6 Key Steps For Fearlessly Negotiating Great Real Estate Deals
The prospect of negotiating with sellers is perhaps one of the most dreaded parts of the real estate investing business. It is so full of unknowns that it stops many a person dead in their tracks. Most of us are simply not used to negotiating for things. We have been conditioned to believe the price is the price, and that is just the way it is. The thought of having to negotiate something gets that little voice in our heads going full throttle. What if they don’t take my offer? What if they get mad at me? What if we actually have to talk back and forth? What if I get yelled at? What if I offer too much? It goes on and on and on. Negotiation is, however, a skill that can be learned, and if you want to be a successful real estate investor, you have to learn to negotiate.
So what are some of the keys to becoming a good negotiator? I have some ideas listed below, but I want to point out a couple of things first.
- The goal of negotiation is not to win, but to solve the seller’s problem. Your job is not to “pull one over on the seller” but create a solution for the seller.
- It is ok if you cannot agree to a deal. You cannot get them all, and you have not failed. If you did your best and made your best offer, then so be it. Not every seller will be in the right frame of mind to consider your solution. Accept that and move on to the next one.
Ok, on to some keys for good negotiation.
6 Key Steps For Fearlessly Negotiating Great Real Estate Deals
1. Find a Motivated Seller
First, you need to find someone who truly needs to sell their property. How to find these sellers is a discussion found elsewhere, but if you do not have a motivated seller, it is usually not worth your time to proceed.
2. Overcome Fear of the Unknown
The fear of negotiation generally comes from the many unknowns involved. You don’t know the owner. You have never done this before. You don’t know why they are selling. You don’t know if you will make an acceptable offer. You fear rejection and failure. You can get over many of these fears with the two points I outlined above. If your goal is to create a solution and you know that it is ok to not get every deal, you can eliminate many internal fears.
3. Do a Little Research
You can alleviate more of this fear with a little research. Remember the old adage, “information is power”? It’s true. Gather information on the property and seller before you negotiate. Look at past sales and at comparables. Run your numbers. Check out public records. You might find out about a pending tax sale or foreclosure. You may find that the owner lives out of state or some other interesting bit of info. All of this may help determine motivation, assist you in the coming negotiations, and help calm those fears.
4. Build Rapport
Eventually, you will likely meet or talk to the seller. The fourth key then is to try and build rapport. Break the ice and get to know the seller a little bit. Don’t jump right into the deal (unless of course that is what the seller wants to do). Building rapport may take a bit of practice for some, but remember that goal here is to not come off as smarmy or insincere. Success with this key comes from being genuinely interested in your seller. Find out what they do, if you have any common interests like football or hobbies, or know the same people. Building rapport really can go a long way. You may find that you get the deal even though you offered a lower bid simply because you built a good rapport with the seller. It has worked for me.
5. Discuss the Property
As you build rapport, you can begin the negotiation process. Begin talking about the property. Ask various open ended questions.
- What condition is it in?
- What upgrades are needed?
- What is the current market like?
- Why are they selling?
- Have they attempted to sell before?
- How did it work out?
By asking these questions, you are attempting to set the stage for your offer. A point to remember here is that you may be dealing with emotions. The seller may have grown up in the home. A close relative may have just passed away. They may think that pink bathroom is the best thing ever. Be aware and sensitive to these emotions, and try not to put your foot in your mouth.
6. Get to the Price
As you continue talking, you will have to get around to price at some point. Try to get an answer out of them as to what they want for the property. Some questions to ask are:
- “What will you take for the property?”
- “What is the lowest you will go?”
- “What will work for you?”
Hopefully they will give you an answer, as this gives you a starting point where you can often negotiate from.
Sometimes, however, sellers simply will not give you a number and want you to make an offer first. If you find yourself in this situation and want the property, you are going to have to put a number out there. What should it be? A low offer, obviously, so you can negotiate from there. How low? It is hard to say. It will depend on your market and the seller. You will have to get a feel for them as you talk with them. Be honest with them, but don’t be afraid to offend. If they say they would never take such a number, counter by asking what they think is fair or reasonable. Perhaps show them your numbers and repair estimates so they can get a feel for where you are coming from. Always keep in mind that you may never actually agree and that is ok. Do your best and move on.
If a seller is stuck on a particular number that is a bit high for you, it might be worth your while to find out what the seller wants the cash for. They are not going to hoard the cash, are they? No, they are going to spend it. On what? Ask! Perhaps they want $10,000 for a vacation. Perhaps they want a new car. Maybe you can give them enough cash now for what they want now and pay the rest over time on terms agreeable to you. Ask them questions about possible solutions you can offer. Find out what they want and solve their problem. It is not about winning, it is about solving their problem.
Becoming a good negotiator is not easy to do—it does take some practice, but it does get easier every time you do it. I have found that being sincere, honest, and upfront about who I am, and my plans go a long way with many sellers. I do not try to play games or use “Jedi mind tricks.” That said, understand that some sellers are obstinate jerks. If you run across one of these sellers, don’t let it get you down. Take the high road, make your offer, and move on. Like I said, you can’t (or maybe even do not want) to get them all.
How do you negotiate? What helped you learn this art?
Please share with your comments.