A while back, we posted 5 Tried and True Tips to Negotiating Real Estate Deals. We assume you already took the first five tips to heart and that solid investment deal is waiting in the wings. Being a shoddy negotiator could get you into a negative cash flow situation quickly, or land you in an expensive property that is difficult or impossible to flip.
Here are 5 more tips that will help you get the most out of your investing deal.
1. Everything is Negotiable
When purchasing real estate, everything is on the table. There really isn’t anything you can’t negotiate in your contract. The price, closing costs, the 75″ TV in the living room, the family dog, and yes…even the agent’s commissions can be negotiated. Although your mileage will vary when it comes to negotiating these aspects of the sale, it’s important to put all options on the table. As we discussed in “Types of Mortgages”, you can even take over the seller’s mortgage payments in certain circumstances.
2. Build a Rapport with the Seller
Real estate negotiations do not have to be manipulative or deceptive. One way to bring out your inner real estate negotiator is to build trust with the individual on the other end of the deal. The more rapport you can build with the seller early on, the more you will know about what makes him/her tick. Treat the seller as an equal and focus on a win-win situation. It’s important to enter the negotiation relaxed, be confident, and consider humor to break the ice if the situation is right. It’s difficult for a person not to warm up to you if they are laughing along and enjoying your company.
3. Ask a LOT of Questions
Although it may seem annoying to ask a bunch of questions, get as many details as possible on the property. As we discussed in the previous post, a motivated seller will quickly shed dollars off of his/her asking price; however, it’s important to characterize the seller early on. Chances are, you will either be going through your buyer’s agent or talking to the seller’s real estate agent. In this case, you will have a much easier time asking the questions you need since you don’t have to ask the seller directly. Contacting the seller directly is not a move you usually want to make, unless of course, the seller isn’t using an agent.
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When walking with your agent or the seller’s agent, start small with innocent questions filled with curiosity such as “what is that stain on the ceiling?” or “oh, was there water down in the basement at one time?” Don’t accuse the seller/agent of hiding anything and ask questions politely. Chances are, if you build rapport early on, the seller may give you reasons why stains and other deformities are present at the property.
- Why are you selling?
- How long has the property been on the market?
- What happens if your house doesn’t sell right away?
- Are you in the process of a divorce or separation?
- Are your mortgage payments current?
- If your property is rented, how much rent do you get for it?
These are just a few questions you can ask the seller to help gauge his/her motivation for selling, along with gathering more details on the property and seeing how he/she will bend on the price. Having a good list of questions can also help you weed out irrational sellers and help structure deals in your favor.
4. Check the Comps
A Comparative Market Analysis (CMA) is your best friend when searching for real estate deals. Your real estate agent can give you a copy of this. Having a good understanding of the property’s market value can help you tap into your inner real estate negotiator and get the upper hand. Get the full details on the comparable properties to ensure they match up with your target property. Some of the comps may be pending sales which give you limited data until the sale actually closes. Try to sweet talk the listing agent to see if he/she would tell you if the property sold for over/under the asking price. If the property was on the market for a long time, it probably sold at a discount, and vice versa. Your own real estate agent is best suited to ask these questions from the seller’s agent, especially in smaller communities where agents often know each other or work in the same firms.
Having a “bottom line” estimate on the property’s value gives you a edge in negotiating. Always go into a contract negotiation with a number in mind that is backed by data. If you know a nearby home sold last month for $20K cheaper, but is nearly identical to the property you want to purchase, this gives you strong negotiating power.
5. Time Your Purchase Right
Sometimes the best deal is the one you don’t make. In cold-climate markets, a winter purchase may look attractive if the seller isn’t getting many offers, but it could be harder to rent the property out right away. In the summer months, there could be more buyers out there looking for properties which temporarily drives up demand. Depending on your neighborhood and market, it may or may not be a good time to buy.
If you aren’t desperate to find a property right away, you can assess the market and go in at the best time. As with any negotiations, it always easier to negotiate when you don’t feel like you need to purchase a property. Take your time to find the best deal that helps you achieve your investment goals. If you fall in love with a property too early, or become too anxious to take the plunge in a real estate purchase, you could end up paying too much. Allow your inner real estate negotiator to flourish, and check your emotions at the door!