Real Estate Negotiations
No doubt, negotiating an agreement you'll later be happy about is the toughest part of any investment. It's a rare investor who consistently says afterwards that they got everything they wanted at the price they wanted to pay. But like any skill, negotiating can be learned.
Knowledge and information are your best and most basic tools for successful negotiation. You need to know the market, the law, and as much as you find out about the seller's status.
That final item includes knowing whether they're approaching or in foreclosure. Are there any recent life events motivating the seller to sell quickly and at a bargain? How eager are they to close? It also means trying to find out how long the property has been on the market, how many competing offers there are and at what price. How much outstanding debt are they carrying, and are they current on payments? Even how much cash they have on hand can be helpful to know.
Of course, most sellers will not volunteer answers to these questions when asked point blank. One technique is to draw them out slowly, revealing personal information about one's own status.
Apart from knowing the seller's situation and the true condition of the house, which you will find out from a professional inspection, you need to know the surrounding market. How much are comparable properties selling for? 'Comps' are available on-line or from a broker.
Talk to the neighbors of those homes that sold recently. Find out if there were repairmen in-and-out prior to the sale. That will help you sharpen the comparison. When you're looking around, note the condition of other homes in the area and try to judge the trend. A neighborhood can deteriorate or improve; that affects future property prices.
Once you know the seller and the market, make sure you have all your other tools in place before even beginning the negotiation proper. Have financing already assured and in-place — don't just get pre-qualified, but pre-approved. Cash in hand is much more persuasive than promises.
When you make an offer, suggest a figure that is NOT a round figure, like $253,300. In large transactions individuals have a tendency to think in terms of percentages. The percentage difference between $253,300 and $253,000 is small — but $300 is still $300. It also puts a seller temporarily off guard. They'll wonder what you might know that they don't.
Make a fair offer, consistent with the middle range of the market. Too low an offer leaves you with an unmotivated seller, too high gives you nowhere to bargain. Make sure you have plenty of bargaining chips to start. In any deal everything is negotiable. The price is only one item.
Negotiate percentage of closing costs covered, and which items — insurance, realtor fees, title costs, repair expenses, and so on. But be realistic. No one gets everything they ask for up front.
Make sure you have adequate legal and accounting advice, if you don't have these skills yourself. Review any written offer with them. Be willing to walk away from any deal that doesn't meet your criteria and goals. Be willing to take your time finding the right property and negotiating the price and conditions you want.