Negotiation impacts almost everything we do in life. Whether we are looking for the best price on a house or shopping for a used car, negotiations are important. Many people are intimidated at the prospect of negotiation. They are not comfortable with the back and forth that is involved. Whether we like it or not, however, negotiations are an essential part of the real estate business. Your real estate agent can handle negotiations with banks and sellers, but you need to be able to work with homeowners. Dealing directly with homeowners gives you the opportunity to get the best possible deal at the lowest price. If negotiating isn’t your thing, or you just need some practice, here are five tips that will help you win your next negotiation:
1. Understand the situation: First impressions are more important than we think. The initial impression we give can be difficult to change. When dealing with any homeowner, but particularly a distressed seller, you need to understand the situation. These are sellers that are either in foreclosure or need to sell before they really want to. By showing up in an expensive car wearing a shiny suit, you can turn them off even before you say a word. This doesn’t mean you should wear shorts and flip flops, but you should think about the impression you are giving off. The most fundamental thing you should do is show up on time. Never make the homeowner feel they aren’t important enough to be punctual. Start by showing up on time, and be ready to act. Negotiations start from the minute you enter the room, whether you know it or not. You are being judged on everything you say and do. Don’t be afraid to make small talk before you get right down to specifics.
2. Listen more than you talk: Negotiating is all about knowing what the seller wants, and trying to get it for them. Often times they will tell you if you are willing to listen. Once you know and understand the seller’s motivation, you know what kind of deal you have. You need to begin the conversation and get the ball rolling, but don’t be afraid to let it veer off course. If they are telling you a story about how they got in their current situation, let them talk and listen to what they are saying. They will often tell you what they want, when they want it and usually for what price they may be willing to sell. If you spend all of the time talking and telling them what you are going to do, they will eventually tune you away. You need to make this all about them. You do this by listening to them, not interrupting and constantly turning the focus on their situation.
3. Measure your responses: One of the keys to successful negotiations is to anticipate what questions will be asked. This is important because it gives you a chance to think about what you are going to say instead of being put on the spot. Everything you say is going to be remembered and observed by the homeowner. Something you think is a throwaway line may be the one that the seller remembers. It is always far better to answer with an honest “I don’t know,” than to ramble on with an answer that you both know is inaccurate. If you are unsure of what to say, take a second and think about it. The seller should know that you are a real estate investor and are looking to buy the property for a profit. Don’t run away from this fact. You don’t need to disclose how much, but point out all of the risks and uncertainties involved in the transaction. Everything you say is important. Take time out and measure your responses.
4. Understand leverage: In most negotiations, there is someone with an upper hand. It is important to recognize which side this is before and during negotiation. Whoever has the leverage can dictate the demands and the terms depending on how one sided it is. It is important never to overplay your hand, as there are always other investors they can work with. If you have leverage, use this to get favorable terms and conditions. If the leverage is not on your side, you need negotiate the best possible terms, given your situation. The best negotiations are the ones where both sides feel satisfied. Even though you may get a seller to agree to low price and a quick closing, you still need to close. If the terms are tilted too heavily in your favor, they may start asking around. This could eventually lose you the deal. Leverage is important, but you can’t take advantage of it.
5. Know when to walk away: There should come a time in every negotiation when it is time to walk away. One of the biggest mistakes investors make is thinking that they need to continue with a deal they have spent weeks or months on. Always let the numbers be your guide and keep emotions out of your decisions. If the numbers tell you to walk away, you need to listen. Some sellers are stuck on getting a certain price, regardless of the data you present to them. Instead of taking a deal you aren’t comfortable with, simply move on to the next one. It is always better to pass on a deal rather than take a bad one.
Negotiating is something that can be improved with experience and practice. By getting just one or two additional deals a year, your bottom line will be impacted. It is entirely possible for a succesful negotiation strategy to help you achieve this.
