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\nRelated:<\/strong> 6 Tips for Negotiating Your Maximum Allowable Offer With Sellers<\/a><\/em><\/p>\n
3. Always get last concession.<\/h3>\n
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\u2019ll come back and say \u201cI can\u2019t pay all of them, but I can pay some,\u201d so you can reply with \u201cSure, as long as you throw in a home warranty.\u201d As J Scott, author of The Book on Flipping Houses<\/em><\/a>, once wrote, \u201cIf 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.\u201d<\/p>\n 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\u2019t 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.<\/p>\n 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\u2019t 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.<\/p>\n \u201cThis guy is crazy,\u201d they\u2019ll say. \u201cThere is no way we\u2019re giving you Grandma\u2019s fine china! We\u2019ll take the price, but we\u2019re keeping the china.\u201d And you\u2019ll smile and accept.<\/p>\n 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\u2019ll quickly realize it hurts them every time they do.<\/p>\n Real estate is largely a game of mathematics and numbers, so while negotiating, stick to your numbers, and don\u2019t let emotion take over. Appealing to the math is a great strategy when negotiating, because it\u2019s hard to argue with.<\/p>\n \u201cMr. Seller,\u201d you\u2019ll say, \u201cat $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\u2019t work for me, but at $90,000, it would push my return up to 9%, which does work for me.\u201d It\u2019s hard to argue with that.<\/p>\n Keep the negotiation light, and don\u2019t get offended. Remember, it\u2019s all a game of back-and-forth. I\u2019ve seen friends carry on negotiations that look a lot like this:<\/p>\n My friend: \u201cI can pay $100,000.\u201d End of negotiation. Don\u2019t 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.<\/p>\n 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\u2019ll take them out of their fantasyland and ground them in cold, hard facts. It\u2019s tough to argue with data!<\/p>\n Don\u2019t insult the other party or their property. Don\u2019t 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.<\/p>\n 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\u2019t dominate every point. Let the seller believe that they are a good negotiator and got some great concessions out of you.<\/p>\n 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 \u201cmax offer\u201d and let them push you a bit higher if needed. They\u2019ll feel good that they pushed you higher than you wanted, but you\u2019ll still get exactly what you wanted\u2014they just don\u2019t know that!<\/p>\n 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. When talking with motivated sellers, I like to tell brief stories about other properties I\u2019ve 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 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\u2019ll usually tell you a number, but this is never their real lowest price\u2014this is their starting price!<\/p>\n Then, ask them a follow up question like \u201cOK, but what if I could pay all cash and close next week?\u201d They will almost always go a little lower. If you wanted to push it one more time, you could say something like \u201cSo, 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?\u201d No one likes to appear unreasonable, and there is a good chance they\u2019ll respond with \u201cYeah, I could do that.\u201d<\/p>\n In just less than one minute, you were able to talk them down twice from their \u201clowest price,\u201d potentially saving you thousands (or even tens of thousands) of dollars. Calculate that out to a per-hour cost, and it\u2019ll be the best, easiest money you\u2019ve ever made!<\/p>\n4. Find true motivation.<\/h3>\n
5. Use a red herring.<\/h3>\n
6. Institute a penalty when they ask for concessions.<\/h3>\n
7. Stick to your numbers.<\/h3>\n
8. Don\u2019t get offended.<\/h3>\n
\nThe seller: \u201cNo, $100,000 is way too low. I need at least $120,000.\u201d
\nMy friend: \u201cScrew you! You\u2019re crazy!\u201d<\/p>\n9. Negotiate with data.<\/h3>\n
10. Don\u2019t be insulting.<\/h3>\n
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<\/p>\n11. Let the other party feel good.<\/h3>\n
12. Demonstrate why you are a great buyer.<\/h3>\n
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\nRelated:<\/strong> How to Harness Your Fear of Real Estate Negotiations to Get the Deal Done<\/a><\/em><\/p>\n
\nmaking it obvious that I\u2019m \u201cselling myself.\u201d This helps encourage the seller to keep negotiating and ultimately sell the property to me.<\/p>\n13. Ask for their lowest price, then go lower.<\/h3>\n
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