It’s ideal to negotiate directly with the seller in person. You should always work to try to arrange that whenever possible. This allows you to establish rapport and more quickly talk through different scenarios to try to reach an agreement.
Most often, however, the broker will make sure you don’t get the chance to do that. This means you need to negotiate through the broker, and this is most often done over the phone or in writing, with the broker relaying documents and emails between you and the seller.
It’s aggravating, but a reality of life.
This is why your ability to effectively negotiate in writing is critical if you want to get deals done.
Long before the purchase contract is ever submitted, there’s lots of negotiation going on. If you just throw over a purchase contract (which may be fine for single family houses, but not so much for apartment buildings), you’re just wasting everybody’s time. Or you could just make up an offer price 25% below asking, but I’ve found that these kinds of “offers” are quickly dismissed by the seller and broker.
You have to be more intentional if you want to increase the chances to get your offers accepted.
I have found that if you can communicate HOW you arrived at your offer price, you have a much better chance at getting a positive response, which in our case would be a counter-offer, which starts the negotiation process.
You have to get good at communicating how you “underwrote” the deal to arrive at your offer price to both the broker and the seller. Sometimes you find yourself educating the seller and/or broker if their expectations are higher than what the property is worth. If they can understand your underwriting, then you have a better chance at getting agreement on your offer price.
Let’s talk about two ways to do this effectively.
Tip #1: Make an Informal Offer via Email or Letter
One good way to communicate how you arrived at your offer price is to write an email or letter. In the email, you present how you analyzed the deal based on its income and capitalization rate, comps or some other way that makes sense.
There’s an even better method for accomplishing the same thing.
Tip #2: Submit Your Analysis and Offer with Video
An even better way to test the waters with an informal offer is to email the broker and/or seller a video recording of your analysis and assumptions.
I use a free program called “Jing” (from Techsmith), which lets me do a video capture of my analysis using a deal analyzer spreadsheet. I then email the video to the broker along with my offer price.
Here’s how one broker responded after watching my video:
“Brilliant! It reminds me of the Kahn Academy videos I often watch. I will have to use this going forward. I am going to forward this to my clients and we will jump on a call together to discuss and I should have some feedback for you by tomorrow hopefully.”
Perfect, that’s exactly what I wanted. I wanted the seller to understand my rationale, and the video makes sure that nothing is lost in translation.
He also added: “We have other offers coming in on this property, but my clients were pleased with your presentation. We anticipate a level of savviness engaging you as the buyer as opposed to the others whom we are in the process of vetting.”
So the video analysis also adds a certain level of professionalism, which will set you apart from other buyers.
Communicating HOW you arrived at your offer price, either via email or video, explains to the broker and seller HOW you arrived at your offer price, that you’re not just making it up, and that you’re professional. You make it easy for the broker to communicate your offer to the seller because he can just forward your analysis to the seller. This opens the door to the negotiation process and increases your chances of getting more deals under contract.
What other things have worked for you when negotiating deals with the broker or the seller?
Let me know with a comment!