Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Mastering The Art Of Real Estate Negotiations

Written by Paul Esajian

Real estate negotiations are a part of the business everyone needs to be familiar with. In many markets where supply is limited, how well you negotiate will directly determine how successful your business is. There are certain skills and styles that have become synonymous with the best negotiators.

They know when to be aggressive and how to keep the negotiations moving forward. They also understand that sometimes the best thing you can do is walk away. If you can get just a few more deals a year with your negotiating ability, your business will be transformed. The next time you are in the midst of negotiations, remember these real estate negotiation tips:

1. Know when to walk away: Before you get involved in any negotiations, you should have a number in mind for which you want to acquire the property. This should not be based on the asking price or where you think the negotiations will take you. Take the time and come up with your own bottom line number. The hard part is being disciplined enough to know where to draw the line. There are many negotiations that come down to wire, and a few thousand dollars may secure you the property. The problem is that you never know where the bidding will end up. Once you go over your bottom line number, there may be no turning back. Even if you up your price and get the property, you will be putting yourself at a disadvantage. You probably overpaid, and will be forced to cut corners in other areas. Don’t let yourself get involved in these situations.

2. Don’t take it personal: When you are negotiating for a piece of real estate, it is important to consider the end-game. You are not looking to get the property just for the sake of winning the negotiation. Winning or losing a bid should never be taken personally. The listing agent may come back three or four times looking for a higher offer. Instead of getting frustrated and turning it into a personal battle, take a step back and think about what you are doing. By the time the dust settles, you may win the property bidding battle but end up losing the war. The same is the case with auction bidding: instead of having the mindset that you aren’t going to let someone outbid you, focus more on the property. There will always be someone in your local area that you end up butting heads with during negotiations. You will not get every property that you have your eyes on. If you are outbid, don’t take it personally. It is just part of the business.

3. Evaluate risk and reward: There are times in every negotiation that you need to take a step back and evaluate what you are doing. Time is always of the essence on every deal, so you will need to make your decisions rather quickly. You may have to make your evaluation hastily or while you were distracted with something else. Before you commit to changing your offer or something on the contract, think about the risk and reward that come with the property. There reaches a point in every negotiation that the returns of the property are not worth the risk. Once you go over a magic number, the deal no longer looks as attractive as it once did. Instead of moving forward because you think you are committed, consider the return. If it is not what you expected or desired, there is nothing wrong with walking away. The goal is not just to accumulate properties, it is to buy properties that impact your bottom line.

4. Small concessions: Negotiating is not about who wins, it is about the bottom line. Many people need to feel like they are getting the best end of the deal in order to move forward. Whether you are dealing with a lender or a traditional seller, small concessions can help seal the deal. Little things such as small credit or a change in closing date could make all the difference. Try to find the motivation of the other party. Once you know their position, cater your stance on giving them what they want while still making the deal attractive for you. This may cause you to waive concessions or to close in a shorter amount of time than you would like, but it will ultimately be well worth it. Small concessions can have a huge impact.

5. Keep taps on negotiations: Odds are you will negotiate with the same party again in the future. Every time you battle for a property, you should make notes on what worked and what didn’t. Some lenders may want to see their contract structured a certain way. Certain bidders at an auction have a style they use when they really want a property. Taking notes will not guarantee the property, but it may just give you an advantage in the future. It is also important to take notes on the deals you don’t get. It is important to find out where the price ended up, and if there was anything that tipped the scales to the other party. Negotiation is often about who is the most prepared and who knows how to structure the deal best. Keeping tabs on past negotiations will only help you.

There are many little things you can do during negotiations that will help you secure your next deal. The more negotiations you are involved in, the more comfortable you will be.