Successful Negotiations with Motivated Owners

One of the scariest moments for many real estate investors – for those just getting started and even some experienced investors – is the realization that once a motivated seller is located and they've expressed an interest in possibly selling their property that it will be necessary to sit down in a face-to-face negotiating session with the seller to iron out all of the details of the acquisition and come to an agreement that both parties are happy with.

It's not uncommon for an investor to break out in a cold sweat, to second-guess their base of investing knowledge and sometimes – in very rare occasions – to hide under a table and hum the “Barney Song”.

Since your musical talents probably don't extend beyond occasionally singing in the shower, let's dive into some best practices for successful negotiation. It's easier than you think, and in time, you'll probably come to love these negotiating sessions, because this is where real estate investing moves from vague concept to where the rubber meets the road. Your ability to create scenarios that make it possible to meet the seller's need to sell while giving you what you need, is challenging, invigorating, fun – and profitable!

Dress for Success Without Overdoing It – While you may think that the way you dress is nobody's business but your own, it plays a major role in the way you're perceived by others, and this is critical to your success in real estate. The way you choose to dress for property negotiations depends in part upon whether you've met the seller face to face or you will be meeting them for the first time at the negotiation table.

If you've previously met them, you'll have a pretty good idea of how they dress, which in most cases will shed some light on how you should dress. For instance, if the owner of the property is a professional type, it might not be uncommon for their attire to consist of a suit. In this case, it would be appropriate for you to wear your “Sunday best”.

What if your prospect is a factory worker and you show up in a suit? This is where attire can be a potential deal-breaker. While it would help lend credibility to you with the professional, it could ruin your chances with the factory worker. A factory worker tends to wear more casual clothes and is sometimes distrustful of people that they perceive to be of a different social status.

Not only does it highlight the differences between you, it can conjure up images of company management. To a factory worker, management in many cases is an adversary not to be trusted. Since you can't very well pick up the phone and ask how they plan to dress, you could be flying blind if you've never previously met your prospect. In these cases, the best available solution is to go “business casual” – a happy medium between the two extremes. This is a winning proposition in this situation because a business person more accustomed to the Fortune 500 look will still feel comfortable discussing their needs with someone dressed this way and a factory worker won't feel intimidated by overly dressy attire.

Show Up On Time – While it should go without saying, it's important that you show up on time. You should never arrive more than a few minutes before your appointed meeting time, but you shouldn't be even a few minutes late if it can possibly be avoided. I realize that life happens, and things beyond your control sometimes take place. If you're running more than a few minutes late, be sure to call and let your prospect know that something beyond your control has come up. Ask if you can still come. If they say no, don't force the issue. While it may be difficult to reschedule, you're better off rolling the dice and taking the chance that they won't be available in the future than to risk irritating them and guaranteeing that they won't be nearly as receptive to hearing the details of your offer.

Putting Them at Ease Once you get inside, the “pre-negotiation” warm-up phase can be a critical part of negotiations. By letting your prospect talk about themselves – their family, their job, their property and their reason for selling- you can gain valuable insights into their personality. You can also learn important details that might help you to give them what they want. Here's a prime example of how having a willingness to listen – even when part of the conversation is seemingly completely unrelated to real estate – can lead to good will and amazing profits.

When I first met Mrs. Sanchez, a kindly older lady suffering from renal failure, she had just been released from the hospital after receiving one of her regular kidney dialysis treatments. Due to the severity of her health problems, these treatments were physically exhausting – and she had other unrelated problems that weighed heavily on her health and her outlook for the future.

She shared with me that the triplex which she owned was currently in foreclosure and that it would be just a matter of time before the bank would take the property back and she would be forced to move. Family members who were leaching off Mrs. Sanchez were further complicating matters for Mrs. Sanchez. She had family members living in the rear units of her triplex – and they weren't even bothering to pay her a nominal monthly rent rate. Because of her freeloading relatives, Mrs. Sanchez was about to be kicked into the street by her mortgage company as soon as the foreclosure process played out, and she felt helpless to stop it or to solve her family problems.

Mrs. Sanchez told me that she couldn't' care less if she was able to keep her property; she was seeking a graceful exit from her foreclosure problem and she also expressed a strong desire to get rid of her freeloading relatives, even though she didn't know how she could go about getting rid of them.

It was at this point that I gently steered the conversation back to real estate so that I could explain to her how I could help her to solve her foreclosure problem – as well as her problem with deadbeat relatives who were unwilling to pay their fair share for the privilege of living in her triplex.

Mrs. Sanchez couldn't be happier with the solution that I was able to work out for her. I offered to buy the triplex from her, which rescued her from her impending foreclosure. Because the property was
being sold, her deadbeat relatives had no choice but to make alternative living arrangements – which rescued her from a toxic domestic situation.

She had all of her needs met!

In addition, I was able to give Mrs. Sanchez some cash, which was much better treatment than she could have hoped to receive from her lender if the foreclosure process played out the way she expected that it would. Most importantly, Mrs. Sanchez was able to move into an adorable one bedroom apartment that was comfortable, easily within her price range, and allowed her to concentrate on enjoying the rest of her life free of the negativity and other side issues that were draining her energy and impacting her sense of well-being.

Because I took the time to listen, Mrs. Sanchez was able to choreograph her needs to me and I was able to devise a strategy that solved her problems and also rewarded me with a property that I was able to renovate and resell quickly.

The profits I realized from that one deal allowed me to fill my pockets with more cash than I earned in a full year of back-breaking labor working for the telephone company! Wow!

I learned a key lesson that day that I've never forgotten: Always be willing to listen because real profits can be found buried in the midst of truly heartbreaking situations. By listening, you can solve these problems – while turning a tremendous profit!

Visually Inspect Property – It's also important that you take a walk-through of their property and that you look carefully for physical defects or negative aspects of the property that will lend credibility to a lower offer than they might be hoping to receive.

Active Negotiations – One of the most important things you need to do when negotiating with the seller is to remember that almost everything you may have seen in a movie or on a television show about negotiating is bogus. Negotiating is NOT a matter of dictating terms, waging war, or taking prisoners. If your negotiations reach a point where you have a true impasse, one of three things MUST happen:

• You have to give in to the seller
• The seller has to give in to you
• You need to step away, regroup, and try again later

The most effective way of successfully achieving your goals is to take control of the negotiations from the beginning – and then sell the prospect on why your offer is the most practical and sensible solution to their current problem.

A secret negotiating technique that causes beginning investors to lose profitable deals is not knowing when to stop talking and when to start listening. Once you've made and explained your offer to the seller, you may hear an awkward silence while the seller digests what you have just said. Many investors interpret this silence as an objection – and immediately start talking or defending their position.

Instead, relax, and be quiet. Bite your tongue if you have to, count sheep, silently recite the Gettysburg Address – do anything. But don't say anything. He who speaks first usually looses!

In radio, silence is deadly, because radio listeners will tune in to a competing radio station. In real estate negotiating sessions, this profitable pause can make you rich. Your prospect, who probably doesn't negotiate regularly, will be just as nervous as you are with silence.

Frequently, this pregnant pause will result in your prospect saying, “OK” – or coming back with a counter-proposal more to their liking.

Once you have a deal, it's critical that you get the necessary paperwork signed as quickly as possible without seeming to rush the seller. While you want to get the paperwork signed so that you have the satisfaction of knowing that you have a deal, in rare occasions the seller may refuse to sign until they've had a trusted adviser review it. While there is a risk of losing the deal if this happens, it's more important that your seller have confidence in the deal, your honesty, and your integrity.

If They Feel Overly Hesitant to Sign – or they mention having a drug problem, or a mental infirmity, your best bet is to recommend that they have an adviser review the deal with you. The reason for this is because if you don't, you could be laying the groundwork for a lawsuit, and a judge could invalidate your deal.

Once the paperwork is signed, some real estate investors will want to stick around and shoot the breeze or otherwise delay parting. This isn't wise or prudent, because some sellers will be stricken with last second doubts about whether they are making a wise decision. These doubts are a normal part of the process, but if you are still there, they may decide to invalidate your agreement. Since that is counterproductive to a profitable real estate deal, you want to avoid this at all cost. Smile, shake hands, and make a graceful exit. And wait until you are safely down the street in your car to pat yourself on the back and compliment yourself on a job well done.

A final point to remember is that negotiations are fluid events that require you to have the ability to think quickly and respond immediately to ever-changing prices and terms. By practicing relentlessly with people you know, with a variety of different scenarios, you will increase the likelihood that you will be able to twist and bend with the situation.

Don't be nervous – this is what real estate investing is all about!You may initially feel challenged by a lack of negotiating experience, but don't let that stop you. Make offers and get into the game now so you can get up to speed more quickly and you can begin inking profitable real estate deals.