Negotiating with seller and objections
Real Estate Investor · Vancouver, WA · Member since 2008 · 387 posts · 8 votes
What are the main methods you use to negotiate with the seller and what are the main objections that they usually have? How do you overcome those?
I want as many details as they can give me about the property. I want to know what they owe, how long they've owned, what they've done to the place in terms of rehab, if they have any recent appraisals, what they want for the place, wether they'll do any seller financing and how, and most importantly in my eyes, why they're selling (not in any particular order).
I don't usually talk with them about what I could pay them for it right then. I focus on percentages of value that we're usually buying for in particular areas or the particular price we've paid for a property in the area. Going that route, I find out real quick whether they're interested in talking any more at that point without them feeling under attack or insulted. I know whether they're realistic and how much they're willing to talk.
I ask them to give me a little bit of time to pull comps and run the numbers and then if I think it makes sense, I'll get back to them. It's very non threatening and helps them to relax as we're talking as they realize I'm being straightforward. I then go pull comps and if we're close, I call or email and talk it through.
That first conversation is about getting as much information as possible and trying to take down some barriers. Then, when I call them back fairly quick, they see I'm responsible and someone of my word as well. Those are all factors that help them to let go, even if they really don't want to do it.
I know their are other ways of handling it, but that's worked well for me.
I buy from desperate sellers so I don't do much negotiating. If they don't meet my price, I just move onto the next one.
Mike
I'm very candid from the very beginning. I tell them they're probably not going to get what they really want for it with me and my investors. I don't want to spend the next ten days trying to negotiate something with someone who thinks they're going to get something they're not...
So, I'm with Mike in that I don't want to waste the time with someone who isn't motivated and willing to work. I would rather just talk very up front from the beginning to make sure the cards are on the table.
Funny thing is that when I'm honest like that and up front and the desperation finally sets in, I usually get a call back.
What questions do you ask them on the phone in order to determine how much you tell them is the most that you could pay? Are you looking up comps on the phone or anything like that?
I want as many details as they can give me about the property. I want to know what they owe, how long they've owned, what they've done to the place in terms of rehab, if they have any recent appraisals, what they want for the place, wether they'll do any seller financing and how, and most importantly in my eyes, why they're selling (not in any particular order).
I don't usually talk with them about what I could pay them for it right then. I focus on percentages of value that we're usually buying for in particular areas or the particular price we've paid for a property in the area. Going that route, I find out real quick whether they're interested in talking any more at that point without them feeling under attack or insulted. I know whether they're realistic and how much they're willing to talk.
I ask them to give me a little bit of time to pull comps and run the numbers and then if I think it makes sense, I'll get back to them. It's very non threatening and helps them to relax as we're talking as they realize I'm being straightforward. I then go pull comps and if we're close, I call or email and talk it through.
That first conversation is about getting as much information as possible and trying to take down some barriers. Then, when I call them back fairly quick, they see I'm responsible and someone of my word as well. Those are all factors that help them to let go, even if they really don't want to do it.
I know their are other ways of handling it, but that's worked well for me.
That seems like a pretty good strategy. The main book I had been going off of said that they look for motivation and situation, on the phone, and if there are those two, they set and appt to go see the house. Then they spend 40 minutes building their motivation levels and establishing rapport, and doing consultative negotiating.
I suppose I could do a lot of that over the phone though, more than they do in that book, which would save time.
That sounds like a bunch of guru nonsense to me. I average 30-40 calls per day (mostly tenant applicants) and I certainly won't spend 40 minutes of my day on the phone with anyone - certainly not doing "consultative negotiating"!!! My goal is to keep all calls under one minute.
If you want to know if they're motivated, learn you market so that you know values - really know values. Then, for example, when someone calls, you will KNOW that to make money on a 3 bedroom house on Baker Street, you will need to get the house for less than $60,000. If they're asking $120,000, I know it's not going to be a deal. I tell them to save my number and call me when the price gets down to $60K. I'm off the phone in less time than it took you to read this paragraph. On the other hand, if they tell me they want $30,000 for the same house on Baker Street, I drop what I'm doing and go look at it NOW! Again, off the phone quick. While the other investors are looking up comps, I will already have the property under contract.
Mike
Ok. So lets say that you're on the phone with the seller, they say yea I might be ok with 65% of market value. So you basically set up a time to go see the house.
You go to the appointment, have a look around, establish rapport, and then what do you do? I'm looking to get like a general step by step process I should take so when I go on my first appointment I'm not lost.
Thanks,
Jeff
...then if we've agreed on a price, we sign a purchase contract. If not, I leave and I'm done unless they change their mind and agree to my price.
Mike
So it seems you basically take a commercial fisherman type approach. Your huge net is all of your advertising, bird dogs and networking to get leads. You have built your net with holes that only capture the fish that are big and profitable enough. Then you just bring your net out of the water and into the boat and sign the contracts, it seems.
My problem is that I don't currently have a net built, so I had thought that I might have needed to wrangle the fish individually by hand (thus spending more time negotiating).
So I guess the key is to spend some time getting as many leads coming through the door as fast as possible so that you don't have to spend much time on each one trying to make ones work that you shouldn't.
Jeff,
I don't do any advertising and I don't have any birddogs. I have done the hard work of meeting a lot of people (especially other investors) and therefore don't need to advertise. People call me with deals and I screen them quickly as I described above. If they're desperate to sell, which means they will take my price, I do the deal. If they're not, I'm done. I'm not playing games (trying to overcome objections) with them like I'm some call center employee. If they want to sell, fine. If they don't, that's fine too.
Mike
So you pay an assignment fee for most of your deals then? If not, why are the investors calling you with deals?
No, I have never paid an assignment fee, although I certainly would if another investor brought me a contract on a property that met my criteria. The investors often call me with deals when they want to go out of business. They also call me when they know of a great deal but don't want to do it themselves (and I refer them deals when I don't want to do them). More than that, individuals call me about their house when they are desperate to sell. How to they find out about me? They know someone who knows that I was a serious investor.
This doesn't happen overnight and it takes work. You've got to get your name out there by meeting people and you've got to perform when a good deal is brought to you. Reputation is everything!
Mike
You are constantly having investors who fail call you and tell you to take a deal off their hands because they are quitting real estate?
If you are asking if I get a call every day from a desperate investor who is failing, no. If you're asking whether I get enough calls to buy 10 to 20 rentals per year - yes. I've already bought 12 this year and have two more on the hook. In addition to these, I've turned down several other very good deals because I just didn't want to grow too fast (which is dangerous).
Unless you get out of the house and make a real effort to meet a lot of people, you'll never understand what I'm talking about. There are a ton of deals that happen behind the scenes. These are properties that are never listed and there is never a sign in the front yard. It's WHO YOU KNOW.
Mike
Thanks Mike, that helps. Oh, by the way, how are you financing your deals? I've heard that regular lenders don't want to lend you too many deals. Are you finding that you are able to show a lender that you have say 30 properties and their net cash flow total and they will take all of that into account? Are you going to regular banks? Do you do a few deals with one lender and they shut you off and you have to find another?
Jeff
I think you are confused a bit. You would not want medical advice from a doctor who only focused on the main methods and the main objections. You would want the doctor to focus on your situation and then adjust.
So, start by talking to the person. You want to understand their motivation and to know what is really going on. In many cases there might be something obvious but that is only a surface issue.
Focus on solving their problem and you will get more deals than if you just tried standard tips and techniques. Many sellers will have similar issues but they still want to know that you are offering a solution that fits them. Hence you are there to solve their issue and to communicate that you understand their situation well enough to offer the best solution.
In some situations you can not solve the issue. That could mean that you should move on to a seller who has issues you can deal with. Not every seller is offering a deal. You will not have solutions to all problems.
John Corey
I don't care about their motivation or what is really going on. I'm interested at buying their property at a given price. They're either interested or their not and how they got into the mess they are in is totally irrelevant. A truly desperate seller just wants out. A bunch of chit-chat isn't required to get them to sell
I'm not a social worker. Unless their problem is having a property that they want to sell for 50 cents on the dollar, I'm not going to solve their problem. All this problem solving and win-win nonsense is simply guru speak to make newbies feel good about taking the equity from someone who is in financial difficulty. Unfortunately, that's just silly. It is NOT a win-win situation when someone is forced to sell their house at 50 cents on the dollar. The buyer wins and the seller loses.
Jeff,
I use two small local banks for buying my rentals. So far, I've had no problem getting loans and I have several dozen rentals. If you buy rentals right, each one you buy adds to your monthly cash flow and your net worth. So, the more I have, the better the bank likes me.
My business is a traditional and very boring rental property business. I don't pretend to be a social worker; a call center employee; a credit repair agency; or a win-win specialist. I find sellers primarily through personal contacts; I borrow money from the bank; and I rent the properties for a profit. Nothing flashy, just basic business.
Mike
I don't care about their motivation or what is really going on. I'm interested at buying their property at a given price.
People have different styles.
From the tone of your posts I suspect you would have a hard time showing empathy or building enough of a relationship with sellers for them to open up and trust you. It sounds like you work based on the numbers and otherwise move on to the next deal. Cash is king and if they want your cash they will deal on your terms. Maybe not win-win but good enough for you.
Obviously it works for you so you should continue. Others have different skills and are able to do different deals.
To each his own? Live and let live? Or is it attack those who might be different?
What is your plan for when you out grow the small local banks? As you likely know there is a lending limit that they can not exceed with you. Even if they will not tell you the number it legally exists. They have no choice in the matter and it does not matter how much cash flow you can generate.
John Corey
I'm not trying to build a relationship with sellers and I certainly am not trying to get people to "open up". I am not their psychiatrist and I can't fix their personal problems. Getting them to "open up" has no effect on the math. I am in business to make money. If I am to do that, I must buy properties at a certain price. Even if I spent a week listening to the seller's problems; thoroughly psychoanalyzed them; discussed their childhood and all their issues; and had a good cry with them, THE MATH STILL WOULDN'T CHANGE.
Yes, I work based on the numbers. Yes, if they want my cash, they will take my price - it is their choice. It is certainly not "win-win" when someone is forced to sell at 50 cents on the dollar, but that has nothing to do with me. If they can find a better offer, they are free to take it. If not, it is not a good deal for them and me sitting down with them and having them "open up" ceratinly doesn't change that.
Absolutely, if you want to have milk and cookies with your sellers or psychoanalyze them - have at it. If that works for you, that's great! If you need to convince yourself that you've created a win-win (even though the seller is selling for 50 cents on the dollar), that's fine with me too.
I've only used two small local banks so far and neither have cut me off yet. Since there is a bank on every corner, I'm not too concerned about running out of money.
I'm not aware of a legal limit to the amount of money a bank can loan me. Where would I find such a law? I have a friend that has probably 150 rentals, and he is still borrowing money from the bank. I only need 100 rentals to meet my goal, so I'm pretty sure that I can borrow enough money to do that. I know a lot of investors that have 50-100 rentals, and they haven't been cut off.
Mike
Mike,
You rail against the naive investors who do not know how to evaluate a deal.
You now declare that other investors seem to be OK with lenders so you are not concerned about being shut off.
Do you know Ed Garcia? As a regular on the other website you likely know that he moderates the finance forum there. He can tell you stories about OH lenders who have turned off the tap to local investors in OH. Lots of good reasons that have nothing to do with the borrower. I could do likewise.
People are more willing to share information when people are open to the conversation. You do not need to have milk and cookies with me to be open to listening.
Be careful about what you do not know you do not know. You might never get cut off but it does happen even when it has nothing to do with you. There are limits that have nothing to do with the borrower's track record. Banks even change their policies and call loans due.
In a recent phone call with Ed he was telling me of an investor that had a large portfolio and the lender cut him off. The whole portfolio was put at risk as the investor had to scramble to replace the financing. It is ongoing from what I was told. If you have only been investing for a few years you might not know about the last housing downturn when many lenders pulled back hard with 90 day noticed to pay up and move on.
Why be closed minded to talking with others? You seem to be very fixed on your views as being the only way to invest successfully. Is it possible in your mind that there is more than one way to successfully invest even if you have a chosen style?
Based on the math alone others have proven that they invested successfully without following your style. Not better or worse. Just different. People are different. Investing styles are different. If there was only one style all the other investors who have been around for a while would be following it.
John Corey
John,
I'm not railing against anyone. I'm only trying to help people understand the realities of the business so that they don't join the majority of newbies who fail.
I quite honestly don't get your point about the lenders. Should I stay up nights worrying that lenders are going to cut me off? I'm sure that some lenders have cut some borrowers off. If a lot of borrowers had cut a lot of borrowers off two or three years ago, the housing crash wouldn't be so deep. Anyway, what does that have to do with me? They haven't cut me off and I'm not the least big concerned that they will. I'm currently buying properties for 50 cents or less on the dollar. That is plenty of collateral for most banks. If they won't lend to me, who will they lend to?
You claimed that there was a law restricting the amount of money a lender could allow me to borrow. Again, please cite the law so that I can read it.
I am not closed minded at all. If you can show me a better way to do things, I will immediately embrace it. My goal is to make money and I will change immediately if I can improve my business. However, in this case, getting a seller to "open up" does nothing to improve the bottom line. In fact, it might be seen in court as manipulation and could be interpreted as taking advantage of the seller.
Again, anything you post that helps me make more money is greatly appreciated. I'm all for changing if it improves my business!
Mike
Noted.
So there are times when you care what someone knows rather than just math.
As to the answer see below...
Backing up to review why this discussion exists...
This thread started out by someone asking how people negotiate. You replied and spent a fair amount of time sharing what works for you. Well done. :clap:
As the discussion is not closed to other people I added my view. What has worked for me. For what ever reason you then proceeds to climb on you horse, trash what I said (with quotes) and left the impression that your way is superior. Even if it happened to be superior why the lack of professionalism? Tell us what you do but avoid having goes at others for no obvious reason.
Back to your question...
Now you realize that you do not know something about how banks work. That what you do not know might matter to your plans. I agree that you should not be losing sleep at night. You ask me to share what I do know with you. To 'help you out' or otherwise fill a gap in what you know.
Lacking rapport most people feel no desire to share information they might have. Why help someone when that person keeps going on about their way is the only way. Even worse is when they are willing to trash what you have already said before asking for help in the same conversation
As this is a thread on how to negotiate I think we are almost role paying. We could title this What not to do when negotiating if you want to find out what you do not know.
It gets worse. You are a merchant. You have something to sell on this site and your website. Do you expect that you are putting yourself in a good light when you attack an alternative view that in no way conflicts with what you choose to do? My post that made no reference to anything you said. I quoted the original questions and went from there. My reply was on topic based on the question. My take and in no way commented on anything you had said.
I am sure that you have had the success you claim. Hence your method works. I and others focus more on rapport building and other negotiating techniques. Lots of evidence that doing so works. Two alternatives. Unless you are insecure about what you do why even waste time having a go at building rapport and what I posted?
Suggestion: Be a professional.
Tell us what works for you but skip the personal attacks. Many who do not follow your methods are successful so nothing to be gained from painting yourself into a corner.
Maybe. Hard to say given all I have is what you post. If I knew you then maybe I would be able to agree.
In conclusion...
If you want to learn more about lending you will need to find someone you have not had a go at before asking for help. Burn bridges after you are sure you will not need them.
John Corey
PS. To everyone else. Mike and I staged this as a form of role play so that you could see how not communicating effectively or failing to building rapport creates gaps in what you find out. :wink:
John,
Just because someone doesn't agree with your position doesn't mean you are being attacked. You ssem to be quite sensitive for someone who is supposed to be in business. If no-one can disagree with anyone, then there wouldn't be much to be learned. Put our your best argument and quit whining. If you think my posts are crap, that's OK with me. As I said, tell me what works better and I'm there!!! I'm not married to any one strategy. Show me something better.
I was not really asking for you to present a law that doesn't exist. I was just pointing out that there is no law that says a bank can't loan me more than X dollars. So, let's not pretend that you're not willing to help by giving the info - THERE IS NO LAW THAT PREVENTS THE BANK FROM LOANING X NUMBER OF DOLLARS TO ME. You just made that up.
If you think getting a seller to "open up" is a good tactic to get deals, then give us your experience. It seems all you do is quote stuff out of books you've read. How about YOUR EXPERIENCE?
You were not attacked. You are not a victim. I am not attacking an alternative view, just giving my opinion. If you think your opinion is better, say why! Yes, I have a book that I sell, but I don't make a living as an author. I am in the rental property business. Unlike the gurus, that gives me the freedom to tell the truth and not worry about book sales.
Mike
Believe what you like. Yelling only makes it more clear that you do not know what you do not know in this case.
Ask your banker and he will tell you. Then you do not have to believe me. You said you are open minded. Clearly you do not want listen to me so ask someone who you already know.
Your banker has a hard limit on what the bank can lend to you even if he is the bank president or bank owner. The bank regulations are clear on this.
As you want to buy 100 units and you are using small local banks you are more likely to bump into the limit then if you were using a much larger bank. Call it a heads up or a friendly warning.
John Corey