Ever heard the saying that “everything in real estate is negotiable”? Well, it is. From the purchase price, to the due diligence period, the furniture, to contingencies, you can negotiate everything. When you negotiate, you get a better real estate deal. This post drills down 12 things you can use to negotiate a lower price for investment properties.
While new real estate investors might not be good at negotiating a better deal, seasoned investors may find it easy to do so.
Here’s a list of negotiation tips and steps to help you in your next deal.
1: Do a comparative market analysis
The first thing you need to when negotiating a lower price for investment property is to know its fair market after repair value. Do a comprehensive market analysis to get all the comps in the area.
What did other comparative properties sell for? How does this compare with the subject property?
Approach the negotiation from the market value rather than the seller’s asking price. It will give you a better idea what the property is worth when it’s fixed up.
Then, you’ll have a good idea what your highest offer will be in the negotiation process.
Take-away: – Understanding the ARV will give you an idea of what to offer before you even start negotiations.
2: Identify the type of real estate market
In order to be successful in negotiating a better price for your investment property, you need to understand whether we’re in a buyer’s market or a seller’s market.
Sometimes indicators like the number of properties on the market, average time properties are staying on the market, trends in house prices, overall closing prices will help you figure this out.
Due to the covid-19 pandemic, we are currently in a buyer’s market, which means you can negotiate lower than usual. If situations allow, you can take longer to close the deal, ask for a much lower price and favorable terms than you’d otherwise do.
However, in a seller’s market, you have to be ready to close quickly. You have to act fast, and generally accept to pay a higher price than in a buyer’s market. Competition among buyers is strong, so you don’t expect too much bargaining power in these negotiations.
Take-away: – a buyer’s market gives you an advantage in negotiating. A seller’s market gives advantage to the seller.
3: Check your finances
Real estate investing is all about how much you can afford to invest to make the most money on your investment deal. Before starting the negotiations, check your finances, such as your available cash at hand and financing options.
Make a budget to see how much you can afford to spend aiming to have a positive cash flow from day one (if you plan to keep it as a rental). Even if you plan to wholesale it, you still need to make sure your numbers will make sense for another investor to buy it from you.
Then, when you get into your negotiations, stick to your numbers and you’ll get a deal that will be profitable for you.
Take-away: – knowing your finances allows you to know what you can afford to spend, and keep it profitable.
4: Know your numbers
Once you understand the comparable sales, after repair value and finances, calculate the highest you’d be willing to buy the property based on the information you have.
Crunch your numbers.
How much will repairs cost?
Craft your offer from the information you already have. This initial due diligence will help you stay on target when you negotiate.
Take-away: – knowing your numbers helps you stay on target when negotiating.
5: Understand the seller’s motivation
Almost all my deals come through my real estate investor website. This means I receive enough information to tell whether it’s a good deal or not very quickly.
One of the key questions is why they seller want to sell the property.
- Are they behind on their payments?
- Is foreclosure around the corner?
- Are they going through divorce?
- Did they inherit a property?
- Are they servicing 2 or more mortgages due to moving for work?
- Are they having bad tenants?
The type of motivation the seller has will determine how you negotiate the deal.
The best deals for real estate investors come from motivated sellers.
When you learn their motivation in selling, you can easily negotiate a lower price for investment properties.
When you learn their motivation in selling, you can easily negotiate a lower price for investment properties.
Take-away: – Knowing what the seller needs helps you negotiate a win-win deal.
6: Let the seller name their price first, then go lower
As I mentioned above, I receive most of my leads through my website. Even if someone calls, they’ll hit a voice mail, then my virtual assistant will call then and pre-screen them.
I then receive this information on my website’s virtual back office. This includes what the seller wants for their house.
Of course, I also have all the necessary information like the mortgage balance, so I can negotiate knowing that my numbers will work.
Before making any offer, always ask what’s the lowest the seller is willing to accept. Then make an offer that’s lower than their asking price.
Take-away: – To negotiate a lower price for investment properties, let the seller talk themselves down. Sometimes the seller will ask for less than you expect. Never make an offer before you know what they need.
7: Always negotiate on the phone before committing anything on paper
It’s always very important to know that the motivated seller is flexible and open to negotiations. You’ll know this by talking to the seller on the phone.
When I get on the phone with the seller, I’ll ask lead the conversation, basically confirming the numbers I already have that were submitted through my website.
And, of course confirming why they are selling.
Then I’ll ask them:
“If we were able to buy your house in cash within 14 days or less, what is the least you could accept?”
Then, the seller will give me a number, say “$150,000”.
I’ll then ask “Is that the best you can do?”
Then shut up!
The silence can get really loud and uncomfortable, but don’t ever get tempted to say a word until they answer the question.
Most like the motivated seller will counter with something like:
“Well considering you’re closing fast, I’ll accept $135,000”.
Then, I’ll just say
Then, shut up!!
More often than not, they’ll talk themselves down again.
If I like their asking price, we’ll then arrange for me to go see the property.
Eventually, I’ll make an offer based on the new negotiated price, and my numbers that I’ve already crunched before.
And, most likely my offer will be lower if the mortgage balance allows for this.
Take-away: – By talking to the seller, you’ll know how flexible they are and if the deal will work for you before you drive to see the seller.
8: Meet the seller in person
People tend to do deals with people they like. Always arrange to meet the seller in person. Arrange an appointment at a time that’s convenient for them – evening or weekends is okay.
The seller is likely to accept your offer if you come out as cordial and caring, rather than someone who’s just chasing a deal.
At the very least, you have to go see the property and verify the information the seller has submitted. Take notes and pictures when you get there. You’ll need them to estimate repairs correctly if you find some issues the seller didn’t disclose.
When you get home, enter all your numbers in your website’s repair estimator to get a more comprehensive estimate.
Then you can make an offer base on all the information you’ve gathered.
Take-away: – When you appear cordial with the seller, you’re likely to get a better deal. It’s also important to see the house in person.
9: Negotiate on contingencies
Depending on the type of seller and their motivation, it’s possible to negotiate on contingencies. Even if you’re buying a fixer-upper all cash, as-is, you can still use contingencies to negotiate a lower price for your investment property.
What’s a contingency?
A contingency is a clause in a real estate contract that defines a condition that must be met by the buyer or seller before the transaction can move forward.
Contingencies allow you as a real estate investor to acquire a property on your terms and provides a way out of the contract if the deal goes south. Common contingencies include:
- Inspection – if an inspection reveals issues that were previously unknown, you as the buyer can re-negotiate the price, or pull out of the contract.
- Appraisal – if the house doesn’t meet the minimum value, you as an investor can opt out of the deal of re-negotiate the price.
- Financing – this only applies if you get financing through a bank, who might require certain conditions before approving financing.
- Insurance – this is to protect the buyer, making the purchase conditional to obtaining insurance to cover the property.
- Title insurance – this protects the buyer from the possibility that the current or previous sellers didn’t have a free and clear title.
You don’t want to put so many contingencies in your offer that a deal appears unlikely to the seller. It’s better to talk to the seller first.
What do they need? A rent-back? A mover? More earnest money, a quick close? You can trade these things and still come out strong in your negotiations.
Take-away: – Don’t get too stuck with contingencies so much that you kill a good deal. Trade contingencies and get a deal that works for both the buyer and seller.
10: Be reasonable
Don’t expect the earth and the moon in your negotiations. Be reasonable. For example, just because a similar house sold for lower than what the seller is asking, don’t expect to pay lower if the property is better – e.g. it has a pool, marble counter-tops, etc.
Similarly, stick to your numbers even if the deal looks too good.
Don’t nickel and dime the seller. If you offer $150,000 and the seller counters with $153,000 ask yourself how much difference the $3,000 will make. Also, before you counter again, ask yourself if it’s worth losing the property over.
Take-away: – don’t get greedy. Don’t get stuck with small numbers that won’t make much difference.
11: Negotiate from a point of strength and a win-win perspective
When you negotiate with data, you’re negotiating from a position of power. If you have conservative comps of recent sales in the neighborhood, the seller is likely to accept a lower price.
Similarly, if you’re negotiating based on the results of the inspection or appraisal, your offer is likely to be accepted.
When negotiating, learn to focus any issues to a solution that leaves both you and the seller as winners.
Take-away: – Use data when you negotiate a lower price for investment properties. Create situations that satisfy both the buyer and seller.
12: Be willing to walk away
There’s a chance that the seller might be unwilling to budge. If the deal looks good and the numbers work for you, then you can pay the full price.
If they don’t be prepared to let the deal go.
Sellers can be attached to their properties and delusional as to its true value. If you can’t make money from it, then let it go.
Take-away: – if the deal is not good, let it go. If it can’t make you money, don’t hesitate to let it go.
Negotiating a lower price for investment properties – time to close?
Buying an investment property is one of the most important steps in becoming a real estate investor, or expanding your investments in real estate. Thus, when you negotiate a lower price for your investment properties, you get better deals that make you more money.
If the deal works for you, and your numbers look good, it’s time to close the deal. Otherwise if negotiations fail, don’t hesitate to walk away.
The above tips will help you in negotiating the price and terms, and generally, getting you a better investment deal.