In real estate it is not enough to simply get the property you desire. If you overpay or the closing is later than you desire, you won’t be able to maximize the bottom line. It is essential to win every negotiation you are part of. Sometimes, winning means taking the sellers price and closing in ten days. Other times it means staying firm to your offer and knowing when to walk away. By winning in more negotiations than you lose, you can squeeze residual revenue from your deals. Adding this up over the course of the year has a significant impact on your year-end bottom line. Here are five tips to help negotiate the best possible deal on every transaction you are a part of.
- Act Quickly: You should never blindly dismiss any prospective deal that comes your way. There are plenty of times when a property seemingly doesn’t fit your criteria, but with just a little research checks off more boxes than you think. The key is to act quickly and decisively when you are presented with an opportunity. In most cases the buyer who acts first gets a decided leg up on their competition. Even if two offers are similar the offer submitted first is the first one that is negotiated. Additionally, there is something psychological from a seller’s standpoint about getting an offer shortly after listing. They sense that you really want the property and are usually more open to negotiating with you. This doesn’t mean you have to rush in any offer just to get something over. You can still do your diligence, but you need to do it quickly. Don’t wait to act when a property in an area you like hits the market.
- Know Supply And Demand: Always know where you stand in every negotiation. On properties that have sat on the market for some time the seller is usually much more open to negotiation. They understand that they missed their peak marketing time and any interest is at least somewhat appealing. On the flip side a new bank owned listing may be much more in demand. As a buyer you should be able to gauge demand in a short amount of time and tailor your offer accordingly. If demand is strong you know your first offer must be strong without giving away the farm. There will most likely be multiple offers and you need yours to stand out from the crowd. If demand is weak you can submit an offer that is more tilted in your favor. You don’t have to worry about another offer coming in and undercutting yours. You can stand firm and negotiate a little more without fear of losing the deal. In most cases supply and demand is straight forward, but if you have doubts don’t be afraid to ask your real estate agent. Misjudging demand can instantly cause your offer to be ignored.
- Multiple Financing Terms: Never assume that you know exactly what the seller is thinking. You may think that they would want a cash offer with a quick close, when in fact they may be looking to walk with the highest possible amount. On properties you really want you should give multiple financing options. One offer can have a slightly discounted price, but close in 14 days free of contingencies. Your second offer can have a sizable down payment, but the remainder is financed through a traditional lender. You can justify this with a higher price. By giving the seller options you don’t pin them in a corner and you let them pick the best deal for them. You also reduce the chances of heavy negotiation since you already gave them plenty of things to choose from. The more financing options you can provide the more likely a seller will move forward with your offer.
- Know When To Walk Away: There are plenty of times when the best move you can make in negotiation is walking away. There is a fine line in giving a little to get a property you really want and having the deal no longer make sense. It is critical to remember that the goal is not to simply acquire the property, but to make a profit on it. If you feel that the numbers and terms are no longer to your liking, you should pull the plug and walk. This is never easy when you invest hours of time and energy into a deal but is the best thing you can do for your business. You also need to avoid bidding against yourself. If there is no competition for the property don’t be afraid to call a seller’s bluff and stand firm in your offer. Eventually they will blink and take the best offer on the table. If not, you turn your energy into finding a new deal.
- Clean Contract: There are too many lender horror stories out there for a seller to fully feel comfortable with a lender financed transaction. If this is your only way to close, you can at least make the contract as clean as possible. The more contingencies you have the more potential potholes a seller must face. The only must have contingency on every deal is the inspection contingency, unless you plan on knocking down the property. You should think twice about adding anything else to the contract.
Don’t be afraid to ask for something that you really want. You never know what a seller will accept if they are truly motivated. The better you are at negotiating the little things the greater the impact on your bottom line.