Everything You Need To Know About The Psychology Of Real Estate Negotiation

Key Takeaways

  • Understanding a seller’s psyche and rationale behind all of his or her business negotiations will be your key to success when attempting to close a deal.
  • The most skillful investors create “win-win” scenarios for all parties involved in the real estate negotiation process.
  • Time and information are two real estate negotiation pressure points investors should employ if they want to close a deal in their favor.

Have you ever asked yourself “how can I become a better negotiator?” If yes, you’re in luck, because the answer is simple: all you need to successfully negotiate on the same level as the most successful investors is to learn the psyche and rationale behind all business negotiations.

The psychology of real estate negotiation sounds like a complicated theory conjured up by scientists at Harvard, but I digress. In reality, it’s a relatively easy concept to grasp once you understand the true meaning of the word negotiation.

Mary P. Rowe, an ombudsman at MIT, defines negotiation as “all interactions between two or more points of view.” When you think about the psychology behind real estate negotiation, it really means learning how to navigate through diverse perspectives and expectations. Still seem a little confusing? Fortunately, for my sake and for yours, this relatively complex topic can be broken up into easier to digest parts. Let me explain.

The Psychology Of Real Estate Negotiation: The Art Of Closing Deals

closing deals

Okay investors, the bell has rung, signaling the official start to The Psychology of Real Estate Negotiation 101. Take out your textbooks and let’s begin.

You don’t have to be an expert investor to learn the art of real estate negotiation. Whether you’re new to the field or a seasoned player, practicing different negotiation strategies will help you close more deals and make more money. The most skillful negotiators are those who create win win scenarios for both parties in the equation. They, for example, would acquire an investment property for the low price they wanted while keeping the sellers equally happy by offering to cover say, moving costs (a small expense for the investor, but a large gesture for the seller).

In fact, smart investors never negotiate over just one issue; they have topics in their queue ready to go, so that at the end of the day, everyone gets a little bit of what they want.

The next key to successful negotiating is compromise. Challenge yourself to walk away with a great deal, while — at the same time — making the person you’re negotiating with feel like they’re walking away with a great deal, too. Nothing will feel better than knocking $5,000 off the sale price of a home after spending a short time negotiating with a seller. I mean, saving $5,000 is basically the same as making $5,000; right? If you can save yourself a few thousand dollars on a property after a one hour meeting, you could argue you’re making a few thousand dollars an hour.

Lastly, you must be prepared to walk away from the deal (arguably the most crucial key to negotiation success). You might be in love with the property, it might check off every box on your list of criteria, you might even call it your dream investment, but you can’t show your hand in a real estate negotiation or the seller could call your bluff. If you truly want to become a power negotiator, you must be able to convey to the seller that you will walk away if you don’t get what you want.

One way to combat “losing your cool” in front of a seller is to check out other investment properties beforehand; those you could potentially fall back on. While plan B’s may not be as flawless as your first plan, it’s always a good idea to have one on hand.

The Psychology Of Real Estate Negotiation: 3 Must-Know Negotiation Pressure Points

real estate negotiation

Now that you’ve passed The Psychology of Real Estate Negotiation 101, it’s time to move on to course 202, where we will discuss three must-know negotiation pressure points that will help you seal the deal.

If you’re unfamiliar with the term “negotiation pressure point,” just look at it as different topics of conversation where you should spend extra time. So, without further adieu, commit these pressure points to your memory:

Time: Have you ever asked your boss for a day off just as they were heading home for the weekend or rushing out to an important meeting? Did it work? If so, you (perhaps subconsciously) extorted the “time” pressure point.

Under the pressure of time, people become more flexible. If a seller is motivated to sell fast, for whatever reason, you will be more likely to receive the deal you want. Some examples of time pressure points include, but are not limited to:

  • When a homeowner is nearing foreclosure.
  • When a homeowner is underwater on their mortgage.
  • When a homeowner is relocating to a new job.
  • When a homeowner is closing on another property.
  • When a homeowner is going through a probate case.
  • When a homeowner is tax delinquent.

That is just the short list of reasons why a seller could be motivated. It is up to you, as the investor, to pinpoint those stressors and use them to your advantage.

Another way to gain the upper hand with this pressure point is to spend a decent amount of your time with the seller. Did they attend your alma mater? Are they interested in similar hobbies? Do your wives play in the same bowling league?

Find a commonality between you and your negotiation competitor and bond over it. In addition to building an authentic relationship with the seller, spend time asking questions. In what year was the house built? What is the area of the attic crawl space? When was the last time the house was tented for termites? Walk around the property with a pen in hand and write down anything and everything you see. At the end of the day, you will have spent so much time with the seller, he or she will start to think, “I can’t come away from this deal with nothing after spending so much time with this potential buyer.” Once you have your seller feeling like this, there will be no term you can’t negotiate.

Time is an investor’s most powerful asset. Use it wisely.

Information: In any business negotiation, the side with the most information will triumph. The more information you have or can learn about the property and the seller, the more you will be able to uncover the seller’s motivation. Most of the time, it will be necessary to ask the seller tough questions in a direct manner. There’s no reason to tiptoe around issues like whether or not there are back taxes owed on the property or the foundation problems that haven’t been fixed. If the seller refuses to answer these “tough” questions, you are still receiving valuable information (chances are if they refuse to answer, there’s probably an issues somewhere).

Talk to neighbors, talk to other investors in the market, talk to your real estate broker, talk to anyone who might offer up a tip or two about the property you couldn’t get answered from the seller. No information is bad information when used correctly – keep that tip in mind when utilizing this pressure point.

The psychology of real estate negotiation is an art form to be studied. However, if you want those low-ball offers to be accepted more often than not, understanding these basic negotiation strategies are a must.

Have you ever engaged in a fiery real estate negotiation that resulted in your favor? If so, be part of our conversation, and tell us your secrets on how you closed the deal in the comments below:

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