6 Keys to Negotiating Real Estate Investment Properties
The purchase and sale processes are critical parts of investing in real estate, especially as your objectives as an investor grow and change. Your changing objectives may lead to the decision to sell existing properties that no longer meet your criteria and/or purchase additional properties that do meet those criteria.
For many investors, the first few transactions can be a lesson in endurance, confidence, and assertiveness. Without the right perspective and an understanding of how to maximize value, you may forgo potential profits. With practice, the process becomes easier, and every transaction becomes a new attempt to negotiate your way to the top. No matter the property on your hands, the local economy, or the attitude of prospective buyers or sellers, you can walk away successful.
With these keys to negotiating real estate investment property sales, however, you can approach every transaction with confidence.
Do Your Research
Ready to throw a For Sale sign in the front yard? Not just yet. Before you list your property and look for buyers, market research is essential. Without a deep dive into the current state of your local economy and real estate market, it will be hard to price your property appropriately and market to the right clientele. Research can also help you time a sale properly; if the season is not ideal or the market in your area is affected by outside circumstances, you may be better off waiting for matters to improve.
Research is similarly necessary as a buyer. If you’re planning to make an offer on a property to add to your existing portfolio, you need to have an idea of what it’s worth and why, the ideal timing for a purchase, and the current state of the market. You don’t need to be a professional property appraiser, but it does help you to understand the features that can affect a property’s value and how you can leverage flaws to your benefit. Prior to reaching out about a listing, do some in-depth analysis to make sure it’s the right opportunity for you.
Don’t Speak First
In a negotiation, speaking first is often a disadvantage. When you’re the first one to name a price or outline requirements, you immediately lose important ground. As a seller, putting everything out on the table can severely diminish your ability to negotiate. When a buyer knows the minimum price you’re looking for, it’s much easier for the buyer to low ball on an offer, resulting in lower profit on your investment.
When you are the buyer, you know your budget and what you’re willing to offer. However, letting a seller know that information can force you into spending your maximum. If you name a price that’s higher than the seller was planning to list, you may be inadvertently ruining a great deal. If you go too low, you may lose out entirely. As the buyer, it’s always critical to proceed with caution.
While someone must speak first, this doesn’t mean it should be you. Yes, holding your tongue can occasionally mean missing out on a great opportunity, but these situations will likely be few and far between. Instead, do your best to build trust with the opposing party, prompting them to give up ground first.
Real estate, despite its value as an investment, is not a rarity. In fact, there are hundreds of millions of properties across the U.S., and at any given time, a good percentage of them are for sale. As such, you need to find a way to help your property or your position as an investor to stand out.
When selling a property, giving a tour of the building or lot is a good start, but it’s not enough. Many real estate opportunities have a lot to offer, so an empty shell can only go so far. To truly attract buyers, you need to create a narrative surrounding why your property is worth the time and effort, including any features that set your property apart from the competition. No matter what unique attributes you may be up against, the right story can sell just about anything.
As an investor, you can create the same kind of excitement. Instead of just telling a seller what you like, tell them why you like it. Use vivid visual imagery to share your intentions, creating a bond centered around the value you see in what the seller has to offer. In addition, you can generate excitement around you as an investor, explaining to the seller why you are the best buyer for the property, for example based on your ability to close the deal quickly.
Bide Your Time
In a real estate transaction, time is extremely important. Seasoned investors know that a proper use of time can be an asset and that finding the right speed is an art form.
Moving too quickly as a buyer expresses excitement and naiveté. It tells a seller that enthusiasm may be clouding good sense, providing a great opportunity for the seller to overstate the price and make a bigger profit on a sale. Conversely, when an investor delays an offer and turns a potential sale into a game of cat and mouse, there’s a risk of breaking trust and ruining the chance at a mutually beneficial deal.
Time matters as a seller, too. Putting on the pressure and pushing a buyer into making an offer too soon raises red flags and can make your potential investor wonder why you’re in such a hurry. Taking too long sends the opposite message; a big delay can imply that you don’t respect the client’s time and that you aren’t interested in receiving an offer.
Stay Cool, Calm, and Collected
Even the best investors can find a tricky transaction stressful and overwhelming, no matter how many successful sales the investor has closed. When you’re eager for an offer, busy considering the value in a suggested price point, or waiting to hear back on a bid you made, there’s no denying how anxiety-ridden real estate can be.
When you approach any transaction, the right attitude is a must. Even the most understated of gestures can make a difference, sending subconscious signals about your intentions. Any emotion, from anxiety to aggression, can subtly change the mood of the other parties to the transaction.
When you approach a sale, whether you’re the buyer or the seller, keeping cool, calm, and collected gives you the best chance at staying in control of the situation. Coming off too nervous, too eager to please, or too enthusiastic about a sale can be off-putting, while remaining brusque and aloof can make it hard to build relationships. Instead, find a balance that conveys trustworthiness, responsibility, and authenticity.
Make Your Case
As an investor, there’s one truth you need to know: every offer is negotiable. Even if a buyer seems completely uninterested in your property or a seller shows no sign of even considering your offer, there’s always another card you can play. While there’s no reason to fight to secure a result that won’t be right for you, a deal that looks promising can easily be pushed in one direction or another.
Unless one party walks away from the table for good, there’s always another avenue to try. Even after papers are drawn up, it’s always possible to create a second draft of a contract, provide a letter of intent, amend prices, or otherwise sweeten the deal. If the beginning stages of the sale were set up properly, you can ensure you’re in a good position to make an undeniable case in your favor. This may mean relinquishing a little ground, but if you held back on your earlier offer, there should be some wiggle room to work with.
Successful real estate negotiation is a skill like any other, and the better you are, the better your results are likely to be. Nothing can take the place of practice and experience, but understanding the key principles of negotiation can certainly make a difference. From spending adequate time on research to knowing how to use your time wisely, the ins and outs of a great transaction can help you take your investment game from good to great.
Scott Clift is a licensed real estate broker with Westpark Equity Group and the private lending division of Westpark Loans. He has been in the real estate industry since 1994. His team of seasoned professionals specialize in providing real estate loans for investors and other self-employed individuals. When you are ready to invest in real estate, call Westpark Loans to secure your financing at (844) 574-LOAN or by visiting westparkloans.com.