How to negotiate offers?
Most Popular Reply
@Kyle Wahl, hi and welcome to BP!
What you offer depends on a lot of variables. First, you need to know your market inside and out vs. just randomly throwing out numbers. 80% of asking price could in fact be fair market value. Realtors sometimes knowingly overprice a property to test the waters, so if you come in at 80% and your appraisal comes back at precisely that amount, then you've basically paid full retail price.
Don't worry about insulting Sellers. Most of that talk is B.S. agent talk to get you to make a higher offer. Now of course don't waste someone's time offering $100 on a 100 unit apartment complex in a prime location and in excellent condition, but don't worry about starting the discussion at 20-40% below what you hope to eventually buy for.
Price isn't the only consideration either. TERMS play a big role too. Do the Seller's want all cash now, or would they prefer to do some owner finance over 5 years to make a little interest and reduce their tax bill? Do they want to totally sever all ties to the property, or would they hold the note for you for 5 years and continue to receive a regular income?
So many variable go into offers, especially on larger deals. Find a good agent who is experienced with multi-family and chat with them about the deals they've done. Learn the ins and outs.
Always be prepared to walk away if the numbers don't make sense.
Use the "if I take away" strategy. Example: "Oh, I'm sorry to hear you won't owner finance. I understand and that's fine, if I take away owner finance, would you come down $50,000?"
A wise investor / friend of mine once said if his first offer doesn't cause him to blush, he knows he offered too much.
Get used to hearing "No" a lot. If you hear "Yes" right away, you probably paid too much. Unless the property is across the street from Disney World....but these days you might even get a bargain there.
Best wishes!
5 Replies
- Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes6y
I would underwrite it appropriately and offer a price that works for you. 80% of the asking price doesn't mean it's a good deal, if the it's overpriced.
- 6yJoseph CacciapagliaBusiness MemberLender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
I have often made low offers like that for clients. It all depends on your market and the numbers for the specific deal. If multifamily properties in your market are selling quickly and close to full asking price, then you're probably just wasting everyone's time. On the other hand, if the particular property has been sitting a little while, or is just grossly overpriced, then 80% may be reasonable. However, if the only way you can make any deal in your market work for you is by buying it 20% below market, then you're either looking in the wrong market, you don't understand how to create value, or you have unrealistic return goals.
@Kyle Wahl, hi and welcome to BP!
What you offer depends on a lot of variables. First, you need to know your market inside and out vs. just randomly throwing out numbers. 80% of asking price could in fact be fair market value. Realtors sometimes knowingly overprice a property to test the waters, so if you come in at 80% and your appraisal comes back at precisely that amount, then you've basically paid full retail price.
Don't worry about insulting Sellers. Most of that talk is B.S. agent talk to get you to make a higher offer. Now of course don't waste someone's time offering $100 on a 100 unit apartment complex in a prime location and in excellent condition, but don't worry about starting the discussion at 20-40% below what you hope to eventually buy for.
Price isn't the only consideration either. TERMS play a big role too. Do the Seller's want all cash now, or would they prefer to do some owner finance over 5 years to make a little interest and reduce their tax bill? Do they want to totally sever all ties to the property, or would they hold the note for you for 5 years and continue to receive a regular income?
So many variable go into offers, especially on larger deals. Find a good agent who is experienced with multi-family and chat with them about the deals they've done. Learn the ins and outs.
Always be prepared to walk away if the numbers don't make sense.
Use the "if I take away" strategy. Example: "Oh, I'm sorry to hear you won't owner finance. I understand and that's fine, if I take away owner finance, would you come down $50,000?"
A wise investor / friend of mine once said if his first offer doesn't cause him to blush, he knows he offered too much.
Get used to hearing "No" a lot. If you hear "Yes" right away, you probably paid too much. Unless the property is across the street from Disney World....but these days you might even get a bargain there.
Best wishes!
- Investor · Wilmington, NC · Member since 2019 · 38 posts · 15 votes6y
@Erik W. Great advice there on the "if I take away". One of the key points in Chris Voss's "Never Split the Difference" book is that fear of losing something is far more powerful of a negotiating tool.
@Kyle Wahl if you haven't read the above book, do it. It's a book on negotiating and the human psychology behind all aspects of how a negotiation works.
- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Kyle Wahl:
I am browsing the internet looking at multi family investment opportunities. Is it reasonable to offer 80% of the asking price on properties that have no real issues? Also, would doing so insult the seller to the point where no deal could be reached? My strategy is to buy and hold these properties and not necessary flip them, so I do not want to get into a property that has a high rehab number.
First step is to determine the appropriate offer price. Depending on the market, the asset, location, inventory and demand the offer could price could be 50% of asking or 110% of asking. You want to make a thoughtful, intelligent, sophisticated offer backed by the research, comps and evidence supporting your price and ability to close. If you take this approach you need not be concerned about hurting someones feeling or wasting anyones time. A professional real estate broker working on your behalf will do this for you. If you are flying solo you will need to do the research and prepare the offer yourself.
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