What is the secret to mastering real estate negotiation? Let me give you an insider tip right now: It doesn’t have anything to do with low balling the seller, trying to haggle/beat them down on price or anything that might immediately come to your head when you hear the word “negotiate.” Instead, I take a different approach that lets me buy houses at a discount and gets the seller excited to work with me.
3 Not-So-Obvious Secrets to Masterful Real Estate Negotiation
Prepare for the Appointment
Preparation for the appointment happens before you step foot in the property. It happens as soon as the lead comes in. You should have some sort of system that documents all the relevant information. While you are on the phone with them, you need to discover what the seller’s situation is for selling at a discount, how motivated are they, whether they converted the garage into a living space, whether they did any partial rehab themselves, etc. Not only that, but speak in a way that makes them want to visit with you specifically to solve their problem. Think of every little factoid as another round of ammunition on your belt to help you secure the deal. If you want to be a professional, you need to come prepared.
After the phone call and the appointment is booked, there is still more to do. Start by running your comps on the property. Now, I don’t try to sit there and be a “desktop appraiser” (even big banks have tried to do this and failed). I pull more comps than I need and bring them to the field with me. Then, once I am in the field, I physically drive each comp and make mental notes as to how the comp compares to the subject property. From there, I try to narrow it down to the 3 most relevant comparables. Besides, if you are a new investor or new to the area, there is nothing more important than driving the comps. It will help you:
- Become an expert in that neighborhood
- Find hidden gems by driving for dollars
- Give you the information needed to make an offer that is more likely to get accepted
In addition to that, I would recommend printing off whatever records there are for the subject property on your local central appraisal district’s website. Beyond that, I keep a stack of folders in my car just in case I need them. You never know when you will need to pull one out and write a contract on the spot on the hood of your car that you weren’t expecting. It has happened to me more than once!
Don’t Be a Know-It-All
When you are about to pull up to the subject property, I recommend parking on the side of the road or a few houses down from the house. The reasoning is simple – if you pull into their driveway, it can feel like you are trapping them in on a subconscious level. So just put in the extra effort to walk a few more feet. Once I am inside the property with the seller, most of my discussion is about anything other than the house.
I talk about sports (if I see a Dallas Cowboys bumper sticker on their car) or hobbies that they might have. Just pay attention inside the house. Look out for pictures, items or doo-dads that may give you any indication as to similar interests you may share. For example, I love to go fishing and if I ever see an outdoor channel on their TV, an animal trophy hanging over the mantle, or a picture of someone holding up the “big one,” I know we have a lot in common. Even if you can’t find anything on a personal level to connect with the seller, just be yourself and be nice and courteous; after all, it’s their house. Many times older people will say I remind them of their own kids or grandson, and that’s when I know I have built a relationship with the seller, and it gives me a much higher likelihood of getting the contract, even if my price isn’t the best.
But getting back to the title of this section, you don’t want to go around and beat up their house. Don’t go around pointing out the hole in their drywall or how they messed up the partial rehab they attempted to do themselves. Don’t beat them up on the price and argue with them. Instead, always try to educate them and build a personal relationship. In one of my previous blog posts, I discussed some excellent tips on how to educate the seller – one of the biggest tips to take away from that is how I break up the prices and use that as information to present to the seller.
Understand the Seller’s “Why”
In an ideal world, no one is going to sell their house for 50-80% of what it’s worth. If they did, many of us wouldn’t be in the business. The good news is every seller has an underlying motivation or a “why” for selling their home and choosing a cash only discounted sale. For some sellers, it’s simply to avoid paying realtor fees – but these leads tend not to be very good.
Which brings me to my next point: Once you know their “why,” you essentially know their motivation and can gauge their level of interest in selling at a discount. If you know the seller’s situation, it’s more ammo for you as well, as it can help you personalize your offers in ways that make them more likely to choose you over someone else.
For example, did they need some extra time to close to move out their parents’ old belongings? Or maybe it’s just the opposite – they need to close by the end of the week and only you can make that happen. Whatever the case, make sure you get to know their “why.” That is why it is so essential to build a relationship with these people and not just go out there being a know it all and throwing out offers left and right and hoping something sticks. Instead, if you go in as personable, genuinely caring about the seller’s situation and trying to help them (even if that means not getting the deal), you will walk out with more contracts.
What are your most successful secrets to real estate negotiation?
Please share in the comments section below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.