Housing prices have soared since 2012 and are now on pace to rise at double-the-speed of inflation and wages.
If property prices continue to increase nationwide, what’s a real estate investor to do if they want to find even a halfway decent deal?
In this kind of competitive market, investors are increasingly struggling to make it work. However, where asking prices are high, it’s often the best negotiator who walks away with the best deals.
If you want a competitive advantage over the other real estate investors in your neck of the woods, here are 10 proven ways you can sharpen your negotiation skills and start getting control over A LOT more deals in the year ahead.
1. Always Know Your Highest Bid Before Negotiations Start
The seller asks for $100,000, and you plan to offer $80,000. You’re ready to make an offer, right?
Before making an offer, settle on your top number clearly and decisively. Sure, you’re going to offer $80,000, but what happens when the seller counters at $95,000? What will you do then?
Just as you wouldn’t – or at least shouldn’t – start bidding at an auction without knowing your ceiling price, the same applies when entering a real estate negotiation. You need to know your top bid, not just your opening bid, before starting the discussion.
Otherwise, you become susceptible to a slippery slope of pricing. “Well, it’s only another few thousand …” and then comes the justifications and rationalizations and exception-making.
Simply put, that’s not a recipe for walking away with a strong deal.
When you know your financial wherewithal before the negotiation, you can negotiate from a place of confidence — and you’ll know when to walk away versus when to capitulate.
2. Make Offers Below a Seller’s Minimum Acceptable Price
The seller is going to need to feel like they got something from you. They need it to save face, feel they’re fighting the good fight, and not feel like a pushover.
Far too many novice real estate investors make the mistake of aiming for an offer that the seller will accept. Instead, give the seller something they can counter.
Once you open a negotiation, you can engage in the give-and-take that the seller needs to be able to respect themselves. You want the seller to walk away from the table thinking “Well, it was a hard-fought battle, but I got some good concessions out of them.”
That friction is crucial to sellers feeling they got enough money for their property. Otherwise, they start to second-guess. “Wait a minute: Why are we just accepting whatever offer came through the door? We should be asking for more, darn it!”
To give the seller the ability to negotiate and feel like they got a fair deal, you need to set the initial offer low enough to leave room for you go up while still ending at an acceptable price for you.
3. Construct a Narrative for Your Property Offer
Why are you offering the dollar figure you’re offering, other than just aiming for below their minimum acceptable price? (Side note: Don’t make that part of your narrative!)
Tell a story as you make your offer. Or, rather, tell two stories. One should center around numbers, the market, and the rational reasons why you think the value is lower:
“We’re interested, but we don’t feel the comps support a price of $200,000. The property at 123 Maple St. is larger than this one, but it sold for less. There are also a series of cosmetic updates that need to be made.”
But don’t stop there. The other narrative is just as important and more often overlooked. Construct a human, emotional story about why you’re a better buyer than others making offers on a given property.
This is harder to do as a real estate investor than as a home buyer. You can’t say, “I can tell your kids grew up with happy memories of that swing set in the backyard, and we’re so excited to give our kids those same memories.” You and your kids won’t be living there.
Instead, try something like “This house has obviously meant a lot to you. We’d like to invest some money into it to give it some new life and prepare it for the next family to form their memories here. We actually have a few families in mind for this home, after we make some updates to prepare it for them.”
You get the gist. Whatever story you end up telling, you want to do whatever you can to forge a human connection with the seller, so they know their “baby” will be in good hands with you.
4. Meet the Sellers in Person if Possible
Forging a connection is a lot easier if you meet the sellers in person.
While it’s not always possible to meet the sellers before making an offer, doing so will give your offer an edge over any faceless, anonymous offers they receive.
Why? Because everyone prefers to do business with people that they know, like, and trust — especially when that business involves selling a home of which they have an emotional investment.
Even if you’re buying from another investor rather than a homeowner, meeting them in person always helps. Your offer will stand out to them because they’ll remember your face and associate it with your offer.
Meeting the seller in person also lets you feel them out — not just about price, but also about what else might entice them (e.g., certain concessions, specific timelines for finalizing a deal, etc.).
5. Look for Sellers’ Non-Financial Needs or Concerns
Other than a higher price, what would make your offer more attractive to the seller?
Some sellers need to sell yesterday. Whether they’re in financial trouble, going through a bankruptcy, dealing with a divorce, or moving out of state, many sellers want a fast sale.
Oftentimes, these sellers will accept a far lower price if you can settle within a short time frame.
Beyond speed, many sellers crave certainty. Perhaps they’ve been burned once or twice by buyers whose contracts have fallen through, and, now, they’re wary.
Ask yourself what can you do to reassure them that your offer will absolutely, positively, 100% settle. This could mean making a higher deposit, forgoing a contingency clause, or fast-tracking a settlement.
Some sellers need flexibility, more than anything else. It could be that they’re looking for a new home but haven’t found one yet. If you know that going into the negotiation, you can offer to let them continue living there as a renter for as long as they need to, as they search for their next dream home.
Think about what motivates this seller beyond money. What are they worried about other than financials of a prospective deal?
It’s your job as a savvy negotiator to find out and offer it to them — as a perk to counterbalance the low price you’re offering.
6. Make Your Offers Directly to Sellers, Not Through Email
Just as you want to meet the sellers in person to find out what makes them tick, and to establish a more personal connection, you want to make your offer in real time as well. This often takes the form of a phone call, but a video conference is even better.
You may be wondering, “Why should I make my offer live instead? What’s wrong with a succinct email?”
The answer is simple: It lets you gauge the seller. You can weigh their reactions to your offer (that is, see their facial reaction and read their body language) and, in turn, see firsthand how interested they are.
It also serves to underscore your connection with them. The more face time (or even phone time) they have with you, the more they feel they know you — and the more emotionally committed they become in working with you.
Why? Because of cognitive dissonance: No one wants to feel like they’ve been wasting their time, so the more time they spend with you, the more they’ll want the deal to work.
7. Make a Cash Offer for a Property, if Possible
Earlier, we touched on how many home sellers want assurance that an offer will actually settle. One way to offer that assurance? Make a cash offer.
Cash screams, “I’m serious.” It means no long, tedious underwriting process from bureaucratic mortgage lenders. It also removes the possibility that the deal will through for lack of financing.
Many sellers will choose a lower cash offer over a higher, financed offer because they feel more confident that the deal will close.
Cash remains king.
8. Let the Seller Feel They’re in Control
If a seller feels coerced at any time during a real estate negotiation, like they’re being pushed around or backed into a corner, they will revolt.
Instead of using pushy language or posturing, know when to give the seller a feeling that they’re participating in a two-way dialogue. Try language such as, “I know you might not be open to this, but I want to run an idea by you.”
In fact, a series of academic studies confirmed the effectiveness of the phrase “but you are free” in gaining compliance from subjects. There’s an entire negotiating technique built around it, called (of course) the BYAF compliance-gaining technique.
For example, to get someone to agree to your request, you could say something like, “We’d love to propose a path forward, but you are free to turn it down if you don’t like it.”
Ultimately, it helps them feel like they’re a part of the proposal from the beginning — which is exactly where you want them to be.
9. Imply You Have Plenty of Other Options
You don’t have to be an expert on real estate negotiation to know that desperation is a losing position.
You’re interested, but you’re not desperate. You’d like to work out a deal, but if you can’t, there are hundreds of other potential deals in the same market.
The trick is to imply this without coming out and saying it, which would be a turn-off to the seller. Try language like, “I’ve been walking through a lot of properties in the area, but yours stuck with me. I’d love to sit down with you and see if we can work something out.”
Here’s another example: “There’s another property my partner likes more because it’s $20,000 less, but I like what you did with your property, it feels warm and homey. I can’t make a full-price offer, but I still wanted to reach out to you before this other seller.”
10. Use Strategic Flattery to Win Over Sellers
What else did you notice about the two examples above, other than the fact that they suggested you have other options?
They both included flattering lines about the seller or their property.
One trick in real estate negotiation – or any negotiation, for that matter – is to build on that connection with the seller that you established when you met them in person. Again, it comes down to the “know, like, and trust” factor — which you can supercharge with a little strategic flattery.
Bear in mind that flattery is a scalpel, not a sword. You don’t want to be blunt or heavy-handed with it. It should feel natural, authentic, unforced, and true. Choose one or two things to subtly flatter the seller about — ideally things that they had a personal hand in themselves.
“Did you decorate these rooms yourself, or did you hire an interior decorator? It’s very tastefully chosen, especially the color scheme.”
Final Word: Friction Is Your Friend
Nothing leaves both parties feeling like they should have negotiated harder than a deal that falls into place with no resistance from the other party.
To avoid that nagging sense that the other party gave in too easily, simply make sure you always get the last concession. It doesn’t matter how small the final concession is, the important point is that you ask for it.
If you go back and forth over price and the seller’s final, unmoving asking price is within your predetermined limit, ask for a seller concession, an inspection contingency, closing on a specific date, or the contract to be signed in purple ink for that matter.
Never let the seller think, “That seemed too easy. Maybe I should have priced it higher?” Beyond negotiating the best possible deal, your goal is to make sure the seller feels like they fought hard and won.
As long as the seller feels like they won, they will do everything in their power to make sure your deal goes through and settles.