Design and effectiveness of a real estate negotiation algorithm: Residential real estate purchases in New Jersey

Although investment into residential real estate is potentially the single largest investment for many individuals or families during their lifetimes, there is no theoretical or empirical research offered to determine if a systematic approach could improve an individual's performance during negotiation. In response, the purpose of this study was to establish a multi-stage negotiation process that would assist in increasing the benefits to buyers negotiating and purchasing residential real estate by addressing the following research questions. Can a systematic and structured multi-staged negotiation program be developed? To what extent can a systematic multi-staged negotiation be effective in actual residential real estate purchases? How much does implementing a systematic and structured negotiation program improve performance in actual negotiation situations, particularly in home-buying negotiations?; This study offers both a theoretical framework and practical tools and tactics for real estate negotiations. A multi-stage negotiation algorithm was developed for negotiating residential real estate. The algorithm consists of questions to be answered by the potential buyer, which ultimately result in a suggested offer price for the property to be negotiated. Forty-four homebuyers from a pre-determined real estate brokerage firm in New Jersey used the algorithm. The results were then compared with those of forty-four individuals using the same real estate brokerage firm over the same period of the study who did not use the algorithm. It was found that on average there was a 2.8% savings for the subjects who used the algorithm compared to those who did not use the algorithm. This 2.8% savings, when compared to the average list price of {dollar}376,429.85, equated to a {dollar}10,540.04 savings.; One implication of this study is to encourage the real estate industry to become more competitive and efficient. Rights to know and welfare of homebuyers are better protected when home-sellers must become more accountable for their properties in the market.