13 Tips for Skillful Real Estate Negotiation
Although the following tips may not work in every case, the more negotiation strategies you know, the better you’ll be able to negotiate any deal.
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You’ll likely find that you already use a number of these strategies in your daily life, whether negotiating with your kids, your spouse, or coworkers.
13 Tips for Skillful Real Estate Negotiation
1. Be prepared to walk away.
Perhaps the most important negotiation strategy of all is being 100% prepared to walk away from a deal if you don’t get what you want. When you don’t need something as much as the other person, your position is strengthened. This is much more difficult than it might seem, though, especially for new investors. You work so hard to find a deal and finally locate something that might work, so you are now likely emotionally attached to the deal. You really want the deal to go through! I get it! But if you are desperate, you’ve already lost.
Also, make sure the other party knows that you are prepared to walk from the deal if you don’t get what you need.
2. Know your role.
Before going into a negotiation, and throughout the negotiation process, know your role and where you stand. What is the prize? If you walk into a negotiation like John Wayne and start demanding a ton of concessions, but the seller has five backup offers on their property because it’s a seller’s market, you’ll just make a fool of yourself as they slam the door on your offer and turn to one of the other buyers. So have an accurate perspective on where you stand in the negotiation.
3. Always get last concession.
The negotiation process contains a lot of back-and-forth, asking for (and offering) concessions. For example, the seller might ask you to pay $100,000, and you can accept, but only if they pay for your closing costs. Maybe they'll come back and say "I can't pay all of them, but I can pay some," so you can reply with "Sure, as long as you throw in a home warranty." As J Scott, author of The Book on Flipping Houses, once wrote, “If the other party realizes that every time he asks for something, he will need to give something, he will naturally shy away from asking for more than what he needs in fear that he will be asked to give up something important in return for additional (non-essential) demands on his part.”
4. Find true motivation.
What does the other party really need from the negotiation? Often, the true motivation is not what you think it is. Maybe they need to close quickly, so price is less important. Maybe they don’t want to lose their recurring income from their rental property, so they might be open to seller financing. Use the negotiation time to discover what their true motivation is, and try to give them what they need while you get everything else you want.
5. Use a red herring.
This negotiation strategy is named after a technique used to train dogs for fox hunting competitions by distracting the animal with the strong scent of a dead fish. The red herring tactic is meant to drive the negotiation to focus on something inconsequential, distracting the seller from what you really want. For example, you might really want the best price, but when you offer that low price, you also offer, and focus on, something you know the seller won’t give up, like agreeing to leave their fine dining china in the home. They may insist that the china is nonnegotiable, perhaps even be a little of- fended you asked, but it will make the low-priced offer appear even better.
“This guy is crazy,” they’ll say. “There is no way we’re giving you Grandma’s fine china! We’ll take the price, but we’re keeping the china.” And you’ll smile and accept.
6. Institute a penalty when they ask for concessions.
The negotiation process can be awkward and uncomfortable for all parties, but everyone wants the same thing. You can help your negotiation by making it a little more uncomfortable by instituting a penalty whenever the other party asks for a concession. A penalty could be as simple as not responding for several days or requiring your lawyer to look over the issue. This will train the other party to stop asking for concessions, because they’ll quickly realize it hurts them every time they do.
7. Stick to your numbers.
Real estate is largely a game of mathematics and numbers, so while negotiating, stick to your numbers, and don’t let emotion take over. Appealing to the math is a great strategy when negotiating, because it’s hard to argue with.
"Mr. Seller," you'll say, "at $100,000, my expenses with taxes, insurance, vacancy, maintenance, and management will be almost $900 per month, and I can only rent the property out for $1,000 per month, which would only give me a 5% return on investment. This doesn't work for me, but at $90,000, it would push my return up to 9%, which does work for me." It's hard to argue with that.
8. Don’t get offended.
Keep the negotiation light, and don’t get offended. Remember, it’s all a game of back-and-forth. I’ve seen friends carry on negotiations that look a lot like this:
My friend: “I can pay $100,000.”
The seller: “No, $100,000 is way too low. I need at least $120,000.”
My friend: “Screw you! You’re crazy!”
End of negotiation. Don’t be like my friend. Keep it light, so neither side gets offended. Your goal is to keep working the negotiation until both sides get what they want, so unbunch your panties and sit down at the negotiation table until you get what you came for.
9. Negotiate with data.
When possible, use data to negotiate your point. One of the best ways to do this when buying a piece of property is by having the comparable sales (comps) with you when negotiating. The seller may want $150,000 for their property, but if you can show them that other similar properties have sold recently for only between $120,000 and $130,000, you’ll take them out of their fantasyland and ground them in cold, hard facts. It’s tough to argue with data!
10. Don’t be insulting.
Don’t insult the other party or their property. Don’t tell them they are crazy, that their property is a pile of junk, or that they are terrible negotiators. You need to keep the other party liking you while negotiating.
11. Let the other party feel good.
At the end of a good negotiation, both parties should feel as though they won and the terms are fair. You never want to leave a negotiation with the other party feeling ripped off. Therefore, be sure to give something as well when negotiating, and don’t dominate every point. Let the seller believe that they are a good negotiator and got some great concessions out of you.
Let them see you bleed a little bit! For example, if your maximum allowable offer on a deal is $67,000, make $62,000 your known “max offer” and let them push you a bit higher if needed. They’ll feel good that they pushed you higher than you wanted, but you’ll still get exactly what you wanted—they just don’t know that!
12. Demonstrate why you are a great buyer.
During the negotiation for a property, feel free to remind the other party often why you are a great buyer. If you are paying cash, drop that fact numerous times in the conversation. Let them know how consistent you are in your purchases, how strong your credit is, how pretty you can make houses look when fixed up. You want the other party to want to sell to you, so remind them often that you are the best.
Related: How to Harness Your Fear of Real Estate Negotiations to Get the Deal Done
When talking with motivated sellers, I like to tell brief stories about other properties I’ve purchased and rehabbed, sharing how I closed so quickly and was able to help the seller out. I find ways to slip into the conversation the benefits of selling to me, without
making it obvious that I’m “selling myself.” This helps encourage the seller to keep negotiating and ultimately sell the property to me.
13. Ask for their lowest price, then go lower.
When negotiating in person with a motivated seller, one tactic that works almost every time is simple: ask the seller what their lowest price is. They’ll usually tell you a number, but this is never their real lowest price—this is their starting price!
Then, ask them a follow up question like “OK, but what if I could pay all cash and close next week?” They will almost always go a little lower. If you wanted to push it one more time, you could say something like “So, if I were to offer you [amount even lower than their new lowest price]and get you the cash you need in the next ten days, that would be unreasonable?” No one likes to appear unreasonable, and there is a good chance they’ll respond with “Yeah, I could do that.”
In just less than one minute, you were able to talk them down twice from their “lowest price,” potentially saving you thousands (or even tens of thousands) of dollars. Calculate that out to a per-hour cost, and it’ll be the best, easiest money you’ve ever made!
What’s your number one pointer for successfully negotiating a real estate deal?
Leave your best suggestion below!