Negotiating a real estate investment isn’t a science – it more like an art, or a dance, and your success in the negotiating process ultimately depends on going into it with certain tactics and strategies at the ready. Much like a painter approaches the canvas with all of his tools and paints next to him.
No matter how strong your negotiation skills, settle on the knowledge that you won’t be able to negotiate every single deal strongly in your favor every single time – some simply fail.
When Negotiations Get Easy
As a property investor, your best negotiations will typically revolve around a motivated seller. You have to find their pain point, or the “why” as to why they want to sell the property. If you understand the consequences of that home not being sold, you can leverage it. Motivation can come from countless directions; it’s just a matter of figuring out theirs.
- Moving with no desire to rent the property
- Avoiding foreclosure
- Unwanted properties (typically an inheritance)
- Can’t afford expected increase in housing costs (variable rate, rates climbing, can’t refinance)
Think about how you could use their pain points to add value to your offer during the negotiation process. If the owner lives two hours from the property and they’re not concerned with the money but simply don’t want to manage the home, you need to know how to emphasize that the time and managing the property are an issue – and how a fast close on a lower cash offer could benefit them.
Steps to Winning Negotiations in Real Estate Investing
While no single strategy will provide a favorable outcome at all times, these tips can help you stay on track for better negotiations.
1. Always be prepared and informed. When you sit down to talk to a seller, make sure you’re armed with all the information you can find about the property and the area. Doing your homework will allow you to make a powerful counter-offer that is rooted in facts, statistics and solid numbers as opposed to arbitrary offers based on personal preference. The focus is to use these figures in order to lower the property value in the eyes of the seller.
2. Negotiations are never one sided; never simply wait for them to finish speaking so you can have your turn and make a counter. Actively listen to the seller so you maintain an open dialogue. If they feel like you’re listening, you’ll garner more respect from the seller. Likewise, when you’re really listening you can pick out consistency within their story while also grabbing out their primary motivation (pain point!) for selling the property.
3. Negotiation isn’t just verbal – there are non-verbal cues you want to watch for. Non-verbal cues can let you know how a seller feels about your offer, especially when they’re starting to get frustrated or losing interest in your offer. Here are a few examples
- Note the position of their feet; if their feet are aimed at the exit of the room or home then you’re losing them. If they’re facing you without attempts to face an exit, then your offer is being considered.
- Any kind of closed arms, crossed legs, closed hands or crossed arms are a strong indicated of a person that has shut down or closed off. They’re on the defensive and not likely to be listening to or even considering your offer.
- Rubbing the neck, gripping the back or top of the head or any tugging at hemlines and collars can be indicators of suspicion and that your seller is losing interest
- No eye contact, picking at clothing and wandering eyes are a strong indicator of boredom in your offer
At the same time there are positive indicators that can let you know your negotiation is heading in the right direction. These include
- Head tilting while you speak which can indicate interest
- Nodding while speaking
- Leaning into a conversation
- Open gestures
4. Don’t be afraid to really argue your case. As long as you keep it objective and avoid making it personal, you should be able to effectively state the value side of your offer while exposing the problem in the seller’s offer.
5. Be sure to signal and make it clear that you’re willing to work with the seller. When agreeable, common ground begins to surface during a real estate investment negotiation you should put emphasis on it. This tells the seller that you’re willing to negotiate; you just need to find the common ground. Once they get this signal, they’ll likely be eager to find a compromise that satisfies both of you.
Expect to see some negotiations go south even when you utilize these tips. If you do take the time to follow these tips, however, you can expect much better results from sellers when you work on acquiring a new property.