In a perfect world, prospective sellers that contact you would be more than eager to sell at your price, and as quickly as possible. However, this scenario is much more of a fantasy than reality. How you negotiate with sellers is often what separates a successful investor from one who is left scratching their head wondering why they don’t have more deals. There is a certain art in getting what you want while simultaneously making the seller feel they got the better end of the deal. If you are not putting as much emphasis on turning leads into actual deals by negotiating with the seller, you may be leaving plenty of deals on the table.
The first rule with any negotiation is to make the other party appear that they gained something of value. In working with distressed sellers, they really are gaining value by avoiding foreclosure and wiping away any deficiency. Since they are underwater, they are not as concerned in walking away with money, but rather operating in a time-frame that works for them. Anything they can get out of the deal would be a bonus, and anything you can do is viewed as a plus. Sometimes you will have to offer a monetary concession to expedite the sales process or allow them to stay until the school year. If the seller feels happy with the negotiation, they will be much more likely to sell to you.
Any good negotiator will start by trying to find out exactly what the other parties goal for the transaction is. When working with sellers, this should be no different. In your first few interactions you should be much more focused on their goals and desires than telling the seller what you can do. Unless they ask, they probably aren’t interested in what you can do with the property after you take ownership or how difficult the process is for you. The seller is poised to lose their house, damage their credit and uproot their family. They aren’t interested in what you have to do, rather only what you can do for them. The more you know about what they want, the better you can tailor your offer to them. If your seller wants more time in the house, you should focus on getting them the time they need. If they are interested in getting something from the bank or from you to help them move out, you can consider offering monetary compensation. If you know their goals and what they truly want out of the deal, you already have a huge leg up on your competition.
Even though the seller may want something, it doesn’t mean they can, or will, get it. This requires a delicate balance of keeping the reality of the situation in mind with the seller while not beating them down. If they want to live in the house for six months – but the foreclosure date is in two – there may be ways to extend the process, but probably not for the full six months. Here is where you need to tell them exactly what they can and cannot expect in a way that will keep them working with you. It is important to keep their situation in mind and always try to do right by the seller. If there is a way to keep them in the house for an extra month by doing so, you greatly increase the chances of them wanting to sell to you. If you just try to push the process along and they feel they are not being given all their options, they will look around for other investors and not want to work with you. Deals are always time sensitive, but it is better to wait a month or two than to try to rush a deal and lose the seller.
Always reiterate what the seller is getting out of the transaction, but be ready to answer what is in it for you as well. You can stress the facts that they are getting a clean start, avoiding foreclosure and possibly getting a few dollars to use as a deposit on their next living arrangement. Some sellers are only interested in what you intend to do with the property and won’t sell to just any investor. There is no reason to avoid this if asked. By telling them that you are taking a risk on their property and what you intend to do with the house, you will come across much better than by avoiding the question. Even distressed sellers want to feel comfortable with who they are selling to. The rapport you develop with your seller can be the deciding factor in them wanting to work with you or not.
If you feel you are close to a deal, you need to push the transaction towards a contract and eventually a closing. This doesn’t mean being pushy, but you do need to set firm dates. The more deals you are involved in, the better feel you will get when a seller is bluffing and when their bottom line is really their bottom line. As much as you like someone or like the property, you need to have your own magic number that you walk away from the deal. If you are firm in your number or your concessions, you will find that more often than not you will get what you want. Negotiating is not easy for everyone, but once you can master it, you will find yourself with many more deals.