When it comes to negotiating with sellers, it can often feel pretty uncomfortable making offers, but I want to include some actionable tips here that will help you navigate the waters.
Before the negotiation process even begins, in order for you to first get there, you have to be make sure you’re sending your direct mail to the right people. If you are struggling with that and find yourself not getting as many appointments as you would like, I recommend reading my previous posts on setting up an effective direct mail campaign and some of the common mistakes real estate investors make when they market.
The more you do this, the more appointments you will have and consequently the more opportunities you will have to make offers. If you think you are failing because you are weak on the phone, I suggest checking out this article I wrote to master taking calls from motivated sellers.
Making the Offer
When I first started making offers on distressed properties, this would be the part of the appointment I would look forward to the least. I had spent my time first building a rapport with the seller on the phone, then took the time to walk the house with them and really get to know them. Sellers often feel so comfortable with me that they may begin to tell me stories about when they used to live there as a child (if it’s a relatives house), or they may relay gossip from the neighbors or discuss their favorite sports teams.
But eventually, you have to cut the small talk and get down to business. If you are new to this and uncomfortable making an offer in person, here is what I would recommend. Let them know that you need some time to run the numbers but that you are still definitely interested in the house. Try to get back in touch with them within a few days and ask for their email address.
Then, once you have had the time to make sure your offer is where it needs to be, send them a letter of intent to purchase the property. Along with the letter, I would include proof of funds, any testimonials you might have, and the estimated cost of what it would cost the sellers to fix the property themselves. Oftentimes people have little understanding of the reality of flipping houses. They see all these shows on TV that are likely fictitious (or at the very least exaggerated) and just see the big numbers. You need to take them back down from orbit and explain this to them. I do this by listing out a complete itemized list of the repairs needed with their cost, the closings costs, and a reasonable estimate of the home’s ARV based on comps in the neighborhood (which I also attach).
I do all of the same things in person, but it can be a bit more intimidating to do so. If you go the email route, it’s much easier to bundle everything together in an email attachment and send it off. What I do is usually walk them through the math step by step, showing how much they will net selling the traditional way (MLS) versus fixing and selling with an agent versus selling to me today as is.
When you walk them through it, I find it’s much easier to explain the process and to help illuminate any areas of confusion, and it also helps them understand why your offer is what it is. Being in person also has the added benefit you being able to answer any questions they might have. Sometimes I even go and drive some of the comps with them to show them why I think their home is worth “X” amount.
You SHOULD Feel Uncomfortable Making Offers
When you are new to this it can feel like you are about to insult them when you make your offer. But the best way to get over this fear is just to get enough practice. If you are making them fair offers based off. They know they can sell their house for a little bit more if they list it on the MLS – or they decide to put some sweat equity into the project. That is not why they are contacting you. Often times these sellers are at wits end due to the culmination of multiple problems that have been building up.
Most of them are. Again, the key here is giving them a fair shake. If you just go around low balling people unrealistically don’t be surprised if people don’t take to kindly to you. However, if you are respectful, genuinely care about them and make a fair offer you don’t have anything to be embarrassed of.
What Happens if They Say No?
The numbers will either work for them or they won’t — simple as that. If you didn’t try to steal the house from them, then there is no shame offering at where you need to be in order to be profitable. People tend to fear offending the sellers, but I have done this for many years, and only in a few instances has anyone ever been offended by my offer.
Sometimes you can renegotiate or bump up your price; other times you won’t be able to come to an agreement, and that’s OK, too. Maybe right now is just not the right time. Thank them for their time, and follow up with them several months down the road. Keep them in your database. Many times I find that a few months later, they are still in the same situation and finally decide to sell for the offer they initially declined.
What negotiation tips would you add to this?
Let me know with a comment!