Many investors are concerned about presenting a “low” offer to a seller. It appears that anything less than what the seller “wants” is considered low and buyers are always fearful of presenting that offer. But remember, the seller has a need, a reason to sell, and they are hopeful you will present a solution.
When negotiating, the most important thing to do is listen. Don’t forget, you are attempting to solve a problem for the seller and you must find out what that problem is. They have a need to sell their property and it is rarely about the property itself. Some reasons sellers need to sell include:
- job transfer
- no longer able to make the payments
Its the perfect situation – they need to sell, you buy properties. If the two of you can come to an equitable agreement, you have a contract and you both win.
Some things to keep in mind during your negotiation include:
- As an investor, you are not an end user so you cannot offer as much as someone planning to live in the property.
- You must offer based on your real business numbers, not on emotion. This is, after all, a business transaction.
- You must know how to calculate the property’s after repaired value (ARV) as well as the repair costs it will take to bring the property to that value in order to make a true offer.
Anytime you talk with a seller, you should spend most of your time listening. Your goal is to find out their situation, why they need to sell the property and make an offer that can, hopefully, solve their problem. I always explain to our clients, “I may not have your best solution, but I am ‘a’ solution.”
Once you’ve completed your due diligence and calculated your offer, present your real numbers to the seller in a way that they understand what you can offer and why. Never simply throw out a low number and expect them to understand without being offended. Offering less than the seller is hoping for takes explanation.
- Determine what you can offer and write out the process you used to come to that number. That process becomes your presentation to the seller. For example, start by writing down their asking price. Next, deduct anywhere from three to seven percent (depending upon where you live) as that’s typically how much any retail buyer will deduct from their offer. Very few buyers offer full price and your seller knows that.
- Deduct real estate commission because either they will have to pay that amount to sell or you will have to pay it later when you sell. Remember, these are the calculations of your true costs and how you determine your numbers.
- Deduct all additional expenses you may incur – holding costs, pest inspection, repair/renovation costs, closing costs, etc. – any costs you may realize later when trying to sell the property.
- You may also want to throw in a “reasonable” amount of profit. At the bottom of the page is your final figure, your offer, and you have completely explained how you came up with that number and why.
These points make clear to the seller that you have done your due diligence and have a true reason for these real numbers. Many investors simply throw out low numbers and the seller, understandably, thinks they’re being taken advantage of.
Some of these number are negotiable, but it is imperative to know the maximum you can pay and still make profit. This is truly about your numbers, not the seller’s, if you want to stay in business. If you become overly concerned with the situation the seller is in – a situation by the way, that you did not create – your emotions get in the way and cause you to pay too much for the property. This is why you MUST know the maximum amount you can offer before you begin the negotiations.
If the offer works for both of you, great. If it doesn’t, that’s fine and you walk away as friends but you’ve offered a solution and they understand why you offered that amount. Often, you are the first person to educate the seller as to the true costs of selling their home. They may be disappointed with the offer but, when presented correctly, they understand it.
If you don’t end up buying the house, it’s very likely that the seller will eventually refer you to others because you have shown yourself to be both helpful and trustworthy.
Will this help with your presentations?