The Art of Negotiating in Real Estate

April 26, 2009 by  
Filed under Real Estate Investing

Investing in real estate requires negotiation skills that most people don’t inherently possess. This stage of a sale or purchase is perhaps the most difficult, especially if financing is already in place. As an investor, you should expect immediately to never receive absolutely everything you want in a deal at the price you want to pay.

The basic requirement to negotiate any situation is an arsenal of information. In real estate, this requires knowledge of property law, the local housing market, and the current status of the seller.

Is the seller currently in foreclosure proceedings and eager to rid themselves of the property to avoid legal action? Are they recently divorced and need to sell quickly? Do they seem eager to finish the deal when you have contact with them?

Other important information you should arm yourself with is how long the house has been listed on the market, whether payments are current, if the seller is over their head in debt balances, and what other, if any, offers have been made on the property.

This information obviously can’t be asked outright, but you can gradually pull information from the seller in bits and pieces over several conversations. Simply ask why the home has been on the market so long – do they offer any information? If they tell you that all offers they’ve received have been too low, you can bet they are being unreasonable and won’t negotiate the price very much.

Take note of the condition of surrounding properties in the same area, and determine where the property in question really stands. Research recent sales in the last two years to see if the asking price is ridiculous or fair for the state of the property. Is there a trend of foreclosed or otherwise empty homes in the neighborhood? Are prices falling quickly? If so, this may be a clue that the area is on its way downhill, and this is never a good investment!

In order to be successful during negotiations, make sure your side of the table is in order. Secure all home mortgage financing loans with a pre-approval letter from your bank. Money always talks, and this is a great tool when bargaining chips start flying!

When offering a price, take all of your information and offer a fair price for the property. Allow yourself some room to negotiate closing and other costs as well. These may include agent commissions, bank origination fees or ‘points’, title insurance and search, and inspections. You may also want to make an initial offer and wait for a reaction from the seller to determine if you may be too low; perhaps you can then offer a higher price in exchange for a new roof or other repair that’s needed.

Choose a purchase price for the agreement that is not a rounded-off number. Instead, calculate a percentage of the full asking price. For example offering 123,000 and 123,400 on the same property are very different. The seller may wonder if there is special information you are privy to, or quickly agree to it. On your end, it’s only a difference of $400, but to a troubled buyer that’s a great deal of cash!

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