Have you ever spent more than you should have on a major purchase? If you are looking to buy a rental property or have just purchased one, it’s important to first realize that houses are listed higher than what the sellers expect to receive. Many listing agents do this with the sole purpose of anticipating negotiation or bargaining. Failing to negotiate will cost you for many years to come. If you are not ready to invest in real estate, the best negotiating skills won’t help you – but for those who are ready, you need to know the basics of negotiating. The most skilled negotiator can get everything that s/he wants and make the seller feel like they won the battle.
My Failure in Negotiating
I haven’t always been an expert negotiator when it comes to major purchases. I learned the hard way when I was the seller. My wife (fiance at the time) and I were going to get married two months after graduation from college. We were also getting ready to leave the country for a year. The first mistake I made as a seller was put a short time limit on selling my car. The biggest blunder, however, came much later when the first person came to look at the car.
I had originally listed it for $4000, but didn’t hear anything for 2 weeks. I bumped the price down to $3700, expecting to get more calls. Still nothing. No one called. As a last resort, I dropped the price all the way down to $3000 with about a week before graduation. The car was worth somewhere around $3500, but I had to get rid of it in the next week. This did the trick. I got a few phone calls and set up the first appointment. When the guy came, he test drove the car and started negotiating with me. He offered me $2500. I wouldn’t accept this. With consideration, I then crafted my counter offer at $2750. After a few minutes, he “reluctantly” accepted. I thought I had won the negotiating battle until hours later when I realized how much of a deal he received. He purchased a car for nearly $1000 less than market value. Always remember to stay objective as possible – whether you are the buyer or seller.
Negotiating Tip 1: Start Low
This experience taught me a lot about bartering on major purchases. One of the first steps in buying a rental property at a great deal is asking for more than you expect. This may sound crazy, but it is the best way to enter into negotiation. If you ask for what you expect the seller to accept without any negotiation, you have basically given them free money.
The person who bought my car is a fine example of this. He started lower than what he expected me to accept and this won him nearly 10% of the asking price. The best part about starting low is that when the seller makes a counter offer, it makes them feel like they have won the negotiation. I certainly felt like I won in selling my car because I got him to come up $250 from his original offer.
Get Creative with Your Offer Letter
The only downside to this approach is that sometimes the initial offer will get rejected with no response. Certain sellers will see your low offer and refuse to counter because you have offended them. This may happen from time to time, but it shouldn’t force you into paying more for the rental property. The way to get around this is not to offer more money, but to be creative in writing up the offer. Don’t just negotiate over the total price – bring other items into negotiation. This will help you in more than one way.
For example, let’s say that you find a house that is listed for $90,000. If you are willing to pay$75,000, one option would be to offer $60,000 with the hope that they would counter to split the difference. Offering this low of an amount would almost certainly offend the seller. Instead, why not offer $70,000 and ask the seller to pay $5,000 of closing costs. They probably won’t accept this first offer. However, it is closer to their asking price and provides you with things to give up. If they counter with a higher price, you can always present them with another offer and remove the request to pay for closing costs. This helps the seller to feel like they won the battle.
This is only the beginning of proper negotiation tips. There are many other ways to give yourself the upper hand. Here are other things that you may want to include when writing that offer:
- Major Appliances
- Personal items (lawn mower, gardening tools, etc.)
- Maintenance Fees for a certain length of time (for a condo)
- Certain repairs to be made
You may not care about the lawn mower or washer and dryer, but they are great pieces to give up in later rounds of negotiation in order to convince the seller that they are winning. Next time you want to make an offer on, try to come up with ways to give yourself the advantage in negotiating.