Home » Blog » The Finer Points of Real Estate Negotiations For Investors
The Finer Points of Real Estate Negotiations For Investors
August 21, 2020
In a competitive real estate marketplace where properties are selling at a premium, how can investors get a leg up on the competition?
Forget closing a phenomenal deal, sometimes merely acquiring a moderately income-generating rental asset can feel like a monumental challenge. No matter how much you feel like you’re struggling to make it in the real estate investment sector, it is possible to jump to the front of the line when it comes to locking in the best deals by learning the finer points of negotiation.
In dynamic and sought-after markets, it’s typically the individual with the most well-polished negotiation skills that ultimately scores the best deals. And in ultra-competitive environments when every advantage—no matter how minuscule—could make all the difference between locking in a deal and losing it to another bidder, knowing how and when to adjust the sales price and eliciting the right concessions can greatly affect your bottom line when it’s all said and done.
Here’s a few bits of tried-and-true negotiation advice to give you the edge the next time you’re looking to lock in the next transaction.
Establish a Hard Line: Emotions often complicate real estate negotiations. It’s easy to get flustered with the nerves associated with landing a hotly contested deal and over-commit financially. To avoid this regrettable scenario, before starting negotiations it is important to set a hard line in terms of exactly how much you plan on spending.
Do Your Homework: How do you come up with a ballpark number of how much you’re willing to pay? Backing up your finances with cold, hard facts by conducting thorough market analysis is key when it comes to scoring the perfect deal. Look at comparable properties (“comps”) and keep an eye out for zoning rights, coveted school districts and other amenities that would make that property a hot commodity on the market.
Have a Purpose: When negotiating a real estate deal, it’s easy to get lost in the overflow of data and numbers and completely neglect the emotional aspect of a transaction. If you’re able to compellingly communicate to the seller why you’re buying the property and your intentions for its future, it can go a long way in humanizing the deal and up the chances of you being successful in your bid.
Face-to-Face: One of the simplest, yet most effective pieces of negotiation advice is to, whenever possible, meet the other party in person. In a busy market where sellers are getting multiple offers, the effort of meeting in-person and putting a face to your offer could make or break the deal in the long run if all other factors are relatively equal.
Understand the Seller: Negotiations are often number-driven, but price is far from the sole factor that is influencing the seller. The majority of sellers want a fast sale because they have to continue shelling out money for mortgage payments if their property languishes on the market; however, this sense of urgency can also be attributed to factors such as a death or illness in the family, a new job, divorce, or a host of other life situations. Knowing the real story as to why the seller is trying to offload their property is an invaluable insight that can assist you in real estate negotiations.
Don’t Cave Too Early: It can be tempting to accept a seller’s initial offer if the terms are favorable but doing so typically gives sellers pause and could derail the transaction altogether. For both sides of the table to feel that they are getting a good deal, there needs to be a certain degree of give-and-take and resistance—if you cave in too early, the seller will figure they sold their property for lower than what it was worth. To avoid this, make an initial offer below the listing price and seek concessions.
In a dog-eat-dog market, knowing how to efficiently and effectively negotiate real estate transactions from start to finish is essential to making it in the business. Inexperienced investors often make the mistake of thinking that money is the single most important variable when it comes to landing a deal and neglect how the finer aspects of emotions and psychology come into play. So next time you’re chasing that big deal, keep these points in mind and give yourself a head start by following these quick and easy tips!
If you are not sure how to get started with buying and flipping homes, we would love to help! Hard money loans make the process a reality for many people, and they can be a great way for you to get started. These can close quickly and finance properties that need extensive rehabilitation before they can be sold. Additionally, they are based on property value instead of buyer creditworthiness, so you may pay a premium interest rate. Using a BRRRR calculator gives you a better idea of how much a hard money loan will cost you, and how much you are likely you make once the entire project is complete. Check out our personalized calculator to help you navigate this process!
The Finer Points of Real Estate Negotiations For Investors | Gauntlet Funding – Melville, NY