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

Real Estate Negotiating (Part 2): The 8 Step Process

Written by Than Merrill

As a real estate investor, you should already be aware of the importance of systems and strategies. Having a proven procedure already in place increases the likelihood of success. Perhaps even more importantly; properly incorporated systems will allow any respective investor to duplicate successful transactions. Having said that, the importance of a real estate negotiating system can never be underestimated. At the very least, negotiating with a seller is one of the most critical junctures of any deal. A good approach will allow both parties to walk away happy and satisfied with what transpired.

Outlined below is an eight-step real estate negotiating system that we have painstakingly put together for your benefit:

Step #1: Understand The Seller’s Needs

Prior to entering into real estate negotiations, you must first understand all of the seller’s personal motivations. The more you are able to learn about their particular motive, the better equipped you will be to meet their expectations. You can’t possibly know what to offer if you are unfamiliar with their needs. Moreover, a comprehensive understanding of the situation will increase the likelihood of landing the deal.

  • Researching The Seller: Prior to negotiating a real estate deal, conduct the appropriate research. For the sake of this real estate negotiating series, I am going to assume you have already researched the property in question. The research I am referring to is directly correlated to the person selling the property. Find out everything you can about the person in question before you actually meet them. More often than not, this can be accomplished by simply preforming a Google search in their name. Perhaps even more informative, however, is the myriad of social media platforms made available to us. In this day in age, information is at our fingertips. Take this opportunity to gauge their interests and perhaps find a commonality between the two of you. Not only will this help you understand the individual, but it can also help you relate on a more personal level. Essentially, negotiating a real estate transaction is much easier when you know a little about the seller.
  • Uncover Emotional Triggers: The real estate industry appeals to a broad spectrum of individuals. Therefore, you are likely to come across someone that is difficult to work with. More often than not, they will refuse to entertain any attempt at real estate negotiating. However, if you are confronted with such a person, not all is lost. Do your best to uncover their “hot buttons.” In other words, find out what is important to this person and use it as leverage to prevent them from walking away or refusing to negotiate. Think of it as keeping their interest.
  • Be An Active Listener: Understanding the seller’s deepest motivations and needs requires an investor to become an active listener. This is perhaps the most important aspect of understanding the expectations of the seller. A good listener will focus the entirety of their attention on the other party. In fact, listening more than you talk will actually give you a strategic advantage throughout the real estate negotiating process. The more you listen, the more the seller will reveal about their needs and motivations. Only once you have done this, can you move forward with the process.
  • Be A Problem Solver: It is safe to assume that a seller is in need of your assistance, particularly if they contact you from a previous marketing endeavor. Extenuating circumstances, beyond their control, are likely forcing them to sell the house. Regardless of their situation, it is your job to assist them through this process. It is in your best interest to immediately diagnose the situation. Find out their current situation by asking specific questions. Why are you selling? When do you need to close? Have you missed any mortgage payments? If they are honest and straightforward, you will know if they are motivated by money or time. Above all else, however, it is important to keep an open ear and to understand the affinity they have for the property. Refrain from asking potentially destructive questions. Focus only on those that will help each party’s endeavors.

Step # 2: Know Your Offer

As an investor, you are entitled to your own opinion. After all, you are a self-employed entrepreneur tasked with generating your own income. It would be counterproductive to question every decision you make. Therefore, have confidence in the path you have chosen and the real estate education you have received up to this point. Take comfort in the fact that you have run the numbers on a particular property. Evaluate the deal and know what you are capable of doing with it.

According to J Scott from BiggerPockets, “95% of all negotiations between experienced negotiators, the one with the most information (pertaining to the negotiation) will walk away with the better outcome. When negotiating, it’s important to know as much as possible, not just about the object of the negotiation, but also about the party you’re negotiating with and their motives.”

More importantly, know where to cut your impending offer. Real estate negotiating requires investors to have a walkaway point. Understand when the deal becomes void of profitability. Come up with an offer and stick to it.

Step # 3: Build A Rapport

The rapport you develop with a seller will serve as the foundation to your real estate negotiating system. Building trust, sincerity, and putting the seller at ease are the building blocks of a well-established rapport. Keep in mind that the seller is inviting a complete stranger into their home. It is your job to transition from a relative unknown to a mutually beneficial partner.

In order to build a strong relationship, most people relate to topics such as family, occupation, or things they do for fun. Ask questions based off of these topics, such as, “What do you do for a living, if you don’t mind me asking?” Asking these kinds of questions allows sellers to open up and talk about themselves. Finding common ground permits real estate negotiating to occur on a personal level.

When you are establishing rapport, it’s important to pace the seller and see how they react to your particular approach to real estate negotiating. Be very mindful of the difference between understanding how the seller likes to be sold and selling the way that you like to sell. Remember that your words, tone, and body language all play a part. If you notice that a certain comfortable selling technique for you is making your seller uncomfortable, try an alternative approach. The key here is to make your seller feel comfortable. You are trying to send a subliminal message that you are on an equal level and you are generally in agreement with them.

The following real estate negotiating tips will help you build a rapport:

  • Get to know your seller
  • Be passionate
  • Be natural
  • Understand your seller
  • Match their personality
  • Be engaging
  • Practice

Step # 4: Ask Open-Ended Questions

Remember, building a rapport with the party in question requires an investor to listen intently. However, simply listening to a seller will either take too long or witness the topic veer entirely off course. With that being said, it is important to drive the conversation in the direction of your goal. Without ruining the integrity of the relationship you are currently building, ask open-ended questions that suggest your intent. For example; ask why they are selling the property. The objective is to get the seller to open up to you and provide them an opportunity to do as much talking as possible. Listen intently and remember every aspect of the conversation, as it will come in handy later in the transaction. Expressing an interest in what the seller has to say will give you instant credibility and build rapport.

Consider using the following open-ended questions:

  • What brought you to the point of selling this house?
  • What are some things that worry you about this process?

Step # 5: Explain How You Can Help

After you have identified the reasoning behind the party’s decision to part with the property, make an effort to show that you care. Remember, to them you are a stranger looking to take their house. It is only reasonable to assume that they would not sell the property if they didn’t have to. Therefore, you have to make yourself likeable in a moment’s notice. Expressing an authentic feeling of care can help to accomplish this. Let them know that you are there to help them find a solution for whatever is burdening them.

Once you know their situation, you can then place an emphasis on their desired outcome. What is it they value and how can you make it happen? Is it time, money, health, or future security? Once you know what it is they are looking for, you can make moves to provide it for them. Real estate negotiating with this value in mind will help you move to close on a deal.

If you have worked with a seller in the past that had a similar property or issue, find a way to mention it in your conversation. Doing so will provide an example of a similar situation that may alleviate some of the seller’s concerns. This shows your credibility as a “solution provider,” and can give the seller a tangible reason to continue negotiations.

What Can You Offer?

Contradictory to what many investors may think, money is not the only thing sellers are looking for. While monetary compensation for their property is a large driving force, there are several intangible aspects that must be considered. Real estate negotiating requires the investor to truly understand the seller and what they want. In addition to fulfilling their wants and needs, real estate investors may want to consider offering the following:

  • Establishing a closing and move-out date
  • Offer to find moving assistance
  • Assist them in finding an alternative living arrangement
  • Debt negotiations

These are just some of the options real estate investors have that can help their seller. They are relatively cost effective and instill a sense of appreciation. Remember, when you go above and beyond your call of duty, you are separating yourself from your competitors. Every little bit helps to keep you on the top of your game.

Step # 6: Present Your Offer

Once you are confident that your hard work has resulted in a fair price, it is time to make an offer. Remember, not until you have familiarized yourself with every aspect of the deal should you make your first offer. You have to know your terms and be crystal clear with regards to what you are willing to give up and receive. What is your bailout number? What price point will you start with? When you don’t have specific benchmarks, your targets will always move, making it nearly impossible to close a deal.

Step # 7: Handle Objections Effectively

When most new investors hear the word “objection,” they become fearful, not knowing what to do. But it’s important to realize that objections from a seller are typically only a lack of understanding. When you encounter seller objections, it’s important to validate their objection, and answer the question in a well-delivered manner. Support your answer again, and move on. The more objections they express, the more value you can add to your deal. You are doing this so that you can eliminate the fear of action that is inevitably there. This is a very important step in the real estate negotiating process.

Step # 8: Close The Deal

In regards to real estate negotiating, there is little that is left to do at this point. Assuming you and the seller have mutually agreed upon a price, the negotiations must have gone according to plan. It is at this moment that you will be made fully aware of the benefits of a proper real estate negotiating process. The very nature of a closed deal implies each party got what they were looking for.