Sorry, But Aggressive Negotiations Will Get You Nowhere in Real Estate: Here’s Why
There are many ways to negotiate in life. There is no right or wrong way, as each way can be effective in different situations. There are tough negotiators who try to get the best possible deal they can no matter how much it beats up their opponent, and there are passive negotiators who let others make all the moves.
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I have been a part of thousands of real estate transactions as an agent, a broker, a buyer, and a seller. I think I have become a decent negotiator, whether I am trying to get the most money for my clients who are selling a house or I am trying to buy a flip or a rental for myself. I see "tough" negotiators all the time who focus on winning each battle, and personally, I don't want to do business with them. I want to do business with investors and agents who I trust and will not give me a headache. When I do business, I want to build long-term relationships that will make me successful for many years to come. I want to win the war, not squeeze out a few thousand bucks on deal that may jeopardize future opportunities.
There’s More to Negotiating Than Getting the Best of Someone
A lot of people focus on one deal when they are buying or selling real estate. They want to get the best possible price or sell for the most money they can. When you have a successful real estate business, your goal should not be to do one or two deals; it should be to do many deals every year for many years to come.
The truth is, every deal you do and the way you handle that deal has an effect on how successful you will be in the future. Our reputations can be an incredible asset or a huge detriment to our success. I own a real estate brokerage, and over the years, we have worked with many agents who fought hard for their clients. You usually see their fight and determination during the inspection process. They ask for every possible thing they can to get the most money and most value for their buyers. Every single deal is the same with these agents, and it leaves a bad taste for both the seller and the agent who is representing them. Eventually, agents begin to wonder if it is even worth accepting offers at face value from the agent because they know they will get beat up in the inspection. It might even be easier to take a lower-priced offer from a different agent.
I am sure the agents who are fighting for every penny they can for their clients believe they are acting in their clients’ best interests. However, over time, with every deal they fight for, they are hurting their clients because they lose trust from the other agents in the area. They also may scare some sellers off because of all the requests they make. Sellers are often offended when a buyer asks for everything they can in an inspection. People are attached to their home, and when someone insinuates it is a pile of crap, the owners get mad. I have seen many sellers try to cancel a deal when they get a huge list of inspection items. They would have been willing to fix a few things or even offer a small concession, but when they see a crazy long list, they want to end it.
Fighting as hard as you can in one deal is not always the best way to negotiate the best deal.
Negotiating in Bad Faith Will Hurt You
There are many investors who make offers on houses knowing they may not go through with the deal or they are going to ask for a huge concession form the seller during the inspection. They want to get their offer accepted and then bully the seller into lowering the price. They may be a wholesaler who thinks they have a decent deal but need a better deal to make the numbers work for their buyers. If they can get the home under contract maybe they can get the seller to negotiate more, and if not, they will just cancel.
On one or two deals, this strategy may work well, it may even make you some money. Word will get out among agents and the real estate community who is making offers that will most likely cancel. In Denver, there are a few companies who make offers on MLS deals and then wholesale them to their investor list. I see the houses they offer for sale on the MLS, I see them go under contract, and I see most of them come back on the market when none of the buyers want the house. A few agents are starting to discourage their sellers from even looking at offers they know are from wholesalers because they are tired of so many deals falling apart.
I cannot blame those agents, because every time a house goes under contract and then comes back on the market after the contract fails, the house usually sells for less money. People wonder what is wrong with it, and it gets less exposure coming back on the market than it would coming on as a new listing. I hate it when my house flips are under contract to sell and the buyer cancels.
If an agent sees an investor who is always looking to get a lower price during the inspection, the same thing will happen. Agents will steer their sellers away from those buyers to protect their clients, and in the long run, the investors build a bad reputation that hurts their ability to get more deals.
Low-Key Negotiation Helps Your Business
Over the last year, I have had multiple agents in other offices bring me deals that I bought before they listed them on the MLS. They called me and asked if I was interested in a house that needed some work. The seller did not want to clean it up—they were worried about showings, and they thought they would ask me first since I had done a deal with them in the past that went as smoothly as possible.
When I negotiate, I don't give in to everything the seller wants or pay more than I want to, but I always negotiate in good faith with my first offer. I don't plan on asking for anything in the inspection; in fact, 90 percent of the time, I waive my inspection. My offers are not always accepted, but I make it clear that if my offer is accepted I will close. I will not play games, and it will be the easiest transaction that agent has had this year (at least on my end).
I do business the same way when I buy off-market houses, even though the sellers may have no connection to the real estate world. You never know who the party you are negotiating with knows—and how many more deals you can do if you treat them fairly. I’ve had multiple off market sellers refer their friends or family to me after I bought their house and made it as simple as possible with no games.
The reason people call me up first is because I have done a deal with them and always been fair. I have made it as easy as I possibly could, and they know if we make a deal, I will stick to it.
When negotiation for yourself or someone else, the goal is not to win that battle and get the most you can from the other party. The goal is to build your business the right way so that deals come to you, people trust you, and you are not fighting an uphill battle the rest of your career. If a situation comes along where some tough negotiating is needed, it is a lot easier to get the deal done when you previous deals have gone as well as possible.
Want to close more investment deals…and make more money in the process?
When the real estate market gets hot, it’s the investors who know the ins-and-outs of negotiating with sellers (and with agents, banks, contractors, and other institutions) who will get the deal. And it’s those same investors who will get their properties sold for top dollar and minimal stress!
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What’s your go-to negotiating philosophy? Have you found that overly aggressive tactics can earn investors bad reputations?