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Getting to the Lowest Purchase Price Possible: The Skinny on Real Estate Negotiation

by Engelo Rumora on July 5, 2014 · 16 comments

  
Getting to the Lowest Purchase Price Possible: The Skinny on Real Estate Negotiation

As most experienced investor’s know-You make your money when you buy a property, and not when you sell it.

In this blog post I will explain some of the key characteristics that I use when negotiating to purchase investment properties. When looking to purchase that “right” deal- one must always be patient, persistent, professional, and have very thick skin.

Patience

Don’t just buy for the sake of adding quantity to your portfolio. Be patient and wait for the “right” deal to come along that best suits your criteria and end goal.

Persistence

 After hearing so many “NO’s” you will eventually get a “YES”. Don’t get discouraged if the offers you are submitting are not getting accepted. Real Estate is a numbers game, so be persistent and keep working those numbers.

Professionalism

When submitting offers, position yourself/company and your brand in the utmost professional manner. You must maintain an impression of having the authority and capacity to purchase any amount of property(s) in a short amount of time.

One of the most significant lessons that I learned early on in my real estate investing career was not to buy properties based on adding quantity to my portfolio, but rather focus on being patient, negotiating better, and growing at a slower pace- ensuring only “quality” investments.

I can comfortably say that even the average investor who pursues networking and is active via phone and email can come across a very profitable deal at least three to four times a year.

As you grow your network with other real estate professionals and they become more aware of your buying criteria and an ability to perform – you will start to get flooded with numerous deal offerings on a regular basis.

When siphoning through these properties- single out the ones that best fit your end goal and submit offers at 50% of the asking price. All offers should be a “cash only” offer and must be submitted in a serious and professional manner.

Related: A New Solution to Getting Your Real Estate Investment Offers Accepted

When implementing this ‘low ball’ strategy, 99% of the time you will receive very unpleasant responses from the realtor or seller- to which you must not react, but respond by being sincere and apologetic while also doing your best to explain that the offered price is just your perception of what the property is worth. The irony in this situation is, that you will most likely receive a call or email from these folks months later asking if your initial offer is still on the table.

There will be that one time, were the seller is willing to negotiate due to his own personal circumstances and urgency to offload the property. In these situations, the sellers counter offer will be substantially lower than the asking price and you will now be in a prime position to acquire the property at a significant discount.

Using a similar method, I was able to purchase “Australia’s Cheapest House”.

Once a price is agreed on, make sure that you are efficient and perform in a timely manner. This will in return make all parties satisfied and will also grow your reputation as an investor that has the influence and authority to make deals happen.

Thick Skin

I left this one for last. Real Estate can be an emotional roller coaster at times. Don’t take the words and reactions of others to heart as you never know what there current situation or circumstances may be.

Related: Avoiding Rookie Mistakes When Making Offers on Real Estate

As I was once told:

“NEVER REACT, ALWAYS RESPOND”

What else do you think is needed to be successful at getting deals in real estate?

Be sure to leave your comments below!

 

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{ 16 comments… read them below or add one }

Roberto Reyna July 5, 2014 at 8:09 am

Very well said, Engelo! I like what you say and how you say it.

Reply

Engelo Rumora July 5, 2014 at 10:07 am

Hi Roberto,

Thanks for your kind words. I did my best to structure the blog in the best possible way and NOT to offend any Realtors or sellers.

Most experienced Realtors and sellers can read the game well so they would know all the these negotiating strategies anyway.

I use other more aggressive strategies that allow me to purchase at even bigger discounts so I might write another blog about them in the future.

Thanks and have a great weekend.

Reply

Eric July 5, 2014 at 8:40 am

I hear so many people say that “There are no good deals in my area”, so they give up. Yet, they have not made any offers. As long as there are properties, there will be deals, guaranteed.

Reply

Engelo Rumora July 5, 2014 at 10:16 am

Thanks Eric and 100% true.

There are always great deals to be found in every market.

I am always quick to come up with a number. The “low-ball” offer I submit always tends to subconsciously sit in the back of the sellers mind, and even tho at first they might get quite defensive and irritated they sometimes come back and are willing to negotiated.

99 times out of 100 this will not be the case but its worth the effort if you know that the 1 time you are looking at a $50,000 below market discount on purchase price.

Thanks and have a great day.

Reply

Roberto Reyna July 5, 2014 at 10:42 am

Actually Dean Graziosi teaches the very same method. I purchased both of his books and learned a lot from them also.

Reply

Engelo Rumora July 5, 2014 at 2:41 pm

Thanks Roberto,

I have heard that Dean Graziosi has been around for quite a while and teaching different types of Real Estate techniques.

I am yet to read any books but have seen a few of his videos.

Thanks for sharing.

Reply

Roberto Reyna July 5, 2014 at 3:12 pm

Yes, I am glad you have an open mind to opportunities, I still follow Dean Graziosi and the techniques his organization puts out. He is a self made man who also has come up the hard way. I some how sense you have also, if I’m not correct.

Reply

Engelo Rumora July 5, 2014 at 4:05 pm

Thanks Roberto,

I definitely wasn’t brought up with a silver spoon :)

Reply

Bill Wallace July 6, 2014 at 7:41 am

“single out the ones that best fit your end goal and submit offers at 50% of the asking price”

What market does that work in? So you are going to just waste your time throwing crap offers out that will never fly?

I just ran the numbers from MLS in Hennepin County (home to Minneapolis). 1,886 transactions in the last 30 days and the absolute largest discount off of list price was 20%. So your strategy would have resulted in 0 sales and a whole lot of wasted effort.

Reply

Engelo Rumora July 6, 2014 at 8:24 am

Hi Bill,

Thanks for you comment.

We take action and submit hundreds of offers on a weekly basis.

If you read some of my previous blogs and posts you will find that I am not a big believer of what certain stats and demographics show and am always out to prove them wrong.

In the last 9 weeks we bought 24 properties in Toledo and Dayton at great prices so I wouldn’t really consider this a waste of time as it has enabled us to pass on this discount to the end buyers on the properties we sell.

It can work in every market and some will have a higher conversion rate to others.

Even if the average investor implements this strategy and only manages to buy just one house but makes a $50,000 profit, it sure beats working all year for the same amount of money.

Thanks for your reading and have a great day.

Reply

Shaun July 10, 2014 at 10:19 pm

I am generally not a fan of the “Offer X% of the listed price” method.
Not because I have issues putting in low offers that will almost certainly be rejected, that is most of my waking hours the last few years. :)
My issue is it ignores the value of the property and relies on the seller listing the place too high, but not THAT much too high. THAT has not been a great assumption IMO. I have seem many places that are well over 100% overpriced and a 50% offer would have had me lose my shirt.

Thankfully for anyone going this route people that are delusional enough to list their place for more than double what it is worth are unlikely to come to their senses when they see your offer. :)

Reply

Engelo Rumora July 23, 2014 at 5:53 am

Hi Shaun,

Thanks for your comment.

The “50%” off asking price is considered more as a guide than anything else. If I went in more detail it would probably take up 2 chapters lol

There is a paragraph in one of my other blog posts towards the end of the post that you can check out and relates to my reply: http://www.biggerpockets.com/renewsblog/2014/07/12/become-cia-real-estate/

When you become an area expert and a deal presents itself, a decision of a “great buying price” can be made within a glance.

If some deals are overpriced by 100%, than the offer would need to be 75% less of whatever the perceived value is.

Thanks for your positive critique and have a great day.

Reply

Tom Elam July 14, 2014 at 5:25 pm

@Shaun
We have a house across the street that was available for a short sale 6 months ago. The house is in need of much updating/repair and is functionally obsolete as it sits. I believe it is the classic money pit. At that time we offered them $150,000 and got no response from the owner. Apparently the owner avoided foreclosure and the house appeared on the market for $600,000 3 weeks ago. I doubt that the house would have brought that much in 2007.

I think the owner is stuck on a number and doesn’t want to let go. I hope it ends well for them.

Reply

Shaun July 14, 2014 at 7:29 pm

You can’t fix stupid…

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Engelo Rumora July 23, 2014 at 5:57 am

Thanks for sharing Tom,

There are at times unreasonable sellers and as Shaun mentioned in his comment, even if 50% less than the asking price was offered and accepted it wouldn’t make it a good deal.

It comes down to educating yourself on the market and its values.

Thanks and have a great day.

Reply

Aidan September 4, 2014 at 8:00 am

The only reason I went into real estate is because I love negotiating, ever since I was 7 and my dad used to take me with him for garage sales around the block and I bargained for my toys. Your last advice could have easily been the first; if you want to do more than just survive in this field, you have to be gutsy but also to know when to back up on an offer that could be a huge money pit.

Reply

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