Are you gearing up to make your first property investment and start your journey as a landlord? Navigating the real estate industry can prove challenging for beginners, but market research and knowledge go a long way in ensuring lucrative and profitable investments. Typically, investors gravitate towards properties that sell below market value.
Investors strive to pay less and build equity with upkeep and maintenance investments. However, despite the increasing transparency and digital savviness, buying reasonably priced properties is becoming more challenging than ever. This is where the art of negotiation comes in to help investors secure the highest returns on their investments.
Negotiating a low price is the best course of action to make lucrative investments that offer a high rate of return. However, many newbie investors struggle with negotiations, and end up losing thousands of dollars on the negotiation table. This article will equip you with some smart tips to brush up your negotiation skills and apply these skills to make profitable investments.
Understanding the Seller
One cannot navigate a new terrain without a map. Similarly, you cannot enter negotiations without a firm grasp on the needs and motivations of the seller. Understanding the seller’s requirements, preferences and motivations will help you present arguments that meet a favorable response.
It’s wise to arrange meetings with the property owner, and if that’s not possible, work on building a rapport with the seller’s agent. During discussions, find out the seller’s reasons behind the property sale, and the factors that have inspired this decision.
For instance, is the seller dreading a foreclosure, or perhaps, the owner wants to move to a bigger property? How long has the seller owned the property, and does he/she harbor any sentimental association with the home?
Understanding these motivations and desires will help you connect with the seller and gain an upper hand during negotiations.
Allow the Seller to Lead Negotiations
Most newbie investors make the mistake of leading negotiations in attempts to convince the sellers and their agents of their seriousness as a buyer. Leading negotiations is a mistake, and it’s wise to let the other party go first. Once the seller makes the first move, it allows clarity on the owner’s goals and demands for the property.
When the seller leads the negotiations with an offer, there’s room to encourage the seller to rethink their offer and reduce the listing price. The seller can return to the negotiation table with a reduced offer, allowing negotiations to tilt in your favor.
Use Emotional Cues
Emotional cues and anchors are powerful weapons to alter and re-frame the property owner’s mindset. You see, the seller will come to the negotiation table with a price range in his/her mind. When you make an offer that is significantly lower than the listing price, you will anchor the seller to reduce their expectations.
Making a lower offer will encourage the property owners to question their assessments and price assumptions. However, avoid insulting the seller with a hideously low offer. As a rule of thumb, it’s wise to make an offer that is around 25% lower than the listing price. Experts advise investors to create a range of emotional cues to avoid pushing the seller into a defensive corner.
For instance, if the property is listed for $150,000, and similar properties in that area have sold for $130,000 to $120,000, you range should reflect the market dynamics. Using a range that is corroborated by market dynamics and research will encourage the seller to acknowledge your offer with a reduced rate.
Offer the Seller Non-Financial Benefits
While the listing price is the most crucial motivation for the seller, there are several other considerations that can help you build a good rapport and negotiation a lucrative deal. However, in order to offer non-financial terms and benefits, you must understand the seller’s aims and goals. Understanding the seller’s needs will offer you a powerful advantage.
For instance, suppose the seller is looking to move into a rental property and is currently struggling to find a suitable home. In that case, you can lead negotiations by offering to rent the property to the seller for a year. This gesture will help the seller stay in the same property, and enjoy the profits without the inconvenience of moving out.
Let’s imagine another scenario where the seller is moving into a bigger house that requires extensive renovation and refurbishment. In that case, you can help the seller by recommending a reliable contractor or renovations expert. Even if the seller doesn’t take up your offer, it will create goodwill that will help you negotiate a good price for the investment.
The Odd Numbers Trick
The odd numbers trick is another powerful negotiation technique that will give you leverage by adding precision to your strategy. Typically, buyers have a habit of rounding up figures to the nearest thousand while putting in an offer. Newbie investors work with the closest $5000 or $10,000 – a mistake that encourages the seller to continue adding more round figures to hike up the price.
It’s wise to approach the seller with an unconventional offer involving odd numbers. It’s a simple trick: instead of offering $150,000, you can make an offer for $148,000. This number carries an air of precision that will disarm and throw the seller off balance. It works like a charm at convincing the property owner of your price limits, discouraging them from demanding further increments.
Creating goodwill with thoughtful gestures, such as a bottle of wine or a dinner, will go a long way at tilting negotiations in your favor. Creating a strong rapport with the seller is a far more effective strategy than pushing the seller into a defensive mindset.
We advise newbie investors to use the illusion of control to create an aura of comfort, even if you’re anxious and perplexed about the outcomes. Seizing control of the negotiation will allow you to capture a stronger foothold, and ask the seller probing questions instead of answering probing questions yourself.