Negotiations is not a science, rather it is an art and the degree of success most often depends on the negotiator’s knowledge and application of various tips, strategies, and tactics. No matter how good you are, you will not always be able to produce a successful negotiation. Some negotiations inevitably fail to achieve agreement. But the purpose of this article is to assist you in having the necessary skill sets to put you in the best position for success when negotiating in real estate.
In real estate, the investor will have the most success negotiating with a motivated seller. Sellers can be motivated to sell for several reasons: moving and don’t want to be a landlord, job loss and looking to avoid foreclosure, divorce, house is an unwanted inheritance, mortgage increased and can’t afford, etc… Therefore, the most important step in negotiations is to find their ‘why’ or pain point. Why are they looking to sell? And what are their consequences if they are not able to sell?
Let’s take a probate example from a property in San Antonio, TX. The seller inherited a house that needs quite a bit in repair. The property has an After Repair Value of about $100,000. However, this is an ugly house that hasn’t been painted or had new carpeting installed in a couple decades, and requires updates. The foundation needs repair and the A/C is about 20 years old. The seller is asking $60,000 but you feel the price is too high given the amount of repairs needed. How can understanding the seller’s motivation assist you in creating a more profitable transaction for you?
The property, as mentioned, is in San Antonio, but the seller lives in Austin, TX, about 90 minutes away. After talking with the seller for a little while, the skilled negotiator finds that the seller doesn’t want to fix up, maintain, nor be a landlord for the property. He is doing well financially and the money from selling the house isn’t as important to him as just being rid of the burden. The seller is tired of having to go there every weekend to landscape the property and clean the house for perspective buyers. What you end up finding is that his biggest need is not making a huge profit on the property; rather it is getting rid of the house so he can go back to his normal life routine of spending his weekends with his family, and will gladly trade equity for time. Would this information benefit you in your negotiations? Absolutely.
Therefore, the most important aspect of negotiations is having an understanding of the consequences of not achieving agreement for the seller and being able to provide a solution to those consequences.
This part of the negotiating process is absolutely important. Once you, as the investor, understand the sellers’ consequences of not achieving the agreement, then you are able to add value to your offer without adding money to your offer. If money is not the issue but time and managing the property is the issue, could you create an offer to discount the price in return for speeding up the buying process? If you could propose an offer where the banks were not involved, and you could purchase the property in 7 days but for a discounted rate, would the seller be happy with that offer? Would you be happy picking up a property for $.40 on the dollar? Finding out the needs of the seller will lead to a win-win scenario.
