One of the most important skills you need to have as a real estate investor is to be able to negotiate. This is due to the simple fact that you do not make your money off of the selling of a property, but instead on the buy. This means that you create your profit by buying a property correctly by getting it at least 25% below after repair value (ARV) or lower. If you don’t, then there won’t be any room to sell it for a profit. As you can’t just increase the price you sell it at as the market won’t take it.
This is why you need to know how to negotiate to get the right price for your properties or you will be losing your money quickly. As most processes in life, negotiations have stages, and nearly all of them go through these Five Stages. Analysis, Planning, Discussion, Offering/Countering, and Closing. It’s imperative to have an understanding of this these stages as it will allow you to know what to do when negotiating.
The first stage of negotiating a deal as a real estate investor is to analyze the situation of a property.
And a ton of other questions you will need answered before you will want to make an offer on it.
Finding the answers to these questions will allow you to create the highest offer your willing to send because any offer higher will be too risky and be a guaranteed path to losing money quickly. It also gives you objective criteria to anchor the negotiation and disallowing the other party to control the offers as you already establish what the property is worth to you and that you won’t budge from the numbers.
The second stage in negotiating is planning. Once you have all the information you need to make offers on a property and your highest offer your willing to give. You need to plan accordingly for the negotiation. If the person is stubborn, you know that you need to hold tight to your objective criteria. Or if the person needs to get out from underneath the mortgage on the property and just wants to pay it off. You need to have plans, solutions, and contingencies to every situation that can arise, or at least have an idea how to fix that situation with a proven mentor or even an investor network.
The key to planning successfully is to read and research all the negotiating tactics people will use. This will allow you to see beyond the situation and into the true intentions of the other party. Sometimes they will veer left just because they know you will veer right and are waiting to snag you when you do.
For example, a person who has a loan on the property will fight for the price that will pay off the loan. They won’t budge unless they come to understand that they will lose the property either way and being $10,000 in the hole is much better than being $50,000 in the hole as the alternative.
The third stage in negotiating a deal is the discussion. This is where you learn more about the other party through talking about everything except real estate. This helps create a relationship of win-win rather than win-lose. This will help the negotiations go smoother as your trying to help relieve them of their problem (the distressed house) and not trying to take it from them because you know they are in trouble. Therefore, avoid negotiating terms and be as amiable as possible. This will allow you to learn more about them, the house, and ultimately develop solutions for them.
The next stage is offers and counteroffers. In this stage you take everything you have learned and offer the lowest offer you think that will work. This is because most people never take the first offer and will instead haggle down to meet somewhere in the middle. However, during this haggling they may deploy a few of these other techniques to undermine your offer and try to make you give in at a loss. Just remember your highest offer you’re wiling to send and never go higher.
Tactics and Counter-Measures
A. The “I’ll blow it up.”
Some people will play nice the entire time during negotiations and after much time and effort is spent, they will threaten to blow the deal up. Destroying everything unless you give into their demands. All you can do with these people is call their bluff and restate the offer and explain how anything else would not make financial sense for you. This will defuse the situation or blow the deal up, but actually save you from a bad deal.
B. Silence and Time
Another tactic people use is to “go quiet and make you anxious” so you will come back to the negotiating table ready to surrender. The only way to combat this is to be patient, wait them out and continuously set follow-ups to finalize the deal.
C. Play Win-Lose
The last major negotiation tactic you will meet in real estate investing is the win-lose tactic. This is when the other party will be overly aggressive and intimidating in negotiating. When they do this they are trying to scare, bully, or threaten you to give-in to your demands. The only way to combat this is to point out what they are doing and explain that it won’t work as you know how much the house is worth and will not budge on the pricing. Ask the question,” Do you want my money or not?” Most negotiating is done over the phone and email so it’s rare to experience this tactic and will be people just being more stubborn on things than aggressive.
The most precarious moments in the negotiations of a deal are in the closing stage. They are so precarious because it’s where people are most likely to blow up the deal or get cold feet because someone told them they weren’t getting a good enough deal or they second guess their decision. The best ways to combat this is to show signs of disappointment or anger. You can use one or both in combination to show that you have been doing nothing but working with them in good faith and this is an extraordinary under-handed trick. Depending on their response, you may or may not walk from the deal.
Knowing these Five Stages of a Negotiation by heart will easily allow you to negotiate better deals as you know what to expect. Even more, you will know what techniques they will use on you and allow you to avoid a brash emotional response and instead look beyond the tactic to counter it. Combine this with your unwillingness to budge from the numbers, and you will be getting more from your deals immediately.
Don’t know how to negotiate or find a solution to a particular problem in your deal?
Then it’s time to look into having a mentor who not only knows the solution, but physically went through the exact problem. Even better, how about an entire network of investors who have experienced every problem known to man or at least knows someone who can find the solution. You can have that and everything else, all at the Matrix Real Estate Investor Network. All you to do to find out more is to register for a free workshop here.