There are a lot of questions and concerns regarding how to present an offer to a seller. As real estate investors, we usually present these offers ourselves rather than using real estate agents, so it’s important that you learn how to negotiate and how to be confident when presenting.
I’ve written in the past about negotiating with a seller. But before you present the offer, what you need to know above all else is the maximum you can pay for it!
In order to come up with that maximum number, what you need to know is:
- the true value of the property
- the cost of repairs
- your costs to hold and/or sell the property
all of which will allow you to calculate how much you can pay for it.
Once you know the amount you can pay for the property, that’s the amount you can’t go above. So when negotiating, there is absolutely NO reason to be concerned with the seller’s equity position, how much the seller owes. You cannot allow that number to impact what you offer AT ALL.
Now, don’t get me wrong, it’s very important to listen to all the seller has to say. It’s important to build a relationship with the client as they share their situation and you work to craft a solution to their problem. But their problems can’t become yours. You want to help them out, certainly, but you can’t let their needs raise your offer price. Your offer is based only on the maximum amount you can pay.
When it turns out that they owe more than what you can offer, and it often does, that is a situation they have created and that they have to deal with, not you. If you want to stay successful, you can only offer what your numbers work out to, which is why you must know the maximum you can offer before you begin the negotiating process.
What may surprise you is that many people accept offers far less than what they owe. They eventually find all manner of ways to come up with the funds needed in order to sell. Don’t believe me? Contact any closing attorney and ask how often the seller brings money to the closing table. It’s not uncommon.
So, don’t think for the seller. Don’t ever “assume” you understand their position, or what they can do about it, or what they are willing to do about it, or what they already knew they’d have to do before you even showed up. In fact, when determining your offer, don’t think about their needs at all. Focus only on your own realities – your true numbers as laid out in paragraph 2 above – and stick with that. If it works for both parties, you have a deal. If it doesn’t work, you part as friends and move on to your next offer.
You always want to help the seller but most times you can’t. Don’t get emotional about your offer; this is a business. There are plenty of people out there that you can help so don’t let one property take you out of the business.