I’ve spent a lot of time negotiating. And, I’m one of the odd few who loves the process, so I can’t help but try it whenever I can, even if I’m just buying ice cream. “How about the nice guy discount?” That usually gets me a smile, and sometimes it also gets me a discount.
Try your hand at these unimportant places like pawn shops or farmer’s markets; it will help you mentally prepare for the skills of negotiation anytime, anywhere.
Once you feel comfortable negotiating, realize that the process is the same regardless of price. People don’t list properties to have them sit. They want offers, even ones lower than what they’re asking.
Before you pitch a price, you need to have a number in mind, so do your homework. Know what the property is actually worth. Know what properties in the area are worth. Know what your ideal (low) price is and what’s the highest you’d be able to offer for the property. Now it’s time to make an offer.
I try to make my first offer near my ideal target price. I like to ask for everything I want up front– successful negotiations leave everyone walking away feeling like they did well. If a property is priced correctly, my range is usually within 10% of the value of the house. If it’s priced higher than it’s worth I still offer near what I believe the correct price is. Ask for your ideal and don’t be afraid that you’ll shock the seller; remember, they want your offer.
Since you’ve already gotten all your ducks in a row before you ever decided to make an offer on this property, you should be ready to execute. In my years of doing this I’ve discovered that speed is a great ally. I write my contacts quickly so my offers are usually the first the seller receives. Just the same, I can always get financing arranged quickly. A lot of people drag their feet – if you know what you want, be assertive and express your interest.
After submitting a contract it’s your turn to listen. As with all human endeavors, communication is king. The house was someone’s home. There is a story to why it’s being sold. This is the time to find out what the seller wants. Sometimes they want a quick sale; sometimes they don’t want inspections; other times they want more earnest money.
Try, seriously, to meet their needs.
If you’re buying an investment property you very well might deal with them again, so don’t create bad blood by trying to get them to their absolute floor. It took me a while to realize this fact, but it’s the honest truth. Even if this is a business, not everything is about money at the end of the day.
When you receive their counteroffer that’s the time you try to find out how to meet their needs. It will make the process easier for everyone and give you a clearer picture of what you have for negotiating.
This is the fun part (for me). Now patience and speed play equal roles. It’s not unusual for me to go back and forth five or six times with offers and counters, and every time I try to respond as quickly as I can.
If you hear me negotiate I’m always saying something like “If you can get back to me today that’d be awesome” or “Let’s get this tied up before the weekend, that’d be wonderful.” That creates pressure and reinforces the fact that I’m serious about buying this property. Remember, you’re making a deal with people, and people like to feel valued. Showing interest will help your offer stand out.
A couple important details:
- Never write a contract that does not clearly state that your earnest money is refundable.
- If you’re making and receiving offers over the phone, try to get them to restate the exact terms in writing. “Can you send that over to me in an email?” is a great way to end a conversation. Almost all free email accounts have space to save every email you receive. Keep everything they send over.
This is when the negotiation toolbox comes out – inspections, earnest money, price and other details such as work that needs to be done to the property can all be moved around to create a deal that pleases everyone. Even when going back and forth, keep your aim high and expect the best –remember that he is selling just one house and you can go buy any other one.
Put another way, that means don’t fall in love with the house. If you cannot negotiate a deal you’re happy with and you’re willing to walk away, do just that. I’ve had a lot of sellers come back to me ready to meet my terms after other offers fell through. You never know what will happen.
Negotiations don’t end when your contract is accepted. Unless you’ve agreed to forgo inspections, this is a time that always brings out new information, and new details mean more tools for negotiating. Whenever new terms are offered, make sure you get as much as you give. For example, if the seller wants more earnest money, offer that, but also include in your counter offer something that you want.
After inspections are done your deal should be more or less finalized. You should be within your price range and hopefully both of you feel like you can walk away from the deal smiling.
Next up: How do you quickly determine if a property is worth buying? Here’s your guide — The Walkthrough: Property Inspections for Fun and Profit.