Real Estate Negotiation – When It All Falls Apart

One thing that is not covered in much depth by many real estate courses is what to do when you just can't reach a deal with a seller. Sometimes, you know that you will not be able to. If they have a pretty house in a nice area, and they are not in financial trouble and understand what they have, your odds of doing a deal on that property are low. This is true no matter how long you follow up with them.

The deals that really hurt are ones that get away where you know that the seller should sell that property to you or another real estate investor. They property may need work. It may be plain ugly, or not be in good enough condition to attract and land a retail owner-occupant type homebuyer. The factors for getting a good deal may be all there-equity, unhappy owner, poor condition, but you can't get it done. The owner may want $100,000 and you know that the most you can pay is $90,000 and neither of you will budge.

In the past, we used to walk away from these real estate deals and move on to the next deal. We were giving away probably 20-30% of our income in doing so. I would invite you to learn from my mistakes and organize your real estate business along the following lines. At the meeting with the seller, whether that be on the phone, or in person, you will ask if that is really the best that they can do. Ask them if that is the only price they will take, and ask if there is no way for you all to do business if you cannot meet that price. This may bring them back into the fold with a lower number. This is a classic negotiation technique know as the “take-away.” They do not want to see the negotiations end any more than you do. They want to sell the home. Telling them that you are a hair away from leaving will inspire them to cut their price if they can.

If that price is the only price they will accept, and we know that we just can't meet it, we now ask the seller what their plans are if they do not sell the property to us. Will they renovate it? Will they list it? Will they make double payments if they are not living in the house, etc.? If they are going to renovate it themselves, just note that this is a lot of work and but that they should be able to raise the price with some work on the property. Generally, whatever they want to do is fine by us. If the house is in foreclosure, and they are going to declare bankruptcy, tell them that they could benefit from the fresh start, but that declaring bankruptcy will not always keep the creditors away from their home. We are not trying to scare them, or make them feel stupid for whatever course of action they are taking. Just tell them that it sounds like they have a plan, and give them a one sentence downside to this course of action, but wish them well.

Never run down the house to try and close the negotiation gap if they are aware of the condition of the property. If they have not been there in 20 years (or live 7 states away), you might want to politely fill them in on the condition of the property, but never run down anyone's home as a rule. If it is a pit, they do not think it is a castle. After wishing them well on whatever their plan is, I promise to stay in touch with them in case they decide to change their mind, or think that I could be of assistance in the future. Tell them that this will be like having a back-up plan. You will be there to help them if they need it in the future.

Write back to them every 2 weeks or so if this is a good deal. Continue to write until they sell it or until they threaten to beat you up with a 2×4 if you send any more mail. Then, get a hard hat and keep mailing! What we found was that we were leaving a great deal of money on the table by not following up. People's needs and circumstances change. A homeowner may insist on $100,000 now, but after seeing no more buyers for several months, he or she may decide that our $90,000 offer was pretty good. Of course, we may be willing to pay only $80,000 now, but who knows!?! You always want to take this approach with properties that are not fit to be sold to an owner occupant in their current condition (ugly dirty thirty type houses) and foreclosures. Especially foreclosures.
To walk you through one that was “saved,” here are the details of an actual deal that we did:

The owner was an elderly man who had owned the property for some years. He found himself in foreclosure due to a loan he placed on the property. He still had a great deal of equity in the property, but we could not persuade him to sell. It wasn't so much of a money problem with our negotiations as his desire not to have to move from the property. Eventually, he started asking about bankruptcy. Numerous investors were trying to get his attention, and just as many bankruptcy attorneys were also soliciting him. In the end, the bankruptcy attorneys did a better sales job on him than I did, and he decided on bankruptcy.

I briefly outlined the pros and cons of bankruptcy for him, but knew that he was sold on it. Trying to convince him to not declare bankruptcy at this point would lose his trust forever. I also knew that he probably would not be able to stay in bankruptcy and make his payments under the plan, so he probably would be right where he was that day within a few months.

I simply told him that he should go for it if that is what he wanted to do. I told him that if he did not declare bankruptcy that he should do business with us, as we could close quickly, give him time to move out, and help him with the actual move. He declared bankruptcy. In follow up communications, we stressed that we were here for him if his case was dismissed from the court, and that we still wanted the house. Regular follow ups resulted in a deal when his case was dismissed because he was not making the minimum plan payments to the court every month. We bought the home before the new notices of foreclosure were even published in the paper. Our competition had gone away by this point, and we were the only game in town. We landed the deal, which was a huge money maker for us after an easy rehab.

Thus the point here is that you must develop a system to stay on top of your leads that did not work out for you on the first shot. This will greatly increase your income without spending more money on prospecting for deals. You leverage more deals from the marketing and efforts that you make. This sounds like simple advice, but hardly anyone is doing it. You just need to do a little more than your competition to be the cream that rises to the top! Happy real estate investing!