The word negotiating elicits very different feelings for different people. It excites some people, while others loathe the thought of it. For me, I very much enjoy it. I love crafting deals and figuring out how to satisfy all parties. You make your money when you buy, and buying right all comes down to your analysis and negotiations.
Perhaps the most critical element of a successful negotiation is doing your homework beforehand and having justification for your offer. If you’re looking at an opportunity that’s in need of rehab, know how much that will cost. Know where you, or any other investor, would want to end. If it’s turnkey at any level, know the going rate for that level of finishes and status of property. In my experience, successful negotiating does not come from simply offering low and hoping for the best. Successful negotiation of a deal comes from trying to find the win-win and having the numbers and analysis to justify your offer.
DON’T WORRY ABOUT OFFENDING THE SELLER
Armed with your numbers and justification, make your offer without personal attachment or concerning yourself with how the other party will take it. The asking price is irrelevant and you cannot worry about “offending” the other party by offering. If the price that makes sense is way below what they are asking, go ahead and offer it. Even if the other party is offended by a super low offer, the absolute worst case scenario is that they say no. That’s not a bad worst case scenario. So why take it upon yourself to write off the possibility of the property? Let that be the decision of the seller. If you can justify your offering price, then offer it and provide your justification!
I have offered as little as 61% of the asking price of a property with my first offer. I ended the negotiations at a 28% discount from the asking price. It would have been easy to just pass by the opportunity by thinking that they would offended by what I would be willing to pay. That there would be no way they would accept my offer. Instead I submitted my offer with my justification for the price. As a result, I got what ended up to be a great deal on a major rehab project. I offered what made sense for the property based on its current state. I did not concern myself with offending the other party with my very low offer. They were actually just happy to receive an offer at all! To this day it is one of my better performing properties. But I had to be able to get it a price that made sense.
KNOW YOUR MARKET AND KNOW YOUR NUMBERS
Finally, don’t go in “looking for a deal” if your analysis shows the asking price is on target. I have offered exactly the seller’s asking price and have even offered above asking price for properties priced well. The numbers supported the asking price (or maybe even more), so I wasn’t concerned about shaving a little more off the deal. If you go in always trying to undercut, regardless of the numbers and analysis, you will likely lose out on great properties and opportunities. Do your homework. Know your numbers. And get a great deal.