Congratulations, they accepted your offer! Those are the sweet words that we all want to hear as investors.
Who hasn’t paced the room, checking their phone 20 times in 5 minutes, unable to focus on any conversation, just waiting for the seller’s counter offer?
Closing the deal and taking possession are exciting moments, but it is the negotiating of the deal that gets your adrenaline racing; The sheer happiness you feel as you jump for joy when the realtor calls with the news you have been waiting for. Or, facing the loss if a competing offer wins.
But, you can win more often – and get the best terms and price for your properties. Here are four ways to help your real estate negotiation:
Negotiation TIP 1: What’s the REAL Reason They Are Selling (Find their motivation)
Typically the more questions you ask, the more you will learn.
Get your realtor to ask some specific questions before you go to the house, and then again after your appointment.
You want to know things like:
How long have they owned the house,
Have there been recent upgrades,
Are there any issues with the house,
Why they are selling, and
What are the utility costs?
If you are negotiating directly with the seller, asking questions is a good way to build rapport and get information.
While you’re looking at the home, look for signs of seller motivation.
Bring a checklist of structural things you want to look for, and add the seller motivation to that list. I look for things like 2 or 3 beds in a bedroom- maybe the sellers need more space for the kids. If the walls are bare and there isn’t much furniture, they could be moving out of province or there was possibly a marriage break up. Only two months ago I successfully negotiated an offer at $15,000 under fair market value because I knew, through asking pointed questions, that the sellers were highly motivated. They had already purchased another home and were under pressure to sell their current home.
Negotiation TIP 2: Create a Connection
As a realtor I get to hear the sellers side. I suspect most real estate investors would be surprised to know that one thing a lot of sellers say is “I hope a nice family moves into my house!”.
I’m selling my house right now and I actually feel the same way – someone with kids NEEDS to buy my house so that they can enjoy the play structure that my husband tirelessly put together over Father’s Day weekend 2 years ago!
Selling to a family often ranks higher in people’s minds than money.
Think about that one for a minute.
Sitting with a couple reviewing competing offers earlier this year, the couple was trying to figure out if one of the offers was from a neighbour’s friend. They didn’t even know. They just heard that the friend might be writing an offer and thought that those people should get that chance to buy their home. They were willing to take $10,000 less from those people than a higher offer we had!
Decisions are not always rational! So, what does this mean for you, the investor? When a homeowner sells their home, they are usually confused and disappointed if they see a corporate name on the offer. If that is how your offer will be submitted, I recommend including a letter that talks about you as a person instead of an investor. You may even want to include a picture of your family to really humanize yourself.
If you’re speaking with the seller directly, let them know that you purchase nice homes in good areas to rent to great families. Bring the softer side of the business to the table.
Negotiation Tip 3: Help the Seller Get What They Want (As Long as You Get What You Need)
Too many deals fall apart over the terms in the offer.
I have had clients say: Can you write in the lawnmower, snow blower, and that pile of firewood beside the fire-pit? Oh, and I really love her china cabinet, I bet she doesn’t want it anyway anymore because it will be heavy to move. Do you remember if there was one freezer or two? I could use an extra freezer. And don’t forget to write in the offer that they take all their junk out of the garage.
When the list of chattels gets too long, AND there are a lot of conditions, AND a small deposit- the offer starts to feel very unfair to the seller.
Everyone wants to think that they did a good job in negotiating their home purchase or sale. Be reasonable in your offers and negotiating.
Make sure the seller feels like they got a good deal too. Reputation matters, and you need to build good relationships in this business. A strong reputation will get you more referrals, more opportunities, and more profit.
Negotiation TIP 4: Know When to Fold ‘Em
When I was a kid, my Dad loved to sing that Kenny Rogers song “You gotta know when to hold them, know when to fold them, know when to walk away, know when to run”. It doesn’t just apply to card gambling- it’s true for negotiating in real estate.
Don’t fall in love with the house (or, the idea of doing the deal) and pay too much.
Negotiating is an emotional experience. It can be easy to lose site of your goals or stretch them a little in the process. Sometimes, you might feel like you’ve invested so much time you can’t walk away, or you’re worried you won’t find another deal quite so good, and you settle for terms that don’t make sense for you.
If it’s not the deal you wanted, walk away. So often that leads to an even better deal. Sometimes, the seller will call back days later and the investor then you can negotiate an even better deal because you’re back into a position of power and a calm rational state of mind.
Negotiating doesn’t have to be a stressful experience. Use these tips to make your next real estate purchase a successful one. It does take practice to become a great negotiator. But by using the guidelines above, and remembering to use Kenny Rogers’ advice too- you can save a lot of money and create an abundance of the great deals that you want.