Once you have your maximum allowable offer (MAO), you must present it to the sellers. This can be done in person or over the phone (or even via email/fax/snail mail)—whichever you feel will make the seller the most comfortable. Personally, I believe an in-person offer is best, but in time, you’ll find what works best for you.
I think asking the seller, “What do you believe this home should sell for in its current condition?” is a wise way to start.
Likely, they will respond with a high, “dream” number. Most sellers know that in a negotiation, you will talk them down, so they will probably start high. However, asking this question is key, because it will give you a point of reference. You can pose this question over the phone the first time you talk with them (which is not a bad idea), but I also recommend asking them right before you make your offer. Get them to name a price. Maybe it will be completely reasonable, and you can simply shake hands and move on, but more likely, it will be high.
At this point, a great thing to say is something along the lines of “Gee, Bob, that’s quite a bit higher than I can go. Is that the best you can do?” In almost every case, no matter what the negotiation, the person will drop their initial price and say something like, “Well, I can go to $___, but no lower.”
At this point, you can begin the real negotiation. Of course, you may want to present an initial offer that is lower than your MAO, which will give you room to move up. However, if you offer too low to start, you risk insulting the seller and losing the deal altogether. This is the game of negotiation. Thousands of books have been written on the art of negotiation, so I can barely scratch the surface here. However, here are a few quick tips that have worked well for me and other investors when negotiating with sellers.
6 Tips for Negotiating Your Maximum Allowable Offer With Sellers
1. Build rapport.
I don’t suggest that you be disingenuous, but work to build a solid relationship quickly with the motivated seller. You don’t need to come out swinging right away, but find some common ground and let your personality shine through.
2. Look for their pain point.
Although your biggest motivator is probably price, it may not be the seller’s primary motivator. Discover why a seller wants to sell, and find a solution that solves their problem while giving you the price you need. For example, if you are talking with a motivated seller who is overwhelmed with the management of the property, speed may be far more important than price. Look for cues that show you what their true motivation is, because what they say may not always be what the real issue is.
3. Listen more than you speak.
Negotiations can be awkward, so your natural inclination will be to want to talk. Don’t. Listen and ask questions. Let the other party speak as much as they can and want, because every word they say can help you get a better deal.
4. Blame it on the higher authority.
If a motivated seller sees you as a rich shark, they will have a hard time discounting the price to a reasonable price because in their mind, “you can afford it.” However, if you can shift the blame for the low offer onto someone else, you become an advocate for the seller, and the higher authority becomes the “bad guy.” For example, let the seller know that your partner/cash buyer needs to spend X amount or they won’t do the deal. This can keep you in the seller’s good graces while enabling you to negotiate strongly.
5. Ask, “Is that unreasonable?”
This is one of my favorite negotiation strategies. No one likes to appear “unreasonable,” so when you ask, “Is that unreasonable?” the person typically feels compelled to say, “No, I don’t think so.”
Related: 8 Negotiation Techniques That Will Help Every Newbie Land a Better Deal
6. Be okay with walking away, but don’t.
Generally, the person who is more desperate in a negotiation is the one who loses, which is why you need to be okay with walking way. That said, just because you don’t need to get the deal doesn’t mean you should walk away too easily. Negotiate, negotiate, negotiate as long as possible to get what you want.
One of two things will happen after negotiations: you will either come to an agreement or you won’t. If not, don’t consider it a loss, and continue to follow up with the person. Many wholesaling contracts have been won months after the initial negotiation when the seller comes to grips with the true value of their property.
If they do agree to your terms, it’s time to sign the contract.
[This article is an excerpt from Brandon Turner’s The Book on Managing Rental Properties.]
Any strategies you use when negotiating with sellers?
Let me know with a comment!