Negotiation is a powerful tool. People that can negotiate save a lot of money, and they can make a lot of money as well. Negotiating is one of the most important factors of real estate, and can be the difference between winning and losing in the industry.
Don’t let this intimidate you, negotiating is something that can be learned. Nothing beats good ol’ experience, but take these 13 real estate negotiating techniques to hopefully make that experience a more pleasant one:
Be Prepared to Walk Away
Before you walk into a negotiation, you have to be prepared to walk out as well. If you get too emotionally attached to the deal, you can wind up losing big due to lack of judgement.
When you get into the negotiation stage, it is easy to become emotionally attached to the deal. You spent all that time and effort into looking for a deal, analyzing a deal, and now you see potential in this one! But it is better to analyze a deal and not take it than to negotiate a bad deal.
Any good property can turn into a bad deal through negotiation. Remain on the side of logic, and keep your emotions out of the negotiation process.
Know Your Role
Know where you stand as the buyer in a particular property. Each seller has a different situation that you need to adapt to.
If you walk into a negotiation and demand a list of concessions when the seller is getting multiple offers on the property, you will probably be made a fool and lose out on the deal.
However, walk into the deal, realize that the seller is trying to close the deal quick, and you may be able to get a discount if you promise you can close the deal ASAP.
Know where you stand in the transaction, and know what the owner wants.
Always Get the Last Concession
A concession is a response to demands, or something granted to the other side of a deal.
It is important to always get the last concession. For example, if the seller gives you a price that sounds good to you, don’t just accept it. Maybe throw in, “Sounds like a deal, but only if you pay the closing costs.” They may come back with “We can only pay a portion of the closing costs.” Boom. You’ve already accomplished more through negotiation that you would have before.
But you don’t have to stop there. The seller still has the last concession, and we don’t want that. Fire back, “Sure, we’ll pay the rest of the closing cost that you can’t cover, but I want a home warranty too.”
In the words of J. Scott, “If the other party realizes that every time he asks for something, he will need to give something, he will naturally shy away from asking for more than what he needs in fear that he will be asked to give up something important in return for non-essential demands on his part.”
Asking for more may not work in a competitive market, but for low-competition properties, this is certainly a negotiation technique to take advantage of.
Find The Seller’s True Motivation
Piggybacking off of knowing your role, you have to know why the seller is there as well. Everyone isn’t looking for the highest price, some people look for speed. Some people are in desperate situations and people look for different things, because they have different goals.
Maybe the seller is trying to move in with their kids across state lines, and their house is the only thing holding them back. These sellers would typically care more about getting rid of their burden quickly rather than taking a large of a profit as possible. In cases like these, guaranteeing that you can close the deal quick matters more than highest price.
Maybe the seller is a flipper, meaning they bought the house and rehabbed it, and it now trying to sell it for a profit. You may be able to negotiate the price down a bit, but chances are, they care more about the price than anything else.
Maybe the seller is willing to sell, but they don’t want to lose a stable stream of income. You can offer seller financing or something similar to them, guaranteeing a solid check every month.
Use a Red Herring
“The red herring tactic is meant to drive the negotiation to focus on something inconsequential, distracting the seller from what you really want.” -Brandon Turner, the Book on Rental Property Investing
You may want the best price, so you can focus on something you know the seller won’t give up.
You can offer to buy the property at a lower price, and then make a concession that you will keep the seller’s fine dining china as well. The seller may respond with, “There’s no way we’re letting the china go. You can have the property at your price, but we are keeping the china.
In which case, you won.
Institute a Penalty When They Ask for Concessions
The negotiation process is already awkward as-is. Sometimes, making it more uncomfortable can work in your favor.
For example, anytime a seller asks for a concession, you can require a lawyer to look over it. You can stop responding for a 7-day period. Any simple little penalty will train the other party to stop asking for concessions, because it hurts them more than it hurts you.
Stick to Your Numbers
As said previously, keep emotion out of it. If the deal makes sense at certain numbers, then stick with those numbers. If the seller’s deal doesn’t make sense for your numbers, then don’t take the deal.
Nothing beats the numbers.
Don’t Get Offended
An example of a bad negotiation, where the buyer got offended:
- Buyer: “I can pay $80,000.”
- Seller: “No way, I need a minimum of $95,000.”
- Buyer: “What kind of a deal is that? That’s terrible, I’m outta here!”
That is terrible negotiating, your first offer will probably be rejected. I repeat, your first offer will probably be rejected.
You need to lower the seller’s standards, and getting offended will frustrate both parties and will keep a good deal from taking place. Emotion has no place with any of these real estate negotiating techniques.
Negotiate With Data
It’s hard to argue with facts. So how do you keep the seller from arguing? Bring the facts.
A great way to do this is to bring competing properties nearby that are listed or valued at less than the listing price of the property you are negotiating for.
So if a property is listed for $140,000, and you bring the seller comps nearby valued at $120,000, he will be more likely to give you a deal. If the numbers don’t make sense for you, show the seller. He may just give you a deal when he realizes what you’re looking for.
Don’t Be Insulting
Not really a negotiation tactic, but it is something that is overlooked all the time.
Insulting the seller sends you backwards, and makes you less likely to get the deal. if you want the deal, you need to get the seller to like you.
Don’t talk about how junky the property looks, don’t tell the seller that they have terrible negotiating skills, tell them good things!
Let the Other Party Feel Good
You should never buy a losing deal, but you should help the seller get a good deal as well. If he cares more about speed than price, then you can grant him that speed. Let them feel good coming out of the deal, just like you will.
Demonstrate Why You Are a Great Buyer
Reputation is everything. In real estate, in business, in life, you need to work on your credentials. You essentially need to sell yourself to the seller, convince him that your word is your bond, and that you can make great things happen.
You need to convince the other party that they want to sell to you, and not to anyone else. You are a better person, and a better buyer than the competition.
If you are paying in cash, drop that fact numerous times. If you have a track record for helping sellers out, drop that fact. Show them how consistent you are with your purchases, and how good you make houses look when you fix them up. Sell yourself.
Ask for Their Lowest Price, Then Go Lower
The first step is to ask for the seller’s lowest price. But the truth is, what they say is usually not their lowest price, it is actually their starting price! A lot of the time, the seller wants to leave some room for negotiation as well.
So once they give you the price, you can respond with, “okay, but if I can close faster than the other offers? Would you take ______?” There is a good chance that they will lower the price if they care about the speed of closing the deal. There are so many incentives you can add for the seller, negotiation opportunities are endless.
13 Great Real Estate Negotiating Techniques
The information for this article was provided by Brandon Turner, VP of Growth for BiggerPockets, in his book, The Book on Rental Property Investing.
The Book on Rental Property Investing is widely regarded as the best book for the beginner and intermediate real estate investor. It covers a wide array of topics, ranging from negotiating, to financing, to scanning the market, to analyzing deals, to producing cash flow, to selling properties, and the list goes on.
Brandon Turner is a real estate investor, and co-hosts the BiggerPockets podcast and Youtube channel, and serves as the VP of Growth for BiggerPockets. Turner has accumulated around 300 rental units since he began in 2007, and is only growing from here.
If you enjoyed these 13 real estate negotiating techniques, check out more in Brandon Turner’s book, and in the BiggerPockets online community!