Developer · Cedar Rapids, IA · Member since 2009 · 97 posts · 42 votes
I wanted to open a Dialogue on the 'Art of Negotiating.'
Just curious as to your tactics and way you go about offering, renegotiating, closing a deal, ect.
I'll pitch a few questions to get the ball rolling but add yours to the list:
- How do you explain your point of view on pricing the deal?
- How do you approach a potential 'Low Ball' without pissing the seller off?
- Do you reneg at the last second?
- Is is appropriate to make friends with the sellers? or stay distant until deal is done?
Whats your opinion or 2 cents?
My goal is to uncover the proven successful strategies that others can use down the road. :D
This is a nice post and should get some interested responses. I say always make a friend before you negotiate. People do business with people they like. The key to a great deal is to have them tell you a price. For example have them start by asking what the lowest price is they would consider. Once they respond with a number you have many options. A good one is just to say "really?" and shut up. The price should fall. At that time don't way anything. Just stay quit until the price comes down again. Once it comes down again, that is the number you start to negotiate from.
It is a good idea to learn some strategies and practice a lot. Always agree with the seller even if they are wrong. The two most powerful words in negotiating are "I understand"
A couple sayings or ways I put the prospect at ease is....
-- You know Mr. Prospect, in order for this to work, I understand that it needs to be a win win for both of us...if the numbers make sense, great. If not, then no big deal. (But in reality, it is a big deal, that is why the numbers are going to make sense for you and you'll explain THEIR benefits. IE: Walking away with no more hassles of property, I have financing or this is a cash deal, ect.)
- Everyone wants to hear: WHATS IN IT FOR ME?!
- "Putting our Friendship aside for a moment and just talking business, here are my thoughts...bullet point or number your Pitch.....follow up with...'What are your thoughts?'
- In lowballing offers, I usually have our seperate LLC Company or a couple other places make a 'Bid' to Repair or fix up property to Normal Condition. It takes the pressure off of you and the Seller puts more credibility in a third party explination rather than it coming from you.
This is a nice post and should get some interested responses. I say always make a friend before you negotiate. People do business with people they like. The key to a great deal is to have them tell you a price. For example have them start by asking what the lowest price is they would consider. Once they respond with a number you have many options. A good one is just to say "really?" and shut up. The price should fall. At that time don't way anything. Just stay quit until the price comes down again. Once it comes down again, that is the number you start to negotiate from.
It is a good idea to learn some strategies and practice a lot. Always agree with the seller even if they are wrong. The two most powerful words in negotiating are "I understand"
Nice comments Kevin. I believe you are right on target....first make a friend and they will open up to you.
One of the most effective way to make a friend is to ASK QUESTIONS. People love other people who are interested in them and ask questions. The person will talk 90% of the time (about themselves) and will walk away saying, 'Gosh, he was a nicest guy (about you)' and you only did 10% of the talking! :)
I always listen with a smile and add these phrases while LISTENING:
- Really?!
- I understand...
- Interesting...
- No Kidden?!
- Wow!
- Then what happened...?
* As far as pricing...its one of those deals where... 'Whomever speaks first Looses!'
* Understanding the other side’s priorities is just as important as understanding your own. Find their PAIN or Hot Button and sell why your deal is the best solution!
I'm dealing a lot with REOs so unfortunately I don't have direct contact with the seller. However, in direct negotiation when the other party is a "Nonprofessional" i.e. homeowner, renter, etc. I always try to look no-threatening, somewhat unsavvy. That usually makes the other party feel like standing on a leveled playing field which allows them to let their guards down a little. I'd never ask for the lowest price. I put myself in that position and I hate to answer this question. It's kind of back to the wall question. If someone ask me this question, my answer would be: "Why won't you make me an offer and we'll see where we're at"
In a face to face situation (As oppose to an offer written through an agent) I would make sure that I have backed up the offer with a knowledgeable reason (Property condition, neighborhood, recent comps or similar properties with similar asking price that have been on the market for a long time, etc)
I agree with kevin, as I like to find out their true low price. The key to it I feel is information. However you get that info doesn't really matter to me. I usually take the low ball approach and risk the response. I try to read the need to sell first. I have been learning on this site some techniques of financing that would lend to going a tad higher on some offers.
You also have to take into account how close the seller is to the money from the prop. A bank is more likely to take a low offer where a homeowner has history and time in a prop. tend to hold on longer and for a higher price.
In my short career so far, I will ask the seller what they would take for the property and when its too much (it always is) I explain my business that I buy and finance mobile homes and that I can make a cash offer and close fast.
I dont give the price I would pay away and I make sure they save my number and end the conversation politely.
So far two out of three have called back and offered to sell for 35 cents on the dollar.
Dunno if it works with homes but so far this is one of my favorite strategies. They both took a week and a half to call me back btw.
Eddie: AAAA....REO's....Fun....Not really but with Patience, the deals are there.
I bought an REO/ShortSale back in April and also have 1 in Pipeline.
The one back in April was with Countrywide which wasn't really BofA fully yet. After getting impatient in the process (4 Months In), I told my Phase II Negotiator that I am racking up a lot of costs and this thing is dragging on while the market is tanking so I wanted to lower my offer. I said 'What do you think my odds are at this price...' and he gave me a little hint that I should be OK with that number...
In the end I modified the HUD 1 and lowered my offer $24K and also added a 2% Buyer Expense Fee...which went straight in my pocket....and it was Accepted!
Moral of the Story:
1. Always ask the Reps or Negotiator what the BPO's were b/c then you can base your offer roughly 80% of that. & Ask to be POC on BPO so you can influence Opinion.
2. If they don't tell you the BPO #'s, I ask 'well is it above X Dollars' or 'are we around the ball park'...and you can filter it from there.
3. Don't be afraid to add in a 2% Buyers Expense Fee, they'll pay it...if they don't then you can modify it back to original.
PS: I do this all on my own without a Realtor and I'm not licensed either. You can sell the negotiator on the fact that they don't have to pay Realtor Fee.
Good Stuff John & Rick...this thread is starting to snowball.
Wes, I have no way to directly negotiate with the bank since I don't deal with volumes. However, I do buy cash which gives me leverage. Where I get those mofos. Is at closing date. In my contracts I put 15 days closing knowing that they won't be able to clear the title that fast. In most cases, they come back with 21 days which I usually agree. At least on two occasions, the seller (The bank) had to request an extension. I give them five more days knowing that even that, wouldn't be enough. When the second extension request comes in I make a contingecy of price reduction (usually 15%) and it already worked for me twice.
I do it all through my agent, so it is possible however the technique is different and doesn't requires social skils.
Great tips. I'm considering an offer on my first REO. Do you use a standard offer form or contract? I'm a licensed agent with a large brokerage and their purchase contract is 14 pages long.
The bank's agent said to use my broker's form. Fine, but going forward, is there something more simplified for an offer?
No offense intended, but why don't you ask your broker what forms he/she will allow you to use?
I have my own one page offer, that has a condition in it that buyer and seller will execute the normal realtor's contract (20 pages in PA), upon acceptance of the offer terms. You could ask your broker if they have something similar for you to use.
Great tips. I'm considering an offer on my first REO. Do you use a standard offer form or contract? I'm a licensed agent with a large brokerage and their purchase contract is 14 pages long.
The bank's agent said to use my broker's form. Fine, but going forward, is there something more simplified for an offer?
Thanks
Not only that, but beyond the 14 pages long contact, expect to sign a long addendum which most bank require. Since the addendum in many cases, supersede standard contract, you must review it very carefully. Get a PDF editor (Acrobat, Foxit etc) and make changes to the addendum as you pleased. Since you are the first to sign it, any changes you made are legitimate. If they catch it, they will tell you. Most of the time they just sign it For instance, the banks leave themselves an option to provide you with any of the following options Quit claim, special warranty deed, etc. Obviously, you should take out the quit claim and don't accept anything less then a special warranty deed.
No offense intended, but why don't you ask your broker what forms he/she will allow you to use?
I have my own one page offer, that has a condition in it that buyer and seller will execute the normal realtor's contract (20 pages in PA), upon acceptance of the offer terms. You could ask your broker if they have something similar for you to use.
Steve, I'm not sure if you are a licensed realtor, but to the best of my knowledge, this is one of the few disadvantages of being an investor and a realtor buying and practicing in the same state. There are rules you have to follow and most of them are to protect you as an agent and your broker. If you are an investor and also a realtor, you are bound by laws and regulation that a non-licensed investor would not bound by.
Thanks Eddie, this is very helpful! I've got a pdf editor and will review/amend the addendum carefully, then have my attorney go over it. NJ is an attorney review state.
Steve, I'm not sure if you are a licensed realtor, but to the best of my knowledge, this is one of the few disadvantages of being an investor and a realtor buying and practicing in the same state. There are rules you have to follow and most of them are to protect you as an agent and your broker. If you are an investor and also a realtor, you are bound by laws and regulation that a non-licensed investor would not bound by.
Eddie,
I'm not a realtor. But Aly is, and she has her license under a broker. That broker is responsible for supervising her activities, and as such that is why I suggested that she bring this matter to the broker. That way whatever the broker allows, she should be allowed to do, including paperwork to use.
And what you stated would certainly apply to those investors who are also licensed realtors. Now, there was somebody's intro thread where I assembled a bunch of BP links on the pros and cons of having the license, and the items you mention could fit in with that material.
My broker does have a 1 page offer form which I will use going forward. And yes, being an agent and investor has its pros and cons. Thanks for the feedback.
... When the second extension request comes in I make a contingecy of price reduction (usually 15%) and it already worked for me twice.
I do it all through my agent, so it is possible however the technique is different and doesn't requires social skils.
Eddie,
That is a good negotiating tactic on REO, since there really is no person who owns it to negotiate with; take advantage of the bureaucracy of the bank and the associated delays, and get them to lower price in exchange for the extension of closing date. You got my vote.
If you build good rapport you wont piss them off with a low ball offer, never reneg at the last second, and its better to make friends of course you need to be in constant contact with them.