After using your “insider” advantage to find unique properties that possibly no else has viewed, you can next use your “insider” advantage to develop a game plan matching your knowledge of the property to see if it meets your investment goals. All signs point to “go” – now, you just have to actually step on the gas!
In my opinion, this facet of investing in real estate using your “insider” knowledge is the most satisfying and fun. As a real estate agent, you are representing your buyer or both the buyer and seller to negotiate in the client’s best interest. Many times, the negotiations can be adversarial where sometimes there is a winner – other times, a loser.
The most satisfying negotiation for me was when both parties walked away with everything, perhaps even more than they needed! Traditionally, this is called a win-win negotiation. Since I am my own client, I am in a much better position to make that happen, especially with the knowledge and expertise that I gained negotiating for so many buyer clients over the years.
I am well aware that the largest number I am going to be dealing with is the purchase price. There is always the possibility of a better price, but price is not the only determination of value. Sometimes, I can actually get a better price and give the seller more of what they actually need. If you are aware of my other products, you may know that I am all about making a checklist! A checklist may not make you the most skilled negotiator, but you can certainly become a better one by using checklists to force yourself to map out your strategy. Preparing thoroughly is necessary to achieve a win-win situation. The concept of death by analysis can also come into play.
Putting yourself in the owners’ shoes allows you to prepare an offer that meets their needs and exceeds their expectations. To do this, you must find out as much as possible about the seller. Obviously, you have to determine the price and the terms that you want; in fact, determine what the initial offer would be compared to what the highest price is in terms of what you are willing to accept. Thinking like a chess player helps you to determine the steps of the negotiations so that improvements to the offer are done in small steps. These “moves” may result in the highest that you can pay for the property, but along the way you need to know what the seller really needs so that you can offer other items instead of price.
Prior to the negotiations, I used the following list of items to determine what turned the seller “on.” If allowed access, I would try to talk to the real estate agent of the owner and would call previous negotiators of the seller and the owner themselves. The following are the questions and the reasons why I look for the answers to these questions:
How much did they pay for the property?
You can usually find an owner’s purchase price by checking the tax records or deeds in the county records. You should always know how much pressure you are going to receive from an offer; if the offer is close to the original purchase price, the seller may actually be losing money because of the commissions and closing costs they pay. Rather than frustrating the owner, you may want to initially offer a higher price, which would be a “face-saving” price.
What is the balance of all the mortgages and liens?
From the mortgage balance, you will be able to estimate the gross proceeds that the owner will have after settlement. Since the seller will be calculating the number every time an offer is presented, it will be smart for you to look and know how these offers are perceived.
Are there any unrecorded liens or other liens that are undisclosed and need to be paid?
Once again, for the same reason it is smart to know what the seller will be receiving in net proceeds.
After the sale, what does the seller plan to do with the proceeds?
This is a very important question to have answered because sometimes you can actually show the seller faster ways to receive what they are looking to receive. Many times, you can provide a higher interest rate than the investor could receive or you could possibly provide the same or better asset that the seller is looking to acquire with the proceeds. This will also give you an indication as to whether or not different kinds of financing on the property might actually meet the seller’s needs better than institutional financing.
In any previous negotiations that this seller has been involved with, what were his hot points and sticking points?
Many times, if you can find previous negotiators of the seller and ask the listing agent for some insight, you will find that by not approaching hot button situations you may be actually able to endear yourself to the seller. Previous negotiators might be found in the county’s registry of deeds. Once you gain insight into the seller’s negotiating style, you many know exactly what low cost or high value situation might please the seller the most.
Ask questions about the seller’s tax situation, tax bracket, and any other information such as 1031 tax-deferred exchange deadlines.
Many times if you can ask questions about employment and lifestyle, you can make an educated guess about the seller’s income level. Since selling a property without taking tax information into effect can greatly increase someone’s bracket, or at best, be a major taxing event, it might be important to structure or negotiate terms that will best help the seller. Knowing the seller’s amount of depreciation and recapture will also be important. Furthermore, many tax laws governing real estate have numerous deadlines; these items, if met, can actually save the seller tens of thousands of dollars, allowing you to do a better job for the seller while also allow helping you to achieve your goals.
Make a prioritized list of “throw away” items.
These are the selling points that you will negotiate over initially and then concede in an order of importance. This allows you to make many concessions that possibly are not important to you, but they could be important to the seller. It will show your cooperation in trying to achieve the seller’s goals, while leaving the more important items as the last and the hardest things to negotiate away. I write down numerous items that I would like to see included, in order of least important to most important.
Prior to negotiation, determine the following items:
- The initial higher price and terms
- The target price and terms
- The worst price and terms
I do this so that I do not become emotional during negotiations. The only thing emotions will do is cause the seller to dig his heels deeper into the sand, frustrating what the agent is trying to accomplish for both parties. This documentation will help deter the emotional storms that accompany all important negotiations.
As you can see, I spent some time thinking about the negotiation process. Because of my planning, I was usually the best-prepared negotiator at the table.
Being at the table brings up a good point — many times, it will be requested that your offer be done by way of proxy through the listed agent. In my opinion as a trained negotiator, the seller, their own representative, and you should be present at the negotiations, if at all possible! By being present at a negotiation, you can see what bothers the seller and what items are easy concessions. This will allow you to place importance on items that will cause the seller to help you achieve your goals.
Many times with the listing agent acting as a mediator between you and the seller, you will not be able to experience the fine points of the negotiation that will allow you to give wins to the seller, while achieving your goals. Try to always be present during the negotiations. As a real estate agent, I always try to do so for my buyers. Remember, you are your own most important client!
Prior to being able to negotiate a transaction, you will need to know exactly what the terms are. If the existing promissory note is not available for your approval, it might be in the best interest of you and the seller to determine whether or not this lien can be taken over at a favorable rate.
The “loan questionnaire” is the next step in the process. It is sent directly to the lender to allow me to make a better determination regarding the financing. We’re going to save that goodie for tomorrow!
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