Posted over 10 years ago

Dealing with larger purchases-PT 3

Thanks again to the PMs and to those that have added info to this subject.

 

Louis put it very well in "Control the seller". I feel you don't have to create an antagonistic relationship in the negotiations. You obtain results from dealing with the "backside" of someone. I obtain better results from a pat on the back, than from kicking them in the ass!

Negotiations is not a one time thing. It comes in various sections. The first is always to determine a price that seller/buyer both agree to. This is NEVER the final price you pay, or you did something wrong, imo. Remember, the buyer is in control.

After negotiating a price , you need to come up with more ammo; sellers motivation, newly noticed repairs neccessary, loan situation, etc. All these items will determine more bargaining points for you. I've also found the longer the buyer drags the deal out, the more the seller tires and will trat your requests more favorably. It is to your benefit.

I need to mention a couple of my preferences before going further and a couple things that can eat you alive.

I prefer to purchase individually metered properties. I worry about the "all bills paid" properties for obvious reason. I know there are bill back programs that can alliviate some of this, but tenants are not very conservation on utilities, when it is your money they're spending. I also get nervous if the buildings have a 2 pipe chiller system. It was very popular in TX in60s-70s era. I really dislike them.

Back to negotiations- After the inspection is done and you have your list of items found in need of repair, you begin to quote a price reduction that would ADAQUATELY repair all items noted in ALL units, not just the units inspected. If there is a noisy air handler or squirrel cage in several units, you want them ALL checked and fixed. You aren't going to make an old building new, but you can get a leg up on future cap-expenditure items. Remember, you're in control at this point, and need to use it to your advantage. You can still negotiate in a friendly mood and position. Be Firm but Fair.

During this dragging out of repairs, extension of due diligence period, and re-negotiation you'll learn little things from sellers' agent and sellers themselves. Maybe the loan is coming up for renewal or re-fi. Maybe partners are no longer on the same path any more. Maybe the realtor  OR seller has already spent or obligated their future proceeds to something else. Remember, they've been of the mindset that their property is sold since your original offer was accepted!

If you find these things of concern to seller, use them to your benefit. They DON'T want to walk away or start with another buyer. If you have an approved financing package, they'll want to keep you as the buyer. The time element is on buyers' side.

One item on financing- Louis was correct on the HUD loan. We threatened to go to a HUD loan if an institutional lender was not found. The sellers' couldn't afford to go the 6 months. Their loan was coming due before end of year. They even offered to carry some financing themselves to keep our deal together!

After actual inspection, I was very pleased that most of the items were done. I received a grarantee from owners and managers that any remaining items would be done on their nickel. A list would be kept and notification would be made when completed. I also received a $50,000 credit toward additional repairs. This was agreeable to both parties.

I should also mention that there are other negotiations to be made and benefits to be had. Attorneys think they are the Gift to Humanity. They aren't. Don't just take their fee or title searches as gospel . You can easily find other leaches to do the work for less. Same with inspectors, surveyors, lenders, etc. Each dollar reduced helps your ROI. Do all these during the due diligence. If you are really Ballsy, you can even negotiate commissions. Amounts, who gets it and how can buyer receive some benefit!! Use your imagination on this part. This is money seller has already agreed to pay, you might as well get some of it, imo. Legally, remember.

The last item in this section would be the deposit. I ALWAYS find a way to not let the deposit go hard until all my negotiations are completed. On the 154 units, it NEVER was at risk. I continued to use the financing and feasibility contingency right up till the 13th. We closed the morning of the 14th. As you get closer to the actual close, you become MORE in contol of the entire situation. There are other properties out there and the seller knows it. He can tell you he has other buyers, but most don't exist or are not capable of closing.

The seller will never offer you more than what you ask for, so ask for it all and then backtrack if neccessary. Seller may threaten to walk, but very few will. I find this to be especially true if there are multiple sellers. They are all motivated differently. Use this and all other methods to your benefit.

Remember, you don't have to be an ass in the negotiations. Just have reasons for your requests and you'll be successful.

Please feel free to add info or ask questions here or on the PM. Rich in FL.


Comments (6)

  1. In the original Blog, I mentioned I was threatening going for a HUD loan. Seller couldn't wait in place for the 6 months to obtain a loan. They offerered to do a wrap or even get a new loan and then wrap it. It gave us another option to consider. Any items you can suggest to seller that makes them nervous will give you more ammo, imo. Rich


  2. Ok I must be missing something. I couldn't find any post where you talked about going to a different type of financing? Am I missing something somewhere?


  3. Great stuff Rich, thanks for sharing your experience. You have given me some ideas as I go through my own due diligence process.


  4. Rich, Glad to hear that the loose ends will be covered. I wonder why the users who post their questions in the forums don't yet realize how there is valuable info in these blogs too. And that they can ask their questions here too.


  5. There will be a part 4 on loose ends. I spent this morning doing a taxes blog and i don't think anyone has read it or commented. Wierd.


  6. Rich, Well said. The negotiating back and forth is already adversarial enough, so no need to compound things by behaving poorly (that's just a euphemism for words that Rich already had used in his blog post). Any further parts to this already three part series? For those wondering, here are the previous parts in order in which they appeared: http://www.biggerpockets.com/blogs/575/blog_posts/2611 http://www.biggerpockets.com/blogs/575/blog_posts/2615 http://www.biggerpockets.com/blogs/575/blog_posts/2693 Thanks, Steve Babiak