

Email: tg_trankhanh_qtkd@tdtu.edu.vn
Handphone: 0946512667
CHAPTER 14
Real Estate Negotiations:

Commercial and Residential
Chapter Objectives
1. Identify the unique aspects of real estate
negotiations
2. Develop a plan for negotiating the purchase of
a home
3. Assess the options for financing a home

Chapter Objectives
4. Evaluate the importance of third parties (e.g.,
realtors, attorneys) in real estate negotiations
5. Identify the unique issues involved in leasing
retail and industrial space
6. Evaluate the differences in negotiating
commercial versus residential real estate

transactions
14.1 Real Estate Basics: Residential
Steps to buying a home
•Identify your interests
•How much can you afford, based on your
down payment and mortgage (dependent on

income, other debts, credit rating)?
14.1 Real Estate Basics: Residential
• House or condo? (understand the differences)
• Be realistic about what you must have and what
you would like to have

• Create a checklist to compare different
properties that you are interest in

14.2.1 Determine How Much Home You Can

Afford
Standard heuristics used in the mortgage

industry
• The total of your principal, interest, taxes and
insurance (PITI) can be no more than 28%

• Total debt can be no more than 36% of your
gross monthly income

14.2.1 Determine How Much Home You Can

Afford
To get an idea, prequalify for a loan to see what

you can afford
• Online through a mortgage website
• Discuss with your bank/other lenders

14.2.2 Property Value: What is it Really

Worth?
• Indicators of a home’s worth:
• List or “asking” price – the seller’s opening
demand (can be negotiated)

• State Equalized Value (SEV) – the taxable value
of the home and property – can vary considerably

from true market price

Worth?
• Appraisal – can be done by an independent
appraiser, lender, realtor (results not always the

same)
• Whatever you, as the buyer, are willing to pay –
you can negotiate


Worth?
• Sellers may need to sell quickly and are more
open to negotiating – home vacant for a while,

seller wants to relocate, reduce expenses due to
decline in income, etc.
14.2.3 Financing
• Number of options for financing
• Conventional financing – predetermined number
of years (usually 30) at a fixed rate – least risky

but interest rates can be higher than other options
• Adjustable Rate Mortgages (ARM) – most
common method - lower interest rates for first few

years but then rate is adjusted periodically
14.2.3 Financing
• Veterans Administration (VA) or Federal Housing
Administration (FHA) – depending on your

situation – government sponsored programs
• Seller Financed - may offer financing by agreeing
to sell on a land contract

14.2.4 Typical Loan Terms
• Any lender will base their financing on your
credit rating – most common measure is FICO

score
• Lenders typically only loan 80% of the appraised
value of the home for a first mortgage, buyer

provides the other 20% as a down payment
14.2.4 Typical Loan Terms
• Buyers can sometimes secure a piggyback
mortgage for the remaining 20% - rates are

typically 1-2% higher than the primary mortgage
rate
• Lenders also require the buyer to purchase title
insurance and homeowner’s insurance on the

property during the life of the loan
14.2.5 Beyond Price:

What Else You Can Negotiate
• Parties to the sale of real estate also negotiate
• Who pays the closing costs – loan fees, taxes
and other prepaid items

• Whether or not there will be a home inspection
(and what will happen depending on the results)

and warranties

• What items of personal property will be sold with
the house
• Additionally, can negotiate other items owned by
seller including furniture, window coverings, and

appliances

• Contingent offers – mean buyer/seller can back
out depending on the specified contingency:

• Buyer - on obtaining financing, a favorable home
inspection, or selling a current house

• Seller - on finding suitable replacement housing
14.3 Realtors: Do You Need One?
• Real estate agents match buyers and sellers for
a commission - their function becomes more

complicated depending on the financial and legal
dimensions involved
• The real estate agent puts a value on the
property, hosts open houses, shows the

property, handles the paperwork, and facilitates
the negotiation
• Exclusive-right-to-sell listing - most common
type of listing contract - agent is entitled to a

commission if the property sells during the time
period (even if you find your own buyer)
• Exclusive agency contract - seller agrees that a
particular broker is the only one who can sell the

property (unless seller finds buyer)
• Open listing - the seller contracts with multiple
realtors and pays the one who actually sells the

home
• Increasingly people use the internet for property
sales/purchases
14.4 Attorneys: Do You Need

One?
Use an attorney to draw up or review all paperwork

• House purchases (whether you use a realtor or not)
• Rental leases
• Understand the terms of contracts/leases
• Ensure you are adequately protected if there are
problems with the property or if you have to break

the lease
14.5 Negotiating Commercial

Leases
• Location is a strong negotiation factor in
commercial lease – the busier the location, the

higher the price – owners in a strong position
• Owners of apartment buildings - every month a
unit stands empty is a lost opportunity – owners

are in a weaker position over price
14.5 Negotiating Commercial Leases
• Commercial space is leased by the square
foot - total square footage or usable footage

• Among the negotiable aspects are
• Payment of utilities and building
maintenance/renovations
• The cost for customizing the rented space
14.5 Negotiating Commercial

Leases
• Among the negotiable aspects are
• The initial length and options to renew/extend
• An option to expand the space
• The date possession is delivered
• Detailing about subletting the premises

14.6 Retail Leases
Retail lease could be in a

• Shopping center
• Mall
• Stand-alone store
14.6 Retail Leases
Rent can consist of:

•Base rent
•A percentage rent
- Based on a percentage of sales (calculation is
open to negotiation)
- Can build the relationship between landlord
and tenant as landlord has financial interest in

the success of the tenant
14.7 Retail Leases in a Shopping

Center/Mall
Retail leases in a shopping center or mall will likely

include and are open to negotiation of terms:
•Common Area Maintenance (CAM) charge
•Tax
•Insurance expenses
•Management/Admin fees
14.7 Retail Leases in a Shopping

Center/Mall
Retail leases in a shopping center or mall will likely
include and are open to negotiation of terms:
•Cotenancy Clause – required occupancy by
“anchor” tenants – usually well-known chain stores
•Detailed and accurate description of permissible
uses – example, radius restrictions to ensure only
one high-end beauty salon in a mall
•Signage – where, how large, lighting, etc.
14.8 Industrial Leases
There are variations of industrial leases between

two ends of the continuum:
• Gross lease - the landlord has the responsibility
for all building costs and maintenance of the

property
14.8 Industrial Leases
• Triple net lease - the tenant is responsible for all
costs, including building upkeep
Fixtures (things attached to the building) become

property of the landlord who may be open to
paying for fixtures
Chattels (movable property) are the property of the

tenant
14.9 Purchasing Commercial Property
• Commercial real estate negotiations involve
most of the issues addressed in residential real

estate transactions but financing is more
complex as the price is higher
• Title insurance is still important but more
complicated when there are shared properties or

driveways involved
14.9 Purchasing Commercial

Property
• You can negotiate for the transfer of existing
furniture and equipment in a sale of commercial

property
• Offers may be contingent on - zoning, financing,
environmental audits – obtain financial records

to verify seller’s profitability claims
14.9 Purchasing Commercial

Property
• Option Fee - paid to the seller gives you extra
time to finalize the many details in a commercial

property sale
• Letters of Intent – nonbinding but allow you to
make a preliminary determination of reaching

agreement or not on major terms

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24/12/2016 C14-Real Estate Negotiations: Commercial and Residential 1

Lecturer: MBA | Trần Khánh

Real Estate Negotiations:

1. Identify the unique aspects of real estate

2. Develop a plan for negotiating the purchase of

3. Assess the options for financing a home

4. Evaluate the importance of third parties (e.g.,

realtors, attorneys) in real estate negotiations

5. Identify the unique issues involved in leasing

retail and industrial space

6. Evaluate the differences in negotiating

commercial versus residential real estate

14.1 Real Estate Basics: Residential

Steps to buying a home

•Identify your interests

•How much can you afford, based on your

down payment and mortgage (dependent on

14.1 Real Estate Basics: Residential

• House or condo? (understand the differences)

• Be realistic about what you must have and what

you would like to have

properties that you are interest in

14.2.1 Determine How Much Home You Can

Standard heuristics used in the mortgage

insurance (PITI) can be no more than 28%

gross monthly income

14.2.1 Determine How Much Home You Can

To get an idea, prequalify for a loan to see what

• Discuss with your bank/other lenders

14.2.2 Property Value: What is it Really

• Indicators of a home’s worth:

• List or “asking” price – the seller’s opening

demand (can be negotiated)

of the home and property – can vary considerably

14.2.2 Property Value: What is it Really

• Appraisal – can be done by an independent

appraiser, lender, realtor (results not always the

you can negotiate

14.2.2 Property Value: What is it Really

• Sellers may need to sell quickly and are more

open to negotiating – home vacant for a while,

• Number of options for financing

• Conventional financing – predetermined number

of years (usually 30) at a fixed rate – least risky

common method - lower interest rates for first few

• Veterans Administration (VA) or Federal Housing

Administration (FHA) – depending on your

to sell on a land contract

14.2.4 Typical Loan Terms

• Any lender will base their financing on your

credit rating – most common measure is FICO

value of the home for a first mortgage, buyer

14.2.4 Typical Loan Terms

• Buyers can sometimes secure a piggyback

mortgage for the remaining 20% - rates are

insurance and homeowner’s insurance on the

14.2.5 Beyond Price:

• Parties to the sale of real estate also negotiate

• Who pays the closing costs – loan fees, taxes

and other prepaid items

(and what will happen depending on the results)

14.2.5 Beyond Price:

• What items of personal property will be sold with