Today's guest post is coming to you from Michelle Custodio who works with Point Green Home Solutions. Michelle reached out to me this past week with some interesting content about how to negotiate with sellers who don't accept cash offers (and to the surprise of some, this tends to happen a lot).
I always think it's helpful to hear the perspectives of others in the industry – so I'll let her share some ideas with you…
For many new investors that are making cash offers, it is rather surprising when they encounter sellers who turn down these cash offers. This response is counter-intuitive to some investors because on the surface, it seems like a cash sale would be an easy decision for a seller to make (because it reduces the costs and time required to close a deal quickly).
In our experience, there are a few common problems with the “cash purchase” format. When we buy houses for cash, we're almost always bidding at the low end of the range (or sometimes even lower than low) – and we do this because we feel that the seller will be enticed by the benefit of the cash offer. However, the reality is that most of the time, a low purchase price doesn't sit well with the seller and it catches them off-guard. A great deal of sellers are more interested in maximizing their sale price rather than just “saving time” during the process. Expediting the transaction by a mere few weeks just isn't enough to convince some sellers to discount the price by such a substantial amount.
At the same time, even though a low offer price does present a problem for some sellers, there are other sellers who are absolutely willing to entertain cash transactions if it will give them a rapid exit. Most markets have representation from both camps of people who either prefer or resent cash offers – so we try not to make assumptions about who we're dealing with before we have all the information.
Find the Reason
When your cash offer is turned down, there are always things you can do to turn the fortunes in your favor. The first step is to immediately seek to understand the reasons WHY they are saying “No” to your offer. Not all offers are turned down just because they are low. For example:
- It could also be that the seller had a higher offer elsewhere.
- Perhaps the low offer simply took them by surprise.
- Maybe their spouse isn't ready to “cut and run” from the property.
- Sometimes the seller just needs more time for their motivation to build.
Whatever the reason, you need to do some digging and discover what is really going on behind the scenes. This will allow you to make a more fruitful offer if/when you come back to the negotiating table a second time around.
Sweeten the Deal
Once you know what the problem is, there are many ways to help a seller get to the point of saying “Yes” to your offer (and you don't always need to raise the price). For instance:
- It could be that you need to extend the possession date after closing.
- Perhaps they want you to cover some of the costs.
- Sometimes the seller just wants a buyer who will overlook some things that need fixing.
Don't ignore the possibility for you to add some non-cash-related sweeteners to the pot to get the seller to budge. In some cases, you could even ask them straight out, “What is it about my offer that doesn't suit you?” We've found in our dealings that when we buy houses for cash, being straightforward always works very positively and amicably in the end.
Raise the Offer Price
If you find that nothing else works, you always have the option of raising your offer price if the deal will still make sense (and if you know that this is truly what the seller needs to see). If they've turned you down time and again, sometimes you just need to stop guessing how low of a price they will accept. If you know that you can still make the numbers work and accomplish your goals, just give them what they're asking for. At the end of the day, if you've determined that the property is worth more to you than it is to them, then the idea of bumping up your offer price shouldn't stand in the way of you getting the property you need to grow your business.