In the first part of this article we talked about how to approach the seller, and what to say to get the conversation going. We also talked about the reasons you should always use a property information form. (If you missed part 1 you can CLICK HERE to read the article…)
Our ultimate destination is “negotiation”. We all want to get to the negotiation stage and get that property under contract.
Getting Right to the “Nitty-Gritty”
Now it’s time to get down to the hard part. We all want to get down to the real “nitty-gritty” which is how much money they want for the property. What are the seller’s expectations? What is it they really want (or need) in addition to cash?
Here’s a Tip for you-
One of the most common complaints I hear is, “The seller won’t tell me how much they want for the house”. I can tell you from experience sellers rarely spit out the rock bottom dollar amount they are willing to walk away with. You know; the amount they can accept without feeling like they have been robbed.
Guiding the Conversation
There are ways that you can guide this conversation and often get a pretty good idea of what they are “hoping for”. You will notice I say hoping for. Sellers often have a number in mind that is totally unrealistic. Your job will be to change their expectations. I have also found that when you start the process of figuring out how much money they are willing to take for the property, you may have to circle around this topic several times.
My initial conversation with a seller always starts with, “Tell me about the property and your situation”. Then it is your job to just listen no matter how long this process takes. In some cases this will be a long, drawn out conversation but it’s essential that you let them talk. Other times sellers will get right to the point. Either way this is usually when you will find out their true motivation.
They may start out with a totally unrealistic price for the house, but then they will tell you what their real problem is. It almost always involves some type financial difficulty. What you want to hear is the “pain” or the real reason they need to sell now.
I often ask them, “What is it you would like to see happen here? What is your best case scenario”?
If they throw out a number at this point, you will know what their desired offer is. Now as investors, this is rarely the amount we are willing to pay. At this stage of the conversation I will usually move on to getting the rest of the information about the condition of the property.
When you have the seller on the phone and they tell you about any repairs that are needed, I always repeat what they have told me. For example –
“So the house is going to need a new roof and a new furnace is that correct? Well if it needs a new furnace then I can assume it needs a new AC too”? Then I might say something like, “That’s fine however it is going to be a pretty costly repair”. After that I would move on to the next thing they have told me the house needs which might be a new kitchen or some other major repair.
As we talk about each room or system in the home, I will agree that the repair or upgrade needs to be done and I will always mention the cost. Most sellers will start to come to the realization that their desired number is probably unrealistic. Ideally you want them to come to this realization on their own. That will make the negotiation process easier.
Now at times, when you ask about the condition of the house you will get a seller that says things like-
- Can you tell me about the house? It’s a good solid house
- How old is the roof? There have never been any roof leaks.
- What is the age of the furnace and AC? The furnace works fine.
- Did you know that the house still has fuses? That electrical box was just fine for my parents.
Looking at each one of these items above you might say this to their response-
Me: Can you tell me about the house?
Seller: It’s a good solid house.
Me: Ask them (again) to tell you what they know about the house. If you still don’t get any information, you will need to ask them specific questions about each area.
Me: How old is the roof?
Seller: There have never been any roof leaks.
Me: Explain that even though there haven’t been any roof leaks, the roof is more than 20 years old and buyers will expect a new roof. The roof is at the end of its life
Me: What is the age of the furnace and AC?
Seller: The furnace works fine.
Me: You will need to ask them once again the age of the furnace. If they don’t know or won’t tell you, you may actually be able to look at it and tell it is really old. Truthfully, they probably know if it is older. Ask them this; do you think it is older than 20 years? Then explain to them that the life of a gas forced air furnace is about 18-20 years on average if it has been well maintained. Tell them once again, that your company will replace the furnace in all of its houses unless you can determine it is a newer unit.
Me: Did you know that your electrical box is outdated? It won’t meet today’s electrical needs?
Seller: That electrical box was just fine for my parents.
Me: What I say about the electrical box in this case is that the box was fine for their parents, but it no longer meets modern standards and electrical requirements. I also tell them that many insurance companies are reluctant to insure a home with such outdated systems. It will need to be replaced.
The last thing I say after we have talked about the repairs is this:
“The mortgage lending requirements are much stricter than they used to be. Buyers are required to make much larger down payments so they don’t have any cash left to make these types of major repairs. If we want to be able to sell this property quickly, we need to make sure everything is done for the new buyer. I want them to understand that my offer will definitely reflect the actual condition of the property.
Am I trying to wear the seller down? That’s not it at all. I am however trying to give them a big dose of reality. In the best case scenario, you will change their expectations and move them over the side of the equation where they have to admit that what they want probably isn’t what they are going to get.
Negotiation is a Lot like Dating
It’s not easy at times! You wouldn’t expect to get to get to the “marriage proposal” after one date. It’s the same way with negotiating a lot of times. It takes a few tries to get it done. There is a lot of conversation, some give and take and then you get the answer you were hoping for.
If you’ve made it this far, the next piece is the offer. But before we move onto that in the next part of this series, I have something for you.
Video – Tips for Talking to Sellers
I made a video a while back with my friend Kelly Payne an investor from Oklahoma where we did a little role playing. We also did that with the different types of sellers we encounter in mind.
Here are 3 common types of sellers-
- The seller that doesn’t answer any of your questions but give you unrelated information instead
- Sellers that give you 1 or 2 word answers; again no real information
- Our favorite; the one that actually tells us what we need to know
We also talk about how to respond to sellers that are unrealistic and what to say to them. So check it out if you get a chance. Kelly is really good at this even though she has the same fears everyone else does when talking to sellers.
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