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By: Tom Bukacek
Negotiations is not a science, rather it is an art and the degree of success most often depends on the negotiator’s knowledge and application of various tips, strategies, and tactics. No matter how good you are, you will not always be able to produce a successful negotiation. Some negotiations inevitably fail to achieve agreement. But the purpose of this article is to assist you in having the necessary skill sets to put you in the best position for success when negotiating in real estate.
In real estate, the investor will have the most success negotiating with a motivated seller. Sellers can be motivated to sell for several reasons: moving and don’t want to be a landlord, job loss and looking to avoid foreclosure, divorce, house is an unwanted inheritance, mortgage increased and can’t afford, etc… Therefore, the most important step in negotiations is to find their ‘why’ or pain point. Why are they looking to sell? And what are their consequences if they are not able to sell?
Let’s take a probate example from a property in San Antonio, TX. The seller inherited a house that needs quite a bit in repair. The property has an After Repair Value of about $100,000. However, this is an ugly house that hasn’t been painted or had new carpeting installed in a couple decades, and requires updates. The foundation needs repair and the A/C is about 20 years old. The seller is asking $60,000 but you feel the price is too high given the amount of repairs needed. How can understanding the seller’s motivation assist you in creating a more profitable transaction for you?
The property, as mentioned, is in San Antonio, but the seller lives in Austin, TX, about 90 minutes away. After talking with the seller for a little while, the skilled negotiator finds that the seller doesn’t want to fix up, maintain, nor be a landlord for the property. He is doing well financially and the money from selling the house isn’t as important to him as just being rid of the burden. The seller is tired of having to go there every weekend to landscape the property and clean the house for perspective buyers. What you end up finding is that his biggest need is not making a huge profit on the property; rather it is getting rid of the house so he can go back to his normal life routine of spending his weekends with his family, and will gladly trade equity for time. Would this information benefit you in your negotiations? Absolutely.
Therefore, the most important aspect of negotiations is having an understanding of the consequences of not achieving agreement for the seller and being able to provide a solution to those consequences.
This part of the negotiating process is absolutely important. Once you, as the investor, understand the sellers’ consequences of not achieving the agreement, then you are able to add value to your offer without adding money to your offer. If money is not the issue but time and managing the property is the issue, could you create an offer to discount the price in return for speeding up the buying process? If you could propose an offer where the banks were not involved, and you could purchase the property in 7 days but for a discounted rate, would the seller be happy with that offer? Would you be happy picking up a property for $.40 on the dollar? Finding out the needs of the seller will lead to a win-win scenario.
The following are the eight steps to a successful negotiation:
1- Be prepared. When you are going to visit and begin negotiations with a seller or a buyer, you will want to be informed about the property and the area. Do your homework. The more information you have about the property and the area, the more tools you will have for negotiating. How many foreclosures are in the area? Is there any new construction in the area? What are the school districts like? The crime rate? Know any item necessary to discount value from a seller or add value to a buyer.
2- Have open dialogue. You will want to make your case and you will want to listen to theirs as well. Active listening is the most important part of this step. Listen for consistency in their story to find out if your have the real pain point or motivation. As in the example above, if price appears to be the issue but the seller mentions the inconvenience of managing the property from 90 minutes away, then addressing his pain point will probably lead to a discount in price.
3- Watch for non verbal clues when negotiating. The following are some clues as to whether or not the seller or the buyer is losing interest in what you are discussing:
a. Watch the direction of their feet. If the feet is pointing towards the door, you are losing them. If the feet is pointed towards you, you have their interest.
b. Closed palms, crossed legs, or folded arms can indicate a closed person, or someone who is suspicious or not buying what you are saying.
c. A hand to the back of the neck or a finger in the collar could also signal that the person is losing interest in what you are saying.
d. An object in someone’s mouth, such as a pen or paperclip, means that the person isn’t being ‘nourished’ by what you are saying and requires more information.
e. Lack of eye contact or lint picking or flicking of the fingers can be a sign of boredom or lack of interest as well.
The following are non verbal cues that the person has interest in what you are saying
a. Nodding their head indicates agreement and understanding
b. Leaning forward while you are speaking shows a good connection is being made and there is interest in what you are saying
c. Open gestures can indicate that the other person is interested and you should proceed, such as open palms, leaning back in a chair with arms open (not crossed), and nodding
d. Touching can be a sign of acceptance
e. Head tilts can mean interest as well.
4- Argue- state your case and expose the other party’s case. Many times this argument will be over the value of the property, the amount of repairs, or the length of time needed for the transaction to occur. When ‘arguing’ it is important to stay objective. Do not take business personal, and do not allow emotions to get in the way.
5- Signal- indicate your readiness to work together. Find whatever common ground you have with the other person and build on it. In the probate example, the common ground is that both parties would like the property acquisition to happen quickly. If there is agreement on this principle, what sacrifices will each party be willing to make in order to make this transaction occur? Remember, whether buying or selling, if you are not able to get the price you want, then get the terms that you want. The seller dropping the price 20% is a sacrifice. The cost of me acquiring cash at a higher rate within 7 days plus taking the property in ‘as-is’ condition is a sacrifice. But if both parties are willing to make sacrifices then a successful transaction can occur.
6- Package the deal. Put all the elements of the deal together. Make sure that both parties understand the deal and are in agreement. The more thorough you are in this step, the less chance of a last minute back-out by the other party.
7- Finalize the deal. Document all of the agreements.
Again, not every negotiation will end up with a successful transaction, but if you take the time to follow these simple steps, you will put yourself in the best position to use your knowledge base and skills in order to offer the best possible strategy to create a win-win scenario for you and your customer.
Tom Bukacek is a real estate investor / mentor in Austin, TX. For more information on Tom or how to get started in Real estate, please visit http://www.austinmillionaireblueprint.com.
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