Four Great Negotiating Strategies
I’ve found using these four negotiating styles to be extremely effective in getting the best deal when purchasing investment properties. You can use them individually or, more probably, in combinations with each other, based on your situation and current real estate market conditions in your area. Of course, the goal of any of these strategies is to secure you the most potentially profitable deal at any given point in time from amongst the available housing stock in your area.
Strategy #1 – The lowball offer (aka, the insulting offer)
The tried and true, and certainly most popular method for all real estate investors. With this strategy, you make an offer at least 25% (and sometimes as much as 50%) below the seller’s asking price. You must be thick-skinned to reap the rewards of this strategy. Most sellers will laugh at you when you present an opening offer that they consider “insulting.” Get used to it.
The benefits of this strategy are obvious: starting from an extremely low price position, your ability to negotiate farther off their asking price is enhanced from the get-go. And if successful, you should be able to strike a deal at a price under your top number for what you’d be willing to afford in your budget for the property. This strategy works well in down real estate markets. But it also can work well when a home is simply overpriced relative to the work required to renovate it.
The difficulties with this strategy relate to much more than having your feelings hurt when the seller (and/or his agent) tell you to take a hike, in very impolite language. The main disadvantage, is that the seller may not give you a counter-offer after you lowball them. Thus, if you decide to increase your offer, you’ll be bidding upwards against yourself (ie., against your prior opening offer). Most of the time, it is best to guess if this will occur before you even make your opening bid. Agents for sellers tend to be good barometers. If you ask them about your making “hypothetical” offers in a certain price range, the agent may tell you of past offers made and rejected, and if you‘re lucky, will tell you a price range that these prior offers fell in.
You can also gauge a seller’s reaction to a lowball offer based on the time the house has been on the market. The longer on, the more amenable a seller usually will be to at least not laughing at your opening bid. Also, if the seller has reduced the price on the home several times already, they may be properly “softened” to the blow of any lowball offer. Likewise, if they haven’t received any offers on the property yet, they will usually provide you with a counter-offer.
Strategy #2 – The aggressive offer approach
In good real estate markets, or when a property is genuinely placed on the market under value, you’ll need to work fast and make a quick deal in order to secure the diamond in the rough. You’d be amazed that homes can be sitting on the market for relatively lengthy periods, then suddenly get many interested parties (other investors like yourself) who decide its time to make an offer – all at the same time. So when you see a truly undervalued property, have crunched your numbers several times, and are convinced it’s a potentially great money-maker, you’ll need to act fast.
This strategy dictates that you sacrifice potential profit (by starting with a very low offer) for actually securing the deal, since it will be so lucrative for you. This strategy is all about speed, and understanding you’re operating in an extremely competitive environment. So it behooves you to make a very strong opening offer, one that is close to the seller’s asking price.
Strategy #3 – Revisiting previously rejected offers
After at least a month from a lowball offer being rejected and not countered by a seller, it can be a very good strategy to check on the current status of the house. If it’s still available, and has not received any new offers, it’s a good idea to re-submit your original offer. You just never know if the seller’s circumstances have changed, forcing them to make a quick deal. Even if they haven’t lowered the price on the house in the interim.
It’s extremely important that you always maintain a positive and accessible relationship with the seller (and/or his agent), especially after employing strategy #1 above, and not getting an initial counter-offer. The seller may be upset by your original lowball offer – but you must never make any negotiation personal. Keep it professional, distance yourself from making any emotional connection to any potential project, and stay in touch with the seller from time to time as the seller’s house remains stuck on the market. Then when you utilize this strategy, it may be time for the seller to seriously reconsider your original offer.
Strategy #4 – Make price third on the list of priorities for the seller
If you can make an offer all cash, or remove the mortgage contingency from your offer, you have the ability to make the safety of the deal going through for the seller the absolute priority of any negotiation. And if it’s an all cash offer, you can also make speediness to closing the next most important priority. In many instances, a seller who’s had his home stagnating on the market for a long period of time will be more amenable to making price his third priority. And you’ll have a real advantage when negotiating on price.
Use individually, or in combination
Use one, or a combination of these strategies, the next time you want to secure the best deal when negotiating after you’ve located your investment property.
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