July 13, 2011 in Negotiating Tips
When was the last time you came across a seller that had a completely unrealistic expectations about what their house should sell for?
If you are a real estate investor, it was probably the last time you looked at a house. A big part of becoming a successful real estate investor is learning how to alter their expectations. The trick is to do this and have them still feel like they got what they wanted out of the negotiations.
So how do you change seller’s expectations?
One of the best skills you can develop and probably one of the hardest to learn is the skill of listening; really listening to what the seller is saying. And yes, sometimes it is very painful. It usually involves 30 minutes of hearing about all of the history of this house and all of the current problems they and their family are having. I can tell you from experience, if you sit quietly and listen you will get valuable clues about how to change their expectations. It is during these conversations that you will learn about their true motivation.
I have found that I usually need to do this in stages. At times, I am able to begin this process when I take that first phone call. After they have told me all the problems with the house, I simply repeat all of them back to the seller and comment that those repairs are going to be costly.
The second time you will have an opportunity to “reset” their expectations is when you see the house. Again, it can be as simple as going over everything that the house needs. I usually bring up the comps for the area at that time and tell the seller that “this is what similar properties in this condition are selling for”. Depending on the house, I may or may not make an offer at that time.
Making the offer
Last week I met with a seller at her house. This house was part of an estate and was in very bad shape. She told me that she knew pretty much what she was going to be able to sell the house for. This seller tried to put on a show of confidence even though she knew the house needed a roof, kitchen, bathroom and a lot of other repairs. This house also had some mold in the drywall in the basement. We both knew that she wasn’t going to get anywhere near this amount, but I just let her talk. She also told me that she had multiple investors looking at the house as I was doing my inspection trying to put some urgency into the situation.
When I was finished, I told her that I would go home and put some numbers together and give her a call. Since she said she had another investor looking at the house the next day (which was a Saturday), I decided to wait until Monday to call her back. I knew that my offer was going to be really low. There just wasn’t a lot of room for negotiation due to the sheer amount of repairs that were needed and the ARV. I also knew that if she had an inexperienced investor making an offer, they would most likely pay too much for the house and be above my offer anyway.
The bottom line was that this house needed a lot of work so I absolutely had to buy it cheap enough to wholesale it easily. On the plus side, it was a 3 bedroom brick house with a basement in a mostly owner occupied solid blue collar neighborhood. There wouldn’t be any problem selling this house if the price was right.
So what happened? I don’t know the answer yet. When I called her on Monday I asked her if anyone had made an offer on the house. She said “she thought so”. I made a verbal offer and told her that I would mail her a written cash offer. She will probably get that in the mail today. Along with my offer I listed all of the work that needed to be done, and I advised her that she needed to find out what was causing the mold problem regardless of which offer she accepted. (More on the mold at a later date). My offer included paying all of the closing costs since I knew they were short of cash.
Be sure not to get caught up in “needing to make a deal work”. Let the numbers do the talking and be prepared to walk away if necessary. You will never be sorry you left a bad deal behind.