Whether you’re purchasing a home for yourself and your family or are looking to expand your real estate portfolio, you must keep a firm budget in mind. Unfortunately, due to the current seller’s market, it can be hard to find good deals on properties and forget about negotiating the price. There are still a few ways to get fantastic deals, though, where negotiating a property’s sale price is still an option. But how can you find these deals?
To increase your potential for negotiating in a seller’s market like this, it’s best to go off-market and find motivated sellers who aren’t interested in keeping up with maintaining the home. Then, find their true motivation for selling and have them negotiate against themselves until you get to their rock-bottom price.
That’s just a quick summary; there’s much more nuance to it. So let’s discuss how to find these off-market properties, what to say to the owners, and my tricks for getting to their rock-bottom price as quickly as possible.
What Type of Real Estate Deals Involve No Negotiation?
Before we dive in, let’s discuss the times where you absolutely have no ability to negotiate a price. Those are at public and private auctions. The highest bidder gets the house in these deals, and once you’re the high bidder, there isn’t any going back. So your only option is to set a firm price you won’t go over and stick to it.
How to Find a Good Deal on a House
Finding a “good” deal in the real estate market today can be difficult. Right now, we’re in what’s known as a “seller’s market.” If you’re unfamiliar, a seller’s market is when the number of potential real estate buyers is higher than the inventory of homes for sale. As a result, buyers will often end up in bidding wars while the seller sits back and watches the bid offers blow past their original asking price.
But not all hope is lost! No matter if you’re looking to buy for yourself or as a real estate investment, there is still one tried-and-true way of finding hidden gems in the marketplace.
Here’s my trick: I avoid the MLS as much as possible. Instead, to find better real estate deals, I look for opportunities with motivated sellers. To me, a motivated seller is someone who has equity in a property and a reason to sell.
There could be a number of reasons someone might be convinced to sell, but if I want an easy real estate purchase, I look for properties in some state of disrepair. In my experience, homes that are not being actively listed on the MLS and look to be, let’s say, less-than-loved are the sweet spot.
These sorts of properties usually have an owner who has neither the time, money, or inclination to fix up the home. It could be that they’re in over their heads with the amount of work needed, a burnt-out landlord, a couple going through a divorce and letting the house take the hit, or any number of reasons.
But regardless of their situation, what the home’s state is telling me is that: most likely, they’d be willing to sell at a discount just to get rid of the thing.
That’s where I come in.
Steps to Negotiating A Property Sale Price
So what happens when I find this hidden gem of a property? First, I’ll reach out to the owners with my standard script, which I’ve discussed in a few other blog posts. Then, once I know I’ve piqued their curiosity, I follow these steps:
Step 1: Make a Relationship with the Seller. The best way to get the seller on your side is to understand what their needs are. What is the motivation behind why they would sell off this property to you today and not wait for a better offer later?
Often this involves what I call “peeling the onion layers.” The true motivation for why they’d want to unload this home onto someone else is rarely on the surface; you’re going to need to dig deeper.
To get to the true motivation, I’ll usually focus on asking open-ended questions (questions that require more than a “yes” or “no” answer) to get to the root cause.
Here’s a perfect example: Let’s say you reach out to a homeowner who’s interested in what you have to say. Maybe they haven’t considered selling the home just yet, but your proposal feels a little lucky and is worth hearing out.
It’s true; they haven’t been keeping up with the maintenance of the home because it feels like a whole thing right now. You see, they’ve been stressed lately and have had to focus their attention elsewhere. The truth is, they’re in the process of divorcing their spouse with whom they bought this house, and it’s just too painful for them to take in, so they let it go.
Now here you are with an offer to remove this giant symbol of their pain so they can move on. Maybe it really is time for them to let it go.
One thing I want to mention: this is not about being manipulative. While I, as an investor, want the best price possible, I’m not interested in getting it by coercing someone into selling if they aren’t ready yet. Instead, this is about active listening. Active listening is a method therapists use that involves asking questions that get to the root cause. While I’m not suggesting you become their psychoanalyst (please don’t), it’s an excellent skill to have when you’re dealing with someone who might not be fully transparent about their reasons.
Step 2: Structure a Deal that Works for Them
Once you get to the root cause of why they’d be willing to sell, it’s time to move onto the price. Step 1 is so important because it puts you in a position to move from “suspicious investor who called me out of the blue” into “someone who can solve my problem.”
When structuring your deal with them, do not act like a salesperson as that will make them put up a wall immediately. Instead, act as a problem solver. To do this, you’ll have to understand their needs and then ask them what they would like to see in an offer.
That might sound like the ball is totally in their court, but it’s quite the opposite if you do it right. For instance, after I ask, “what amount would you consider reasonable?” I shut up. If I can get the seller to negotiate against themselves rather than me, it saves a ton of back and forth and gets me to their bottom price.
Let’s say I ask a seller what they feel a fair price would be, and they come back with $150,000. It doesn’t matter if that is $50,000 or even $100,000 less than what they could get on the marketplace. No matter what the number they throw down is, I’ll always respond with a surprised look. “Oh wow, really? Hmmm…”
Then I’ll take some time and come back with, “Is that the very best you can do?” This is where they begin to negotiate with themselves. So here’s what happens: they’ll either come back with a lower number, or they’ll say, “Yes, that’s the best I can do.”
I keep him-hawing and asking if that’s the best price until we get to “Yes, that is the best price.” That’s it. That’s my whole negotiation strategy. But, again, I want to reiterate that this method is not about manipulation or kicking someone when they’re down. It’s about getting them to the lowest price they’re comfortable receiving without me having to feel around in the dark to find it.
Something to Keep In Mind During Real Estate Negotiations
Real estate deals with homeowners can be an emotional experience. Remember that your gain in some way is their loss, and it’s important to respect that. You’ve most likely spent time with this seller learning about their motivations for selling which are most likely due to some hardship.
While you’re a business owner, you’re also a human. A successful transaction will most likely involve balancing your empathy and your business acumen. Don’t let the scales swing too far in either direction.
If you’re looking for wiggle room in asking prices, it’s best to avoid the MLS and real estate auctions. Instead, try driving for dollars to find hidden gems in your area and then use the steps above to help close the deal. Remember that the effort put into working with the owner instead of against other buyers is well worth it for your budget.
Do you have any other tips for successful negotiation tactics? Leave a comment and let us know.