What are some useful real estate negotiation strategies one can use? What's the best way to negotiate a real estate deal?
There's a certain art to negotiating a a deal to buy an investment property. So how do you go about negotiating a real estate purchase or investment property deal? Let's learn about the art of the negotiating so we can get the best price whether we're buying or selling a property.
To start, if you're buying a property, figure what it is you want exactly from your property investment or rental property. Are you looking to make money through the increase in the value of the property over time or are you looking to earn cash flow buy rental out the property? Those are two of the main questions to think about.
Ideally, we want both appreciation of the property value and also to earn money by renting it out. But these two factors center on the price you pay for the property and how you pay - if through a loan then how much interest you pay becomes a big factor in your cash flow after expenses. We're getting ahead of ourselves though, let's think about negotiating first off.
The art of negotiating is to talk not in numbers right away but about what you’re looking for and how you and the agent can help each other out. Negotiating is an art because it requires a nimbleness of mind; a calmness of demeanor yet sternness of reasoning; and an ability to realize a deal for what it’s worth and either walk away or buy the property.
To help do this, you should expand your real estate knowledge foundation to cover all the bases when talking to agents or property owners. Your success often depends on how you act and speak - your professionalism and presentation. The key to closing the deal is how do you make both parties happy - and getting there doesn't necessarliy mean agreeing on the exact price each party is wishing for - many times it's a compromise of needs and wants.
The most critical piece of information you need to figure out before meeting with a real estate agent is what you’re willing to pay for an investment property. If you want to pay market value or more for a property because you fear you’ll lose it, then it’s crucial that you inform your agent. Most agents will attempt to negotiate a below market price because they want you to be happy and remain a client. Let’s say you’ve defined your desired aspects of a property so acutely that there’s only one property that will satisfy you, and you’ll consider making an especially competitive offer just for that property. Make this clear to your agent, and he or she will use their negotiating powers to get that property for you.
Use your first visit as a session to gather information. Don’t be pressured into making any decisions yet. (The phrase, “Let me talk this over with my team or spouse,” will come in handy.) Go home so you can think clearly and analyze what you have recently found out. However, there will be times where there are a number of people competing to buy an investment property and you will have to make a quick decision - do your research and studying before this decision and know the price you can offer and still make money.
When going through the negotiation process, consider the following issues, ideas, and tips before finalizing a decision. These are good real estate negotiation tips for buyers and sellers:
- There are always other options and other properties to consider. Don’t settle for mediocrity when you know there is greatness to be had.
- When negotiating, do so based on your personal feelings about the property itself. This isn’t to say that research and factual information aren’t useful. Use your gut feeling to supplement what you already know.
- Research is vital. Gather all sorts of information about the area, market, seller, up sides, down sides, you name it. Know the property and all aspects of the neighborhood. You can learn this from the seller, but you might be able to discover something that will raise the value of the property, so do your own research too. The more you know, the more you grow (and so do your profits).
- Be likeable. Engage people on a level that doesn’t disrespect or condescend. If you make sure to be as reasonable and fair as possible, the chances are good that the other party will be cooperative and willing to take your needs into consideration as well. This also includes discussing the terms that the other party is looking for and being thoughtful of their needs. Remember the adage, “What goes around comes around.” Also, it pays to find common ground, such as similar interests, religion, heritage, or anything else that will help solidify a friendly relation.
- Work together. Understand with greater depth the loyalties and duties of agents [link to Working with Agents] and assist them whenever possible so that they can better serve you.
- No all or nothing type statements are allowed. Remember, you’re negotiating, not gambling.
- Compare numbers with different types of experts such as appraisers, partners, real estate agents, and experienced friends who own property. Some appraisers will give you a value that extends back only six months, but others will give you a more comprehensive estimate that will protect you in the long run.
- Don’t give away information you hold secretly, such as future ideas, value of property, plans, or anything else of that nature. You could be doing yourself a great disservice if you do.
- Know what you want and what you can afford. Again, this relates to establishing your goals and plans, in addition to understanding your financial situation. The key is to be realistic and patient.
- Know the value of property and the highest you can go and still make a profit. Ask the agent to run a Comparable Market Analysis on similar properties in the neighborhood that have sold in the last year. Remember to take into the consideration the current market competition of other properties in the area.
- Speak of facts and not of potentials or hypothetical situations. Remember, you have to be convincing and firm with your plan, not loose and ambivalent.
One of the most effective ways to reach a consensus between two parties is to rely on consistent standards. For example, it is common procedure for the seller to fund the title policy, while the buyer pays for survey costs. Using accepted standards such as this will help two parties reach an agreement, preventing the two from arguing over every detail of the transaction. Also, this will minimize points of contention and allow everyone to focus on areas of the deal that demand the most attention.
With proper negotiating power, you will be able to make a decision on the spot to grab an investment property, if such a situation ever demands that type of prompt action. But if not, then you’ll have the confidence and ability to negotiate until both parties are satisfied with the terms of the final transaction.
Here's a fun video about the art of closing the deal.