The Psychology of Making Offers
When you are just getting started investing in real estate, it can be tough making your first offers. I’m not talking about just any offer, but the actual offer you should be making on a fixer upper property. Most of you have probably heard the saying, “If you are not embarrassed by your offer, you have just offered too much”. I have found this to be true over and over again. It can be hard to look the seller in the eye and tell them what you must get the property for when you know they are expecting a much higher number. So what’s the answer?
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Change Your Thinking When Making Offers
One of the most important aspects of making offers is finding a way to get over the idea that you are taking advantage of these sellers. But before you can begin to change the seller’s expectations, you must first change your thinking. I want you to be clear that I’m not saying that it is OK to take advantage of anyone. But, you have to buy these properties at the right price to build a successful business.
Presenting an offer to a motivated seller that makes you feel uncomfortable is just part of the business. It’s a fact that you make your money the day you buy the property. If you pay too much initially it’s going to be very hard to make that up somewhere else. Rehabbers will have to cut expenses on their project somewhere. If you are a wholesaler, you will surely take a hit on your wholesale fee. If your strategy is buy and hold, you might be able to make up the difference simply holding the property long term.
But if for any reason you find yourself in the position where you must sell the property quickly soon after you purchased it, you run the risk of losing money on the deal.
6 Steps to Change Your Thinking
- First and foremost, make peace with the fact that you will almost always be offering less than the seller wants. In most cases, they will know on some level that their asking price is too high, but you can’t fault them for trying.
- It is all about the numbers. Get very good at crunching the numbers. This part isn’t optional. You might say it’s a matter of life and death; it will be ultimately determine whether or not your business lives or dies. If you don’t master this part, you will always have problems.
- Once you have figured out what your MAO or maximum allowable offer is, offer just a little bit lower. Some sellers have the need to negotiate to justify taking a lower price. It makes them feel good about process, so leave yourself a little room in the MAO for some negotiation. When you do that the seller will feel like they have won, and you will feel good about your offer if the seller is satisfied.
- You will get a lot of “no’s”. Get used to it and move on. You have to change your mindset; this is a numbers game. Don’t make the mistake of trying to make a deal work. Always go by the numbers and leave emotion out of the equation.
- If you are getting a lot of accepted offers as a newbie, you are paying too much. Remember that you should always feel a little bit uncomfortable with the amount of your offer.
- Find out what that “something else” is that your seller wants or needs. This is your leverage in the deal. Once you have this bit of information, you can add this to the deal which will make the seller happy. It will also make you feel like you have added value to the low price you are offering.
Real estate investors provide a valuable service to people that need a quick solution to their problem. Don’t sell yourself short by feeling bad about your offers.
Changing the Seller’s Expectations When Making Offers
The second part of the psychology of making offers is “changing the seller’s expectations”. I wrote an article here on BiggerPockets a while back about that. You can find that article here if you missed it last time:
Do you struggle with making low offers? What have you done to overcome it? Let me know in the comments below!
Photo: Ruth L