How Do You Successfully Negotiate a Real Estate Transaction?

Closing a deal as a real estate investor requires much more than being a smooth-talking salesperson. Being successful at negotiating a real estate transaction is a matter of doing your homework. Every real estate investor should complete this checklist before bringing a deal to the table. Discover below what you need to do to negotiate a real estate transaction successfully.

Real Estate Investing Negotiation Checklist

Homeowners usually think they know what their home is worth. The problem is this number can be based on anything from sentimental value to market stats from the first real estate bubble. To leave the negation table with a price that the seller agrees to and is a positive cash flow producing investment, be sure to complete this checklist.

Recently Sold Data: Bring a detailed list of recently sold comparable properties in the neighborhood of your prospective investment. Instead of just rattling off facts and figures, consider printing out full detail sheets for the homeowner to review. The more local the comps, the better!

Estimated Repairs: While you might not have time for a full inspection, create a go-to list of estimates for common problems. Most homes purchased by investors have deferred maintenance. The homeowner will have lived with the issues for so long they won’t see them anymore. Respectfully addressing issues and needed repairs will help support your offer.

Closing Date: Investors have the benefit of a flexible closing date. Ask what the homeowner needs and adjust your date to meet their request.

Property Status: Do your research and find out why the homeowner is selling. Is there a lien placed on the property, are they in the beginning stages of foreclosure or is it a down market and they want to make a quick sale? By understanding what the seller hopes to gain from the sale of their home you can better adjust your terms.

If you do your homework before you attempt to make a deal with a prospective home seller, you can successfully negotiate your real estate transaction, no matter the market. Selling a home can be an emotional decision for many homeowners. By presenting the logic behind your price in a detailed manner, you can avoid alienating the potential seller. Take “salesmanship” out of the equation and use a business-minded approach to each real estate investment you negotiate.

Creating a System to Get More Offers Accepted

You can benefit from having a system for each of the outcomes that happen when making an offer. Instead of getting the traditional one out of every 25 offers accepted, you could improve that statistic dramatically. Top investors get one out of 6 offers accepted, and some do even better. It is all about taking control. That control starts with understanding what can happen when you make an offer, and it improves dramatically when you develop a standard way of dealing with each possible outcome.

There are five things that can happen when you make an offer. Let’s look at them:

  1. Your offer is accepted.
  2. Your offer is countered.
  3. Your offer is rejected.
  4. Your offer is neglected.
  5. Your offer is not presented in writing or not presented at all by the agent.

You will increase your percentage of closing by having a system for each of these outcomes, as outlined below. Further, practice will also teach you how to increase margins.

Your offer is accepted: Once you have a written acceptance of your offer you should send an email with pictures and a deal analysis to everyone on your buyers list. Then you should follow up with a phone call. If you must leave a message, send a text also. It is amazing how many people will respond to a text that won’t respond to anything else. If this gets your deal sold, great! If your deal is not accepted here, you will want to go to some investment club meetings and drop by some buyers who have money. Never accept mystifying answers from anyone. When they say “no,” find out why. “Too much money for this property? How much is not too much?”

Your offer is countered: You gain control here by using the short time you have wisely. Regardless of what happens, you can resubmit your “same” offer every two weeks. As high as 75% of deals that are completed are on offers that were not originally accepted. If their counter offer is way off from yours, stay firm on your original offer by either countering with the same or something very similar. Resubmit again in two weeks. If they tell you the property is under contract, do everything in your power to be allowed to make a “back up offer.” About 60% of accepted offers by investors don’t close. Stay with it. You may still win.

Your offer is rejected: You already have some level of control here because your seller is communicating. Develop a system to resubmit your offer every two weeks. Set a timeline for trying to get an audience with the seller and/or his agent to go over the reality of the situation in a nice but firm way.

Your offer is neglected: You gain control here by having a system for what you do. Top investors automatically resubmit their offers every two weeks or so just the way they wrote them.

Your offer is not presented in writing or not presented at all by your agent: Ouch! Here you can gain a lot of control by creating an offer template with your agent that gives you what you want, such as the right to assign the offer and a 15-day due diligence inspection clause. Have everything pre-signed and initialed so that your agent only has 4 variables to fill in. Those variables are the date, the seller, the property address, and your offer amount. Since this makes it easier to submit your offers in writing, you will virtually eliminate “phantom offers.”

SUMMARY: Since there are only 5 things that can happen when you make an offer, it’s easy to create an automatic method or system for dealing with each possibility. By doing this, you can improve both the number of offers you get accepted and the profit you make on each one.

Real Estate Investing Due Diligence

As a real estate investor, you will be presented with properties in a variety of financial and physical conditions. Depending on your investment style, location and financial goals, you may be looking for something very different than your fellow investors. No matter what type of property you are looking for, be sure to complete your due diligence before it ends.

Financial Due Diligence

As a real estate investor, you are an investor first and a homebuyer second. While your personal home search was about forming a connection to your future home, an investment property is very different. As an investor, it’s all about the numbers.

When doing your financial due diligence, complete this checklist:

  • Is the price fair? Understand what has sold in the area and for how much.
  • Are there any liens on the property or is the property in the process of foreclosure? Tax liens come with a property, so knowing how much they are before purchasing the property is critical.
  • Does the property have a tenant in place and/or a rental history? If you are purchasing the property as a buy-and-hold investment, you will need to know how much monthly income to expect.
  • Does the property require any specialty insurance? Flood insurance can be a large annual expense.
  • What are the average utility costs and, as a landlord, will you be responsible for any of the utilities?
  • What is the cost to maintain the property?
  • What is the going rate for a property management company?

As you can see, financial due diligence is much more than just getting the best price. Answering these questions will help set any investor up for long-term financial success.

Physical Due Diligence

The physical condition of a property is closely tied to its financial value. No matter how well the numbers from the financial section add up, the physical condition of the investment needs to be accounted for.

Before purchasing an investment property, find out:

  • When the major home systems were last replaced (HVAC, water heater, major appliances, )
  • How many years are left on the roof
  • If there is any structural damage
  • If there is evidence that routine maintenance has been completed
  • If the flooring need to be replaced
  • What year the home is and if you will be dealing with any code violations

To get that new feel to your investment property, new carpet and a coat of fresh paint are recommended. However, as an investor, you need to look out for the big-ticket items that will require cash up front. Taking the condition of these items into account will help you determine your initial investment, as well as your capital investment over the course of owning the property.

Finding the Right Investment Property

Due diligence is a critical element in finding the right real estate investment property. Many “real estate gurus” claim they “go with their gut,” but nothing can replace due diligence! Don’t be tempted by a “too good to be true” price. Complete your due diligence to ensure the property will meet your investment goals.

Inexpensive Repairs for Home Sellers

Before selling a home on the traditional real estate market, many real estate agents recommend home sellers complete repairs. “According to the Real Estate Staging Association, homes that have minor repairs completed before going on the market sell 90% faster.”[1]   Home repairs can quickly become expensive home renovations, if you aren’t careful. Inexpensive home repairs will make ready any home for the sale on the traditional real estate market.

Curb Appeal

You only get one chance to make a first impression! There are so many great inexpensive repairs homeowners can complete to increase curb appeal:

  • Trim back bushes and trees
  • Spread fresh mulch in your flowerbeds
  • Repair any loose stones in your walkway

In addition to yard work, some paint can spruce up your entry and even add perceived value. “In a recent survey conducted by the Real Estate Staging Association, 79% of home staging professionals said that a colorful or statement front door can increase the perceived value of the home.”[2]

A Fresh Coat of Paint

A fresh coat of paint is a great inexpensive way to instantly clean up a home. If you’ve ever watched an episode of House Hunters, you know how prospective buyers can fixate on paint colors. New paint is a great way to make a space neutral and ready for any buyer.

Paint can also update your kitchen. Did you know, some kitchen cabinets can be painted? This task is best left to the professionals but is significantly less expensive than a whole new kitchen.

Weekend Walk Through

If you are handy, this repair can be free! Take a weekend to walk through your home with only basic tools. Check for anything from loose door knobs to broken screens to leaky faucets. While these repairs may seem minor, they all add up. Most buyers don’t want to purchase a project, so complete as many tasks as you can!

Listing a home on the traditional real estate market can be a long (and sometimes costly) process. For this reason many home sellers choose to sell directly to a real estate investor. When selling to an investor there are no repairs to complete; they purchase homes in as-is condition.

 

 

[1] http://www.realestatestagingassociation.com/

[2] http://www.realestatestagingassociation.com/

Seven Ways to Get More When Selling

Nobody likes taking a hit when they go to sell something, especially when it is one of the largest investments of their life. Purchasing real estate is a huge investment and selling it can be an even bigger one. In this article, we will go over seven ways to get more for your home. Hopefully some of these tips will help and you will be able to put them to good use.

 

  1. List for less than market value. This will make your home look highly desirable in a tight market and create some urgency with your buyers. Buyers will act faster because they don’t want to lose out on a deal and this should increase your odds of multiple offers.

 

  1. Brighten up the place. Clean out the windows, open the blinds and turn on the lights. Open concept is what many new home owners are currently looking for, and you can help create some of that simply by making the home look more open and spacious with some light.

 

  1. On that same note, clean out the closets. You can make a home look like it has more storage by removing at least 50% of everything in your closets. This will definitely help sell your home.

 

  1. First impressions are key, so paint the front door. While you are painting your front door, go ahead and install a nice, sturdy doorknob and lock. The fresh coat of paint and new lock will help make the place feel newer and less used. Everyone wants to feel safe at home and putting in that new, sturdy lock can help create that sense of security your buyer is looking for.

 

  1. Clean. Clean. Clean! Dust from the ceiling fans all the way to the floorboards. Don’t forget to pull the weeds and grass growing between the cracks in the driveway as well.

 

  1. Make everything neutral. Yes, the pink nursery looks great for you and your home; however, you are trying to sell it. Since it will no longer be your home, you need to help the buyer feel like it could be theirs. What if they only have boys? Pink might distract from all the other amazing features your home has to offer. A fresh coat of paint in a neutral color can help make a huge difference when it comes to the atmosphere the home brings.

 

  1. Put away the photos. Again, little Suzie is adorable; however, you need the buyers to feel at home and not like they are invading someone else’s home.

 

Now get out there and get the SOLD price you are looking for!

The Importance of Zeroing in on Your Buyer’s Tolerance for Profit

The language of business is numbers. So it is with doing profitable real estate deals. There are three (3) very popular rules for calculating your offer. They are referred to as:

  1. “The 70% Rule:” (Offer equals the ARV (After Repair Value) times 70% less cost of repairs.)
  2. “The 75% Rule:” (Offer equals the ARV (After Repair Value) times 75% less cost of repairs.)
  3. “The 80% Rule:” (Offer equals the ARV (After Repair Value) times 80% less cost of repairs.)

The “80% Rule” offers the least profit. However, it offers much greater likelihood of getting the offer accepted than “the 70% Rule.” What’s exciting is that there are investors who use “the 80% rule” and still make more money on the deal than investors using “the 70% Rule.” You will want to find them.

Regardless of which rule is used, there are closing costs, holding costs, and selling costs. Generally, those costs total 15% and break down like this:

  1. Closing Costs: (3%) Paid to the title company to insure the deed is free of liens or encumbrances.
  2. Holding Costs: (6%) These costs are mostly the costs of borrowing the money to do the deal, but also include taxes, insurance and utilities etc.
  3. Sales Costs: (6%) Usually paid to the realtors who help close the deal.

As a wholesaler, it is critical to find the buyer who will pay the most for the property. Some buyers have their own money. This eliminates most of the holding costs. The same buyer may also have the property already sold or have an agent on board that eliminates their sales costs. The buyer who doesn’t have many holding or sales costs can use the 80% rule and make more profit than another buyer who has borrowing and sales costs but uses the 70% rule.

When we interview buyers, we want to find out their “tolerance for profit.” Do they have money? Are they an agent or do they partner with an agent? Going out to the job sites of successful bidders can help you find those buyers who do rehabs more efficiently and at a lower cost.

Asking this simple question can help you sort out the buyers who should be at the top of your list. “Suppose I have a property you know you can sell quickly for $300,000.00, but it is going to cost you $30,000.00 to rehab. Your ad says you buy houses, where would I have to be pricewise for you to buy this one?”

Simply put, the greater your buyer’s “tolerance for profit,” the more money you will make and the more deals you will do.

Negotiation in Real Estate

You might have heard the expression, “everything in real estate is negotiable,” and it is true! Nearly every part of the purchasing phase of a real estate transaction is negotiable. Understanding more about the negotiation process creates additional options, and confidence increases the chance of getting the outcomes you desire.

Negotiating is the process by which two or more parties with different needs and/or goals work to find a mutually acceptable solution. Because negotiating is a process, each negotiating situation is different and influenced by the process and what compromises are available.  We often look at negotiating as unpleasant because it implies conflict, but negotiating need not be characterized by bad feelings or angry behavior. 

If you do not think you are good at bargaining, just reflect on how much we all negotiate in our daily personal and professional lives.  Everything from when a project is due to when a meeting is scheduled is negotiated. 

Sometimes it is easy to negotiate; however, if there is a great deal at stake or we are anxious about getting a particular property, then it seems more daunting and even difficult. 

Here are several tips to improve your effectiveness in negotiating:

Timing Matters

There are good times to negotiate and times that limit a deal. In real estate, the longer the home has been on the market, the better! If someone has just listed a home, then they are far less likely to negotiate.  Additional considerations include: Does the listing say it must sell fast? Is the home already vacant? Gathering additional data and choosing when to make an offer is critical to your ability to time the offer.

Evaluate the Data 

Negotiation includes doing research and, ultimately, both parties are trying to find a solution acceptable to close a deal. Ideally, one needs to understand the other person’s needs and wants, with respect to the listing. How much did they previously pay for the home? What is the condition of the property? What data do you have about the listing? Is the home vacant?

Remaining Neutral 

It is normal to become emotional during the negotiation process.  However, if one gets more emotional, they are less able to channel their negotiating behavior in a constructive way.  It is important to maintain control and not let pure emotions control the deal. There are also times that the purchaser gets to emotionally attached to a property.

Explore Options

Before entering into a deal, prepare some options that you can suggest if your preferred solution or price is not accepted.  Anticipate why the other person may resist your offer, and be prepared to counter with an alternative.

No Need to Argue  

Negotiating is about finding solutions and arguing is about trying to prove the other person wrong.  When negotiating shifts into an effort to prove the other one wrong, no progress is gained. Do not waste time arguing. If you disagree with something, state your disagreement in a gentle but assertive manner, emphasizing what you want to achieve.

Conclusion    

Negotiating is a complex process; however, it can be mastered. If you focus on what you want to have happen, practice these suggestions and utilize the professionals on your power-team, you will be a strong negotiator and win over the deals you desire.