The difference between a great investment and one that’s just okay is often how well you did at the negotiating table. Negotiations encompass much more strategy and nuance than many people imagine.
Achieving the best deal is about more than haggling over price or finding a low-cost real estate broker. The best negotiators use high-level knowledge of the market, the counsel of experts, subtle communication strategies, and time-tested hardball negotiating techniques to gain a lot of little edges that, in the end, add up to a great deal.
So what are these advanced negotiating techniques? Read on for our nine best negotiation tips for seasoned real estate investors.
Understand the property — and the market
Novices check a property’s value on Zillow and go from there. But taking a more granular approach can give you valuable leverage in a negotiation.
Maybe the home has an HVAC system that’s halfway through its lifespan, or has once-trendy features like an open floor plan that may soon go out of fashion. Maybe the market’s inflated to a degree that’s historically unsustainable. How much have similar properties sold for recently, and how are mortgage rates affecting the pool of buyers? How much housing supply is coming onto that market in the next year or two, and how much will that affect appreciation?
Letting the other side know that you’re thinking about these potential issues can change the entire complexion of a negotiation, turning that hot property into a possible money pit that’s potentially losing value by the day.
Figure out the other party’s motivations
What does the other side want and need out of the transaction? Understanding the answer to this question can help formulate the most advantageous negotiation strategy. Maybe they inherited the property and just want to dump it and get out of town.
On the other hand, maybe they’re financing their next investment with the proceeds from the sale, so they need to squeeze every last dollar out of it. Or maybe they’re on the clock for a 1031 exchange. If you know the pressures and desires of the other side, you can start shaping your offers to meet or counteract them.
Everything is negotiable — so negotiate everything
Don’t get too fixated on price. The truth is that price can be pretty inflexible, especially in a seller’s market. But everything else can be haggled over — contingencies, closing costs, the closing date, the home warranty, the real estate agent commission, and a lot of other small items that can add up fast.
Are there repairs you’d like them to do before the sale is finalized? Are there appliances or furniture you’d like them to throw in? Remember, everything’s on the table, so don’t be afraid to look for advantages wherever you can find them.
Always be willing to walk away
This is one of the most basic, but often overlooked, principles of negotiation. If the other party knows that you’re determined to arrive at a deal eventually, they also know that it’s just a matter of finding an acceptable compromise between your two starting positions — that the negotiation is essentially just a game of tug of war.
But if you’re truly prepared to walk away from the negotiation table, this sends the message that a deal isn’t a foregone conclusion — and that, unless you come to acceptable terms, you’re comfortable passing on the deal.
How do you let them know you’re willing to walk away? Sometimes the only way is to actually walk away from the table — and wait for them to call you. If this approach is a little too dramatic for you, you can also let them know you’re looking at other specific investment properties, and that you’re perfectly happy to fall back on one of them, if necessary.
Assemble a team of expert counselors
As you progress on your path as a real estate investor, you’ll want to cultivate relationships with experts you meet along the way — real estate agents, property managers, financing specialists, contractors, home inspectors, and real estate attorneys. All of these people can provide a unique and valuable perspective on a property and its future prospects.
Advice from experienced professionals is much more useful than general rules like “the 50% rule,” and is helpful when it comes to shaping your negotiation strategy.
Negotiate face to face
In the smartphone era, we all know how impersonal and muddled communication can get over text message or email. When you lose body language, tone, and intonation, your communication loses a lot of vitality and coherence — and as a negotiator, your powers of negotiation lose a lot of their traction.
Try to conduct your negotiations in person, face to face. Not only will you avoid so much potential miscommunication and confusion, but it’ll be much easier to exert subtle pressures and methods of persuasion.
If you or the other party is too busy to meet face to face, try to at least hop on Zoom or the phone. Hearing a voice or seeing a face is much preferable to the cold brusqueness of written communication.
Control your emotions, whether they’re positive or negative
Maintain an even keel at the negotiating table. If you’re looking at your dream investment property, the first one that’s met your exacting standards in years, keep that to yourself.
By the same token, if you feel that the other party is asking for way too much — and making wild, uninformed assertions — resist the impulse to express your frustration. In both cases, expressing your feelings could substantially damage your negotiating position and hand the other side a decisive advantage.
Don’t speak more than necessary
The party that speaks first generally gives up an advantage. Let the other side lay out their demands and reveal their motives before you formulate a response. You’ll usually be able to glean quite a bit of intelligence about how the other party views their own position from their initial offer.
Be patient, and don’t speak until you’re ready. Silence itself can be a great negotiating tactic, especially if it leads the other side to panic and second-guess themselves.
Drive a hard bargain — but not too hard
Using every advantage and negotiating every last point may be helpful in some contexts, but in the end, don’t insist on a “scorched earth” approach. Extracting that last tiny concession isn’t a matter of life and death, and you may end up working with a lot of these people in a future deal.
Coming off as a difficult, ruthless negotiator who’s incapable of compromising can be a serious hindrance to other collaborative projects down the line.