Book: The Book on Negotiating Real Estate

negotiating_real_estate“The Book on Negotiating Real Estate: Expert Strategies for Getting the Best Deals When Buying & Selling Investment Property” by J Scott, Mark Ferguson & Carol Scott
  • “In most cases, the parties won’t consider the compromise to be a good one unless they also felt involved and empowered during the negotiation. If the other side felt humiliated or steamrolled during the negotiation, they won’t be satisfied no matter how much they got. In other words, negotiation is not just about the outcome, it’s about the process.”
  • “Also, understanding exactly what the other party really needs–as opposed to what they say they need–is integral to creating additional value that can benefit both sides.”
  • “Next time you walk into Home Depot or Lowe’s try to negotiate the price of your purchase. If you’re buying an appliance with a big scratch in int or some poor-quality lumber, you should find it easy to get 10 to 20 percent off.”
  • “Are you willing to buy a floor model? If so, you can generally get a 1- to 15 percent discount.”
  • “The target point (or just ‘target’) is the deal that each party would be thrilled to get out of the negotiation.”
  • “The minimum acceptable offer (‘MAO’) is the mot extreme point (the worst deal) that each party would reluctantly accept out of the negotiation.”
  • “The area of agreement is the range of prices where the buyer and seller would both accept a deal, even reluctantly.”
  • “In some cases–and this is actually quite common in real estate transactions–there will be no area of agreement whatsoever. That occurs when the buyer’s MAO is below seller’s MAO.”
  • “If both you and the other party are solely focused on price, most of your real estate negotiations are going to fail. Good negotiators are able to focus on terms other than price. Great negotiators are able to get the other party to do the same thing.”
  • “Keeping a negotiation moving forward toward a resolution is much easier than getting it going again after it slows down or stops.”
  • “Inexperienced negotiators–including many of the buyers and sellers that you’re likely to be working with–focus much more on price than they do on terms. But, in your quest to become a master negotiator, you will come to realize that terms can often be just as important as price, and in some cases, mastering the ability to control terms can turn a failing negotiation into a successful one.”
  • “If you want to be a great negotiator, don’t focus on negotiating–focus on solving problems!”
  • “Real estate professionals often refers to the amount of supply in a real estate market. Measured in months, supply is the amount of time it would take to sell all the available house using the monthly average number of sales.”
  • “For example, if a particular area 20 houses sell per month, and that location currently has 100 houses listed for sale, we would say that that area has five months of housing supply.”
  • “When our market has lower supply than average (for this example fewer than six months), we say that sellers are in control.”
  • “When our market has more supply than average (in this example, more than six months), we say that buyers are in control.”
  • Public Record
    • Tax assessment
      • “What are the annual taxes?”
      • “Are there any tax exemptions that could affect the property later?”
      • “What year was the structure built?”
      • “What is the square footage?”
    • Property Deed(s)
      • “How long has the current owner owned the property?”
      • “How did the current owner pay for the property?”
      • “How many previous owners have their been?”
      • “Are there any deed restrictions?”
    • Plat Map/Survey
      • “What are the exact boundaries of the property?”
      • “Are there any access rights or easements on the property?”
      • “What are the property setbacks?”
    • Bird’ eye view (via Google maps)
      • “Is the property near power lines, railroad tracks, or a busy highway?”
      • “Which direction does the house face?”
    • nsopw.gov
      • “Are there registered sex offenders living nearby?”
      • “Were the assigned schools once coveted, but there rating have declined in recent years?”
    • msc.fema.gov
      • “is this property in a flood zone?”
    • zoning regulations
      • “For what use is the property currently zoned?”
      • “In some circumstances, zoning regulations will reveal that the property could also be used for multifamily housing or commercial use, both of which could potentially increase property value.”
    • Historic preservation guidelines
      • “Is this property in the National Register of Historic Places or a local historic preservation district?”
      • “Are any tax incentives available?”
    • HOA covenants and bylaws
      • “What types of modifications may be made to the property?”
      • “Are there any regulations that would impact future use?”
  • “One of the best ways to gain information about a property and neighborhood is often overlooked: simply talk with the neighbors.”
  • Questions for neighbors:
    • “How long have you lived here?”
    • “Do you like the neighborhood? Is it quiet?”
    • “Do you have any kids?”
    • “How are the schools?”
  • “Check out NextDoor.com–this free community-based social network can help you learn about the neighborhood and keep up to date on the local gossip and issues.”
  • “The staff at planning & zoning can often also tell you about upcoming development projects nearby, such as proposed housing subdivisions, shopping center constructions, school redistricting, or road widening projects.”
  • “Did the current or any past owner pull any permits that haven’t been closed?”
  • “Was any significant work done at the property that wasn’t permitted?”
  • “Hi there. I’m considering buying the house at 123 Main Street and I noticed that you did maintenance on the HVAC system back in August of 2015. Can you tell me exactly what work you completed and if there were any additional work items you recommended, but that the homeowner didn’t have you complete?”
  • Google search by “Enter the other party’s name and, at minimum, city, and state.
    • If you’re the buyer and don’t have the seller’s complete info, check out the property’s tax records to get the seller’s full name (and also determine if her primary residence is elsewhere).
    • If you’re the seller, the buyer’s information should be on the purchase contract. Cross-reference this with the name and address on the earnest money check. Many mortgage lender pre-approval letters also include this info.”
  • Do a LinkedIn search on the other party to learn about the following:
    • “Is the other party a high-level executive, an entry-level customer service representative, or somewhere in between?”
    • “What is their job history? If they change jobs to climb the corporate ladder every few years, does the employer provide financial assistance for relocation?”
    • “Where is the other party’s workplace located? If you are the seller, is your property nearby? If you’re the buyer, could the seller’s motivation be that the commute is too long? Does the person have a job that likely require travel and is proximity to an airport or major highway important to them?”
  • Realtor.com search for the other party’s address
    • If you’re the seller
      • “is the buyer renting in an apartment complex or residing in a house? if a house or condo, do they own or rent? (Verify the owner’s name on the tax records.)”
      • “Is the buyer’s current residence for sale? if yes, what’s the asking price and is there a sale pending?”
    • If you’re the buyer
      • “Has this house been listed for sale before? What did past photos look like and how do they compare to the current state of the property?”
      • “Where is the owner moving? You can sometimes narrow down this info with your or your real estate agent’s access to the MLS. For what price is the seller’s new property under contract? How much money does it look like they need to get out of your deal for purchase or down payment on their new place?”
      • “Are you looking at a property as prat of an estate sale? Go to Legacy.com and find out whether their are other surviving family members who may play a part in the decision-making process.”
    • “What is the approximate age of the other party? Who else lives at the residence?”
    • “Does the other party have other current addresses listed? Do they also own those properties as second home or investment properties?”
  • Social media search
  • “The best predictor of overall success in a negotiation is how much the two parties respect and trust one another.”
  • “To help build feelings of report and trust, and increase the chances of building a cooperative relationship, try to speak in person before the negotiation process begins.”
  • “What people to like you more? There’s plenty of research indicating that frequently using someone’s name during face-to-face communication can go a long way toward making that happen.”
  • “In other words, simply mirroring another person during a casual conversation or encounter can create a rapport between you and that person, without them even realizing it.”
  • “It should never come across as mocking, and of course, you don’t want to make it obvious what you’re doing.”
  • “So, whether you’re on a date, networking at a business event, or trying to build rapport with someone at the negotiating table, asking the other person about themselves is a great way to strengthen the relationship.”
  • “What to be the life of any dinner party? Use the following phrase as often as possible: ‘Interesting… tell me more about that.'”
  • “It’s often worthwhile to give a concession at the beginning of the negotiation, while asking for nothing in return.”
  • “There are many psychological studies that indicate that even a small gift or gesture creates a feeling of indebtedness in the receiver of that gift. Not only that, but that simple act of giving will create a discomfort in the receiver that can only be extinguished by reciprocating the gesture, oftentimes with a larger and more meaningful gesture.”
  • “First, you want to ensure that the other party is aware of the concession. More specifically, they must be aware that you are making a concession.”
  • “Second, we want to ensure that the concession you give isn’t under-valued or discounted. Unfortunately, giving and not asking for something in return is a great way to send the subconscious message that what we’re trying to achieve. Want want the other party to be as appreciative as possible about that concession we give.”
  • “In addition to pointing out the value of your concessions, strong negotiators will also try (again, subtly!) to devalue the concessions the other party is giving you. Simply saying something along the line of: ‘That isn’t going to make a huge difference to may bottom line, but I really appreciate you offering that up!'”
  • “Egocentrism can can cause a negotiation to spin out of control. It can cause each party to question the motives and means of the other party, eroding trust and breaking down any bonds that had previously been created between them. But by remaining cognizant of these tendencies it’s possible to control your ego and focus on the goals at hand: finding benefit for both sides.”
  • “Don’t be afraid to admit when you don’t know something when you’ve made a mistake, or to use self-deprecating humor when you catch yourself trying to overpower the other party. An occasional act of vulnerability will typically help you in the negotiation, not hurt you.”
  • “there are many people who are more interested in having their egos stroked than they are in measurable outcomes. For them, compliments and deference can often substitute for making concessions. Instead of giving them something in the deal, try complimenting them instead.”
  • “Determine the seller’s source and level of motivation.”
  • “Determining the seller’s MAO.”
    • “In most cases, while we can certainly ask, the seller isn’t going to just tell use her MAO. And, in fact, even if she is willing to tell us, there’s a reasonable chance that she’ll be lying to us or, more importantly, that she might go even lower under the right circumstances. So, in addition to just asking, we need to use other strategies to determine the seller’s MAO.”
  • “Finding additional leverage for our negotiation.”
  • Questions for buyer to ask:
    • “How long have you owned the property?”
    • “How long have you been thinking about selling the property?”
    • “Have you already found a new place to live?”
    • “What do you plan to do with the money from the sale?”
    • “Are you under any pressure to sell?”
    • “Are the payments current?”
    • “On a scale of 1-10, how would you rate the condition of your house?”
    • “If you were going to renovate the house to sell yourself, about how much would you expect that you’d need to spend?”
    • “If you were given $50,000 to renovate your property, which items would you fix or renovate?”
    • “Assuming we can agree to a price, is there anything else you want or need out of this deal?”
  • “For example, if the seller thinks her house is a ‘9 out of 10’ in terms of condition and that it would only cost $5,000 to renovate–but you determine it’s about ‘3 out of 10’ and would cost $80,000 to renovate, then you can expect that the negotiations would go a lot differently than if the seller recognizes her house is in major need of work.”
  • “During the very first conversation, most investors will ask how much the seller owes on the house.”
  • “If you find out that a seller owes far more than you know you could possibly purchase the property for, the next step would be to dig deeper into whether she would be willing (and able) to sell below the payoff price. If the answer is an unequivocal ‘no,’ you can often move on from the deal right there–the seller has set her MAO (her minimum acceptable offer) at well above your MAO (your maximum acceptable offer), leaving little room for any chance at a compromise.”
  • “In addition to finding out what’s owed on the property, make sure you also ask about any unpaid back taxes, liens, or other obligations attached to the property.”
  • “By the way, asking the seller for a copy of their most recent mortgage statement or an online printout of the current loan status isn’t unreasonable. If they are unable or unwilling to provide this information, you can generally find out the data and amount of the initial loan and any refinancing from public records.”
  • “there’s one more tactic that will often provide an even clearer picture of the seller’s minimum acceptable price. And that’s asking the seller flat out, ‘What is the lowest price you’d accept?'”
  • Alternatively, ask: “If I were to offer you all cash and close as quickly as you’d like, what is the best price you could give me in return?”
  • “The key question is, if you were to provide the seller her dream scenario, what is the lowest price she’d be willing to accept in return?”
  • “In the case of determining motivation, the first thing your agent should do before you even think about putting in an offer is to call the listing agent and ask directly why the seller is selling.”
  • Questions that buyer’s agent can ask listing agent:
    • “Why is your client choosing to sell at this time?”
    • “Have you received any other offers on the property?”
    • “My client would love to t make an offer. Unfortunately, for it to work for him as an investment, the offer would likely be a good bit below list price. Is that something your client would still consider?”
    • “What else should my client know about the seller or the property?”
  • “If your agent isn’t willing to call the listing agent and attempt to get as much ‘inside information’ as possible, you probably want to consider find a new agent.”
  • MLS information
    • “If you see a listing offering the buyer’s agent an incentive to convince his client to purchase the property, that’s a good indication that the seller and the listing agent are motivated to the house sold.
  • “The first benefit of having the other party put out the opening bid is that it allows you to define a mid-point for the negotiated price.”
  • “The second benefit to getting the other party to open the negotiation is that it’s quite possible that the other party will surprise you by making a first offer that is better than the first offer you would make.”
  • “If the other party put out the first offer, take extra caution to avoid your first counteroffer being too low.”
  • “The first offer in any negotiation will generally serve as an anchoring point for the rest of the negotiation.”
  • “For example, if a house is listed at $250,000, and you offer $200,000, a smart seller will realize that it’s unlikely that $200,000 number has any specific meaning to you, and that you’re likely just finishing to see if the seller will budge on their price.”
  • “On the other hand, if you were to offer, $204,200 on that same home, the seller will assume there was thought put into that offer, and will likely believe that the number has some specific meaning.”
  • “If you can predict your competitor’s offer, choosing to offer a little bit more can provide a substantial advantage.”
  • “The stronger the seller’s motivation, the less likely you are to insult them with a low offer. The more motivated they are, the lower your initial offer should be.”
  • Seller’s MAO: “To create this range, we’ll want two pieces of information: the seller’s property payoff amount and their stated lowest acceptable offer.”, “Based on this, it’s reasonable to assume that the seller’s MAO is somewhere between her property payoff amount (at the low end) and the amount she told you she’s accept under best-case conditions (at the high end).”
  • “For example, if the seller told you that she needed to walk away with $25,000 from the closing to pay the down payment on her new condo, it may be safe to assume that the MAO range doesn’t really start at the payoff amount, but actually starts $25,000 higher. Or, if the seller indicated that they were flexible on their stated lowest sale price, you could assume that the top end of the range is lower.”
  • “If she’s highly motivated, then we can reasonably assume that her MAO is at the low end of that range; if she’s not very motivated, we can assume her MAO is at the high end of the range; and if her motivation is somewhere in-between, we can assume her MAO is somewhere in the middle of the range.”
  • For situations when it’s impossible to overcome the MAO price gap:
    • “Go in with very low offer (typically at or below your target price) in hope of shocking the seller into realizing that his property is worth much less than he had thought. If he doesn’t walk away and is still willing to negotiate, there is a chance that he is more highly motivated than you had anticipated, and he may reduce his MAO.”
    • “Communicate to the seller that you don’t want to insult him with a low price and that you don’t plan to make an offer. The seller will either thank you for your honesty (in which case there was no deal to be made), or the seller will ask you what your price would have been.  If the seller is interested in what you would have offered, that’s an indication that he may be willing to move off his MAO.”
  • “Giving a range allows you to ‘feel out’ the other party, indicates flexibility on your part and may make the other party feel as if they ‘won’ should they accept an offer in the part of the range that most benefits them.”
  • The above strategies may not work with sellers that have agents for the following reasons:
    • “The seller’s acceptable price range is likely to be smaller and anchored around the list price.”
    • “If we make the wrong first offer, we may lose our chance at the negotiation.”
    • “We likely won’t be able to get enough information from the seller.”
  • “At any given time in a market, there will be a ratio of average listing price to average sales price. If houses tend to be selling for about 90 percent of the listing price, we would say that the SPLP is about 90 percent. If properties tend to be selling above list price, the SPLP would be over 100 percent.”
  • “When making offers on listed properties, we highly recommend asking your agent to provide you this data.”
  • “As discussed earlier, an earnest money deposit is a good faith payment made to the seller (though typically held in escrow by the title company) once an agreement is reached.”
  • “When working with off-market sellers who are not represented by an agent, there is, more often than not, much more flexibility when it comes to earnest money payments. Some sellers–especially those who are very motivated–may not ask for or require any earnest money. Other sellers are going to be happy with a nominal payment of $50 or $100, just to be assured that you are acting in good faith.”
  • “Typically, we will always include some earnest money deposit with every offer. We like to start at $100–a small, but reasonable number that will give the seller some confidence that we’are serious about the deal. In fact, in many cases, the seller won’t ask for more. If they do, this is a good opportunity to trade a higher earnest money deposit for other concessions from the seller that benefit you.”
  • “When offering on a property where you don’t think you’ll have competition and where you plan to pay cash, make your offer with financing anyway. This way, when you need a concession to provide to the seller later, you can offer up a cash purchase instead. This was your original intent, but now, you will likely get something in return for it.”
  • “Instead of getting a mortgage against the property, some investors will work with their bank to get a line of credit or home equity line of credit (HELOC) that can be accessed like cash.”
  • “The biggest risk with a line of credit is that the interest rate may change based on outside economic factors, so you may find that you’re paying more per month on a line of credit than you had anticipated.”
  • Inspection (Due Diligence) Contingency: “Also known as a ‘due diligence period’ or a ‘due diligence contingency,’ an inspection contingency typically says that the buyer has a set amount of time (between one week to two weeks is common) where he can do whatever he needs to do to ensure that he wants to buy the property. This might include inspections, appraisals, and contractor walk-throughs.”
  • “The second most common contingency you’ll see in real estate contracts are financing contingencies. These contingencies allow the buyer to attempt to get financing (a loan) for the property, and should the buyer be unable to get financing, will give him the right to back out of the deal.”
  • Appraisal Contingency:
    • “If the buyer gets an appraisal on the property and it doesn’t come in at least as high as the agreed upon purchase price, the buyer can ask the seller to drop the purchase price to the appraised price; and
    • If the seller refuses to drop the price to the appraised price, the buyer can back out of the deal.”
  • “The appraisal contingency often goes hand-in-hand with financing contingency, as most conventional, portfolio, and hard money lenders will require an appraisal and will refuse to lend at a higher amount than the property appraises for.”
  • Other contingencies:
    • “Legal description contingency: allows for review of the legal description of property.
    • Survey contingency: requires satisfactory property survey results.
    • termite letter contingency: allows for termite inspection.
    • Lead paint test contingency: allows for lead paint inspection.
    • Deed contingency: stipulates what type of deed is expected from the seller at closing.
    • Radon testing contingency: allows for radon testing.
    • Mold inspection contingency: allows for mold testing.
    • Sewer inspection contingency: allows for inspection of sewer line.
    • Private well inspection contingency: allows for inspection of a well.
    • HOA documents contingency: requires seller to provide HOA docs.
    • Insurance contingency: allows buyer to investigate insurance costs.
    • House sale contingency: allows buyer time to sell an existing property.”
  • “The fewer contingencies in your offer, the more attractive it will be.”
  • “For example, if you don’t have much leverage over the seller, you’ll want to limit your contingencies to only those that are absolutely necessary.”
  • “When possible, limit your offer to a single contingency.”
  • “the truth is, that single contingency often provides all the protection you need. In fact, for 50 percent of the offers we make, the only contingency we use is a well-written due diligence contingency. For the other 50 percent of the offers we make, we use no contingencies at all.”
  • “The seller may be willing to give you a seven-day due diligence contingency, but is unlikely to extend that all-encompassing contingency to 30 days. In that case, you might be able to get the seller to agree to the seven-day due diligence contingency and agree to a separate 30-day financing contingency. Because the seller knows that, after the seventh day, you can back out only on financing issues, she might be more comfortable with the separate contingency.”
  • “By grouping contingencies into a small number of deadlines (in this case, only seven days and 30 days), we make it simpler to negotiate those contingencies together in groups, and we also make easier any renegotiation we may have to do.”
  • Seller financing: “We like to ask early on in the discussion if the seller needs all the cash from the sale immediately or if they’d be willing to wait a period of time to receive part or all of the proceeds, in return for getting a higher sale price.”
  • “In fact, if you are getting financing on property, the closing costs alone can easily add up to 3 percent of the loan or more.”
  • “Asking the seller to pay those closing costs can greatly reduce the amount of cash you, as the buyer, needs in order to purchase a property. And because seller-paid closing costs will simply be taken from the sales proceeds, the seller won’t need any actual cash to pay these costs, unlike the buyer would.”
  • “In fact, if you otherwise wouldn’t mind paying the closing costs, but are getting a loan and are simply looking to reduce your cash outlay, one option is to offer the seller a higher sales price in return for their paying all the closing costs. If structured correctly, a seller can net the same amount of cash on their sale while you ultimately pay less upfront cash.”
  • “In most states, the buyer has the right to choose their own closing agent (attorney or title company) when they buy a house. But if you’re flexible on a closing agent and the seller has preferred firm they’d like to use, the seller may agree to pay for title insurance or other closing fees if you agree to use their closing agent.”
  • “As a buyer, the $400 to $600 the seller might spend on a warranty could save you some cash down the road if there any unexpected maintenance issues that are covered by the warranty.”
  • “When you’re selling a home, getting an inspection on the house just prior to sale can provide buyer additional confidence in the purchase, which could translate into a higher purchase price or additional concessions during the negotiation.”
  • “If you’re offering to buy a property represented by an agent, it’s almost certain that you will need to use a state approved real estate contract to create your offer. This is because–for liability reasons–most agents and their brokers will only accept offers on state-approved contract templates.”
  • “With hat in mind, if you make offers to sellers who don’t have agent representation, you should work with a local real estate attorney to draw up a custom contract that will contain many of the same clauses and protections as the standard contract, but will be much shorter and written with less legalese so that even untrained sellers will understand it.”
  • “Never start a negotiation until you’re confident that you are dealing with the decision maker. And not just one of the decision makers–you want to ensure that everyone who is required to make a final decision on the deal is present for all aspects of a negotiation.”
  • “If a person is trying to look tough in front of their spouse or partner, ry to get the person alone so they can make concessions without losing face. Often, a person will want to look tough in front of their spouse, and if you risk making them look weak, you can bet the deal is going to go south very quickly.”
  • “As we mentioned above, in many cases, it may be easiest to ask flat out, ‘Are you the one who will make the final decision on this purchase?'”
  • “To avoid dealing with someone who thinks they’re the decision maker but isn’t, the best question to ask is, ‘Is yours the only name on the title?'”
  • “Specifically, you should try to prime the other party for your offer by starting the discussion with all the aspects of the offer you believe they will be happy with. Elicit as many affirmative responses from the seller (‘Yes,’ ‘Okay,’ ‘That’s great,’ ‘Sure’, etc.) as possible before suggesting anything they might find contentious or might disagree with.”
  • “Instead, present the offer confidently, and then shut up and give the other party the opportunity to draw his own conclusions. Once you present the offer, sit back and just let them process what you have said.”
  • “When they start talking, don’t interrupt. Many times, people will attempt to sort out their thoughts by talking through them. As they talk, you should just listen. If they ask a specific question, answer them, and then let them speak again.”
  • “Never force ‘high status’ people to lose face in front of ‘lower status’ people. For example, don’t demean a real estate agent in front of her broker or a lender in front of his boss.”
  • “If the seller goes with another offer/buyer, ask to have yours beheld as a back-up. Deals fall through all the time, and if the seller knows that you’ll still be interested, if a problem arises with their other buyer, they may choose to come back to you directly versus putting the house back on the market.”
  • “If you know for a fact that the seller will be receiving other offers, do your best to have yours delivered or presented last. Your agent may even be able to get information about offers that were presented before yours. We’ve even seen situations where a listing agent will tell the buyer’s agent what price they need to hit to get their offer accepted.”
  • “Listing agent make their money by selling houses. If you can help fill their future deal pipeline, you can be sure they will be rooting for you and may be able to offer you support and assistance in coming to an agreement with their client.”
  • “As a buyer, if you are looking for houses in the winter, there is a better opportunity to find great deals because sellers are more desperate to sell.”
  • “The very end or the very beginning of the month is often a good time to make offers. Sellers typically make their mortgage payments at the beginning of the month, and it’s the week leading up to this payment that sellers may be thinking about how nice it would be to get their house under contract and be able to avoid having to make more payments.”
  • “If you have the ability to look at homes and make offers over long holidays, you may find yourself getting some great deals.”
  • “Some are hoping to get offers on Sunday evening and Monday, and should Tuesday come around without an offer in hand, sellers get ejected. They realize that the buyers who saw the house the previous weekend likely weren’t interested in making an offer, and new potential buyers likely won’t come around until the following weekend. Seller may be more willing to consider a lower offer on Tuesday than any other day.”
  • “If the other party is acting unreasonable in their requests, take the opportunity to go back to building better rapport. For example, if the seller starts to get angry about an offer you’ve proposed, that’s typically the result of a lack of trust–the seller doesn’t believe you care about her wants and needs. Instead of continue to discuss the offer, go back to a friendlier discussion, listen to her, and remind her how you are attempting to help her solve whatever problem selling her house will solve.”
  • “This is also a great tactic if negotiations ever stall–revisit the things both parties agree upon and remind the seller of more of those things that may not have been discussed for a while.”
  • “If you cannot agree on minor issues, put them aside and complete the main agreement. With the main agreement completed, you’ll find minor issues are far easier to settle.”
  • “The harder you make them work during the negotiation, the less chance they’ll back out when the negotiating comes to a close.”
  • “If the other party makes an offer that is so generous that you’d be uncomfortable asking for any additional concessions, then take a nice, long pause before you accept it. This pause will hopefully introduce enough friction into the transaction that they don’t realize they offered too much.”
  • “Never negotiate with yourself. In other words, once you put out an offer or counteroffer, don’t provide any concessions to that offer until the other party responds.”
  • “Don’t bluff on minor issues that won’t give you significant gain should it work. The risk of throwing away a deal over a small gain is typically not worth it.”
  • “If you’re implementing a ‘take it or leave it’ bluff, provide a plausible explanation for why you can’t budge off your current position. Offer a believable reason, data, or a quantitative analysis.”
  • “Additionally, when making a ‘take it or leave it’ bluff, try to provide an additional concession along with your final offer. This token may be enough to convince the other party that the deal is good enough to move forward.”
  • “If you walk away from a negotiation because you really can’t concede anything additional to the other party, make a point to keep the door open. Let the other party know that you are still very interested in working together, and should anything change on either side, you’d love to reestablish the discussion and continue working toward an agreement.”
  • “While you don’t want to break off negotiations while they have momentum, when that momentum slows, a break might be exactly what each side needs to regain their energy and optimism.”
  • “By discussing the things you have already agreed upon and ignoring the stuff you still haven’t reached consensus on, you can remind the other party that there is reason to be optimistic about reaching an agreement, and that an agreement maybe closer than it currently appears.”
  • “You aren’t agreeing on how to divide the current set of concessions, so now is a great time to get creative and to try to find some new concessions that you can add to the pot.”
  • “If other tactics aren’t working to get the discussion moving forward again, it may be time to remind the other party of the negative consequences of not reaching a deal.”
  • “When you offer a concession to the other party, you nearly always want to ask them for a concession in return.”
  • “To avoid this type of situation, we prefer to always phrase our concessions as an ‘if-then’ expression: ‘I might be willing to give A if you were to give B.'”
  • “The order in which you offer and ask for concessions should generally be aligned with the importance of those concessions.”
  • “Never accept a concession that’s worth less than the concession you are offering.”
  • “If you don’t ask for a reciprocal concession right away, you’ll likely never get it.”
  • “During any negotiation, there are going to be some aspects of the deal that you may consider completely unimportant but that the other side may see as valuable.”
  • “Point out and remind them of the value of concessions you gave.”
  • “For as long as he continues to counter your requests, continue to ask for additional concessions. Eventually, you will train him that by ‘resisting’ he’s encouraging you to continue asking for more.”
  • “If you make the penalty for asking more cumbersome then what they asked for, it’s quite possible they’ll decide it’s not worth the effort–like having to wait ten minutes to find out if you can save $10 extra.”
  • “To this day, I carry my ‘corporate policies’ list to every real estate negotiation. It contains all the concessions that I prefer not to give, including not allowing the seller to stay in the property after closing.”
  • “On rare occasions–for example, when I know a seller must have one of the concessions and I’m prepared to provide it–I can still use the policy list in my favor. I will point out that while I’m not allowed to agree to the point, I’m willing to talk to my attorney to get his input and see if there is a way we an work around it. Of course, I come back with good news: ‘My attorney says it can be done!’ But, I also point out that it provides some liability risk on my company, so I’m going to need a big concession in return…”
  • “He said that he offered on every property he saw listed on the site. Because each property listing included a link to initiate an email, he could quickly fire off emails to each person who listed a house for sale. Each of the emails was short, three-sentence cut-and-paste that read, ‘Hello. I saw your property listing on Craigslist and I might be interested in making an offer. Would you be willing to accept $XXX for the house?”
  • “The $XXX that he filled in for each email was exactly half of the list price for the house.”
  • “Obviously, he didn’t expect anyone to actually agree to his half-price offer, but what he found was that a small number of sellers would respond with something along the line of, ‘I can’t sell for that little, but I would take $YYY,’ where $YYY was a significant reduction from the list price!”
  • “By spending about five seconds to send a form email, he was able to not only determine which sellers were highly motivated, but was also able to use the $YYY price as the new starting point for negotiations!”
  • “Regardless of whether the crazy offer is made in good faith by a naive buyer or seller, or whether it’s made by a strong negotiator to test your intestinal fortitude, saying ‘no’ is not only appropriate, but absolutely necessary in order to ensure that the balance of power isn’t tipped too far in favor of that other party.”
  • Recommend response for saying no: “You’ll have to do better than that.”
  • In defense of negotiation tactics: “In those situations, the very first thing we recommend is slow down the process so you can try to determine what’s going on and how you should react. Slowing down the process could mean talking less and listening more; it could mean taking a break to gather your thoughts; it could even mean stopping negotiations for the day so you can regroup and start fresh after thinking through.”
  • “when the other party’s offer is ridiculously low, we actually prefer the outright rejection.”
  • “But, if the buyer repeatedly uses shaming or intimidation techniques to try to get you to make lots of little concessions, it’s important that you push back and make it clear that you won’t allow him to nibble away at you.”
  • An example response to nibble tactics: “You shouldn’t assume that I’m going to give anything away for free.”
  • “Trial balloons are questions that one party will ask in order to gain clues about the other party’s position without giving up any information about his own position.”
    • Example: “So, would you take $160,000 for this place if I paid all cash?”
    • “The only reasonable response to this type of response is: Investor: ‘I’ll be happy to look at any offer that you present to me in writing.'”
  • Defending against higher authority: “When can the person who has the authority to make the decision meet with us?”
  • “The best way to handle the other party’s ‘take it or leave it’ offer is to just keep talking. Don’t acknowledge the threat of walking away, and either keep negotiating or change the subject. If the other party doesn’t actually start to walk away, you know they were bluffing and are still willing to negotiate.”
  • “Always ensure that your words and your actions are in agreement. For example, if you say that you are displeased with an offer, make sure your face and body language replicate that displeasure. When words and actions are out of sync, this will subconsciously register as a red flag with the other party.”
  • Defending against silence: “When this happens, the best tactic is to repeat the offer you just made. Then sit back and wait.”
  • “Early in the negotiation, casually mention that you take your ethics seriously, and that you would never engage in lying or deceit just for business or personal gains. Simply reminding the other party that ethics is important (and that you’re thinking about it) will diminish the likelihood that they attempt to deceive you.”
  • “Divulging private information will encourage the other party to do the same.”
  • “Finally, if the other party makes a statement that you suspect may be untrue, but that can be easily verified, make it part of the terms of the contract.”
  • “When the other party makes a suspicious statement, make a point to write yourself a note about it in front of them. If they believe you’re writing down the things they’re being dishonest about (in other words, they realize they’ve been caught), they are less likely to continue the behavior.”
  • Defending against tactical criticism: “Whenever you meet a buyer who tries to use this strategy to wear you down and make you question the value of your property, we suggest a simple reply: Investor: ‘Thank you for looking, but it sounds like this just isn’t the right house for you.'”
  • Defending against threats of competition:
    • “Who are the other investors you’re speaking with? Perhaps I know them.”
    • “How long have you been negotiating with them? Is there a reason you havne’t been able to come to an agreement in that time?”
    • “Did you contact them or did they contact you?”
    • “Have you met with them face-to-face? Are you planning to talk to them again soon?”
    • “While asking these questions isn’t likely to get the seller to admit she’s lying, her answers–and specifically the details she choose to either reveal or conceal in her answers–are likely to give you an idea of whether she’s telling the truth.”
    • “Is there an offer on the table? What is that offer?”
    • “Have you accepted their offer? Is there a contract or commitment?”
    • “Are they willing to pay cash? What other terms are they offering?”
    • “Are you planning to sign a contract with the other investor in the near future?”
    • “Would you rather hold off discussions until you finish talking to the other investor?”
  • “Buyer: ‘While I’d love to pay the full $300,000 asking price, I’m only qualified for a loan up to $270,000.’ Ask if he’s willing to talk to your mortgage broker to see if your broker can help him increase his qualification amount. If the buyer is lying about $270,000 being his qualification amount, you’ll soon find out.”
  • Defending against a rejected offer:
    • “How much better do I have to do?”
    • “Why don’t you tell me what you’re looking for?”
  • “We’re not saying you shouldn’t use contingencies in your contracts, and we’re not saying that you shouldn’t rely on those contingencies when something goes wrong. But, if you use contingencies simply as a way to renegotiate every one of your contracts after the seller has committed to a sale, you’re likely to find yourself with a bad reputation; and we can promise you that agents, sellers, wholesalers, and other investors will find out.”
  • “The goal of renegotiation should be to make each party whole–no more, no less.”
  • “If the renegotiation was the result of something the seller purposefully omitted telling you or lied to you about–for example, you find evidence of a proof leak the seller didn’t disclose–don’t call the seller out on a lie. Saying, or even imply, that the seller lied to you will risk embarrassing the seller and hurting the relationship. Instead, express surprise that the seller didn’t know about the issue (she’ll get the message), and make it clear that you expect her to handle the issue.”
  • “Ultimately, any refusal to do repairs will be because the buyer should have known about the issue before making an offer or because we would be okay losing the contract.”
  • “In fact, in our experience, about 75 percent of all financing issues are simply the lender or loan officer being lazy and not delivering on their commitment to their customer, the buyer.”
  • “If you’re certain the extension will be sufficient to get this deal closed, I’ll grant the extension if the buyer puts up additional non-refundable earnest money. Since they’ll need the money for the down payment at closing anyway, and since you are certain the deal will close, there’s no reason they buyer can’t put the money in escrow today, right?”
  • “In addition, for the first extension try not to give more than seven days.”
  • “If the buyer request a second closing extension, we recommend only doing it under the following two conditions:
    • If they haven’t already, the buyer puts up the entire down payment as non-refundable earnest money.
    • You get a ‘kick-out clause’ added to the contract.”
  • “A kick-out clause is a term you can add to the contract that will allow the buyer to keep the house under contract, but will, at the same time, allow the seller to look for another buyer. Should the seller find another buyer, the original buyer will have a fixed amount of time (generally 24-48 hours) to remove any remaining contingencies in the contract and prove that he can get the deal closed. Otherwise, the seller will have the option of moving forward with the new buyer.”
  • For a third extension:
    • “If you already have a kick-out clause in place from the second extension, you can pretty much extend it as long as you want, as you always have the option to to go with another buyer if you one comes along. The only drawback is that you don’t get the earnest money until you ultimately terminate the contract, though that shouldn’t be your goal; or”
    • “The other option is to terminate the contract and tell the buyer that if they figure out their financing issue and can get things resolved, you’re happy to sing a new contract and apply the earnest money from the original contract, but you’ll have a right to renegotiate terms and perhaps ask for additional earnest money for the new contract.”
  • “Typically, we’ll stick with the first option (the kick-out clause) and continue to market the property to other buyers.”
  • “The first thing we will do when an appraisal comes in low is to simply request that the seller drop the purchase price to the appraised value.”
  • “Always ensure that you know when the appraiser is coming to your property. We make sure that our properties are on an agent lockbox and are alarmed. We then tell the lender or broker that to get access to the property, the appraiser needs to call us or our agent.”
  • “Always make sure you or your agent are present when the appraiser is doing his walk-through. This is your opportunity to build rapport, provide information about what work you did, brag about the fact that you pulled all required permits and only used licensed contractors and to generally take credit for the great rehab your team has done.”
  • “At the end of the walk-through, you have an opportunity to provide information to the appraiser that he can take back to the office and review. This is the information that will help him do this appraisal and help him justify the number he comes up with. We typically provide a full list of renovations we completed, a breakdown of the rehab costs, before and after pictures of the rehab, and a list of comparable properties that support the value of the property.”
  • Seller’s options on low appraisal:
    • “You can encourage the buyer to appeal the appraisal. With most lenders, the buyer can submit evidence to support a value higher than what the appraiser determined; while this is a long shot, we’ve seen it work on occasion when the appraiser has made an obvious mistake in his analysis or the comps he chose.”
    • “You can terminate the contract and find another buyer. Keep in mind that some type of appraisals (FHA, specifically) will stay on file for up to six months and will be available to future appraisers, so the tactic of finding another buyer and getting a new appraisal often won’t work.”
    • “You an negotiate with the buyer some combination of a price drop and the buyer contributing more cash to the purchase.”
    • “Realistically, No. 3 is often our only reasonable option, and this is where it’s important to be able to gauge both your buyer’s motivation to purchase the property and his ability to come up with additional cash.”
  • “Always include a term in the contract that requires the buyer’s lender to order the appraisal immediately after the contract is singed; we normally stipulate three days.”
  • when getting a low appraisal:
    • “Was all the information for the subject property entered correctly? For example, did the appraiser mistakenly claim our property had two bathrooms when it really has three?”
    • “Were the comparable properties in the same neighborhood or market? Were there other comparable properties that were close and could have been used?”
    • “Were the comparable properties within the same age range? Typically, appraisers should be using properties that are within 20 percent (higher or lower) of the square footage of the subject property.”
    • “Were the comparable properties sold within the previous six months? A property sold more than six months previous might not reflect the current market conditions.”
    • “Were the adjustments the appraiser made realistic?”
    • “Were the comparables in the same condition as the subject?”
    • “Were there any REO properties or short sales used to value a fair market sale? If you’re purchasing a house through a retail sale, there shouldn’t be any ‘distressed’ sales used as comparables.”
  • “To achieve maximum value on your sale, we recommend listing your property for a price somewhere between the fair market value (based on comps) and 5 percent above fair market value. The stronger the market is for sellers, the closer your list price should be to the top number.”
  • “At the very least, we recommend that you require your buyer to get pre-qualified with a broker you trust. If the buyer will use your recommend broker, all the better. But if not, make sure to call the buyer’s mortgage broken to chat with them to make sure they are familiar with any flip rules that might be applicable, ask about the buyer’s qualifications and discuss the broker’s biggest concerns about getting the loan done.”
  • “Get the most amount of earnest money as you possibly can.”
  • “Limit the buyer’s financing contingency to 21 days. Regardless if it’s FHA, VA, or conventional, there is no reason it should take longer than that to get a long commitment letter for the buyer.”
  • “Keep the closing date to 30 days or less. Unless you live in a state where a 30-day closing is really tough (like New York), there’s no reason it should take longer than that to get a loan funded and a deal closed.”
  • “Include a stipulation in the contract that allows you to call the seller’s mortgage broker once a week to get a status on the loan. When you call, ask when has been done, what the next steps are, if there are any issues that have come up, and when the broker thinks the loan will go to underwriting.”
  • “For these reasons, we typically don’t recommend trying to negotiate multiple offers individually. That said, there is one situation where this might make sense: If you have multiple offers, but one offer stands out far-and-away better than the rest, it may be worthwhile to just focus on that offer and ignore the others.”
  • “We will typically have our agent call for highest & best offers under the following condition:
    • We have at least three potentially acceptable offers.
    • None of the offers stands far-and-away above the others.
    • We believe at least three of the buyers are motivated to buy our property.”
  • “When you call for highest & best offers as a seller, you should be prepared for one or more of the buyers to walk away at the point and not submit a highest & best offer.”
  • “Thank you for your offer! While your offer wasn’t the highest, overall it was more attractive than any of the other offers we received and we’d really love to work with you. But, for your offer to make sense over the others we received, we’d need to change two of the terms in the contract: 1. We’d need to pull the closing in by one week; and 2. We’d need to increase the earnest money from $1,000 to $2,500. Are you willing to accept these two changes? If so, we have a deal!”
  • “Keep in mind that some buyers will take offense at your trying to continue to negotiate a highest & best offer, so tread lightly when using this technique and be prepared to address a buyer who get a little irritated at you attempt to get more than their highest & best.”
  • “An escalation clause is a stipulation in your contract that says the buyer is willing to pay $X (where the buyer defines X) above the highest offer the seller might receive, up to some maximum amount.”
  • “Typically, we don’t recommend using these clauses as a buyer, as you are basically telling the seller what you are willing to pay for the property, and the seller will have the opportunity to negotiate you up to that price, even without a competing offer.”
  • “If you counter a buyer at the highest price of their escalation clause, you may want to throw in a nominal concession in the process, just to mitigate the risk of them feeling as if you took advantage of them. For example, perhaps offer to pay for their inspection or offer to help with closing costs.”
  • “REO stands for ‘real estate owned.’ This is the term most banks used to desribe properties they seize after the thome goes through foreclosure.”
  • “The REO listing agent and asset manager are usually very busy people. Making their job easier by not wasting their time will go a long way in getting them to want to work with you.”
  • “Many offers on REO properties do not go directly to the listing agent. They are submitted online by the buyer’s agent directly to the asset manager through a third-party system.”
  • “Do not include a list of repairs to justify your offer (at least not with your initial offer). The asset manager does not care at this point and it will make the listing agent look bad, as it’s the listing agent’s job to communicate to the asset manager what repairs are needed and how they affect the value of the home.”
  • “Asset managers typically oversee the sale of dozens or hundreds of houses, so any attempt to contact the asset manager directly–or to influence the asset manager by writing a letter or sending any other type of private communication–is unlikely to be successful.”
  • To make your offer appealing to a bank asset manager:
    • “large earnest money deposit.”, “Increasing your earnest money is a great way to communicate that you are serious and intend to make good on the purchase.”
    • “Short closing period.”, “When, when they see a short closing period (seven to 15 days), they know you’re serious.”
    • “No (or very short) inspection period.” Most banks expect the buyers to perform inspections in ten days or less. If you can shorten the inspection period or remove it, it will show the seller you are serious.”
    • “All cash offers, when possible.”
  • “In our experience, when offering on an REO property, the seller’s first counteroffer will typically be near our at full price, while the second counteroffer will generally represent their biggest reduction.”
  • “Scheduling a closing at the beginning of a month removes pressure on the closing agent and reduces the chances of any hard feelings with the asset manager if there is a delay.”
  • “so if you want to make your offers really attractive, do your best to close right before the end of the bank’s fiscal quarter or fiscal year.”
  • “For example, if you see an REO property that has had price drops every 40-50 days for the past six months, and it’s been about 40-50 days since the last price drop, there is a reasonable chance the bank may be ready to drop their price again, and may be more open to considering a low offer. The advantage to offering before the price drop is that, if you were to wait until after the price drop, you would likely have to compete with other investors who find the new price attractive.”
  • “The only thing that had changed between the time the property was listed at $170,000 and now was that it had fallen out of contract three times. I knew there was no way the bank would have accepted my $130,000 offer earlier, but after several issues with other buyers, they got motivated and suddenly my offer wasn’t so ridiculous.”
  • “But while listing agent don’t have as much influence as they used to with asset managers, working directly with the listing agent on REO properties (e.g., letting them be your buyer’s agent) may still be a great way to get a deal what you may not otherwise get.”
  • “A HUD home is a property that was purchased with an FHA loan (a loan made by the Federal Housing Administration), but the borrower defaulted and got foreclosed upon.”
  • “Typically, HUD will accept a net offer amount of between 10 and 12 percent below the list price.”
  • “To verify how long a HUD home has been on the market, have your real estate agent look up the history on the MLS.”
  • “HUD homes are sold in ‘as-is’ condition, and HUD will make no repairs, even if your lender requires them. If you find issues during your inspection, you have two choices:
    • Cancel the contract and lose your earnest money; or
    • Proceed to closing without any repairs.”

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