Real Estate Negotiation Strategies
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You’re in real estate investment because you see the potential to create wealth and grow your financial portfolio. How much money you make has a lot to do with your real estate negotiation skills. Learning how to negotiate a real estate deal can help you create wider margins when you buy and sell houses in your area, putting more money in your pocket.
Real estate investing is about recognizing the opportunities to turn a sizable profit on any investment and learning how to navigate diverse financial perspectives and expectations with every deal. Chances are, more than half the deals you make with property owners will be met with a little resistance along the way. So, if you want to become a master investor, read below to learn some real estate negotiation tips.
How to Negotiate a Real Estate Deal: The Basics
At its core, a real estate investment negotiation strategy is about effective communication – the give and take of listening and responding appropriately. To successfully negotiate a real estate deal, you need to have these basic skills:
- Be a problem solver.
- Be willing to walk away if the deal doesn’t work out.
- Secure the property with an escalation clause (more on that below).
- Choose every word you say carefully.
- Negotiate real estate deals in person (not over the phone or via email).
- Listen carefully to the other person.
- Stay focused on your goal or desired end result.
Create a Win-Win Scenario
Some of the most skilled negotiators understand that everyone wants to come out of a real estate deal feeling like they’ve won (or at the very least, they don’t want to feel like they’ve lost or been taken advantage of). Creating a win-win situation is perhaps the most powerful form of negotiation because it develops a relationship based on trust instead of a power struggle.
For instance, if you are approaching a burnt-out landlord about a rental property, you can offer to personally handle the current tenants, take care of all closing costs, and even take care of all renovations and repairs. Come to the table with multiple win-win scenarios that can prepare you to address every objection and ease the stress of the landlord. Both parties walk away feeling like they’ve won something.
Learn to Compromise
It is both natural and common to fear compromise. When you compromise, you may feel as though you’ve lost something in the deal. However, compromise can actually give you negotiating leverage and possibly a better deal than you had originally planned.
A successful compromise occurs when you pick your battles. What the negotiables and non-negotiables? For example, you may be able to pay a little more for the property, reschedule the closing date, or be willing to work under the seller’s conditions. Make sure you are aware of the potential areas for compromise before going into the deal. They are different in every scenario.
Have the Courage to Walk Away
Another crucial real estate negotiation skill that you need to develop is knowing when to pull away from the table and walk away. This can be difficult when you are faced with what seems like the perfect real estate investment opportunity. However, you may find that you are unable to negotiate a real estate deal and need to pull out.
Letting the seller know that you can and will walk away if you don’t get what you want conveys that you are a power negotiator. An experienced real estate investor will typically have multiple real estate deals occurring simultaneously. They can walk away from any real estate deal without feeling insecure. Always have more than one deal in the pocket so that you can walk away if the current deal doesn’t work out.
Include a Real Estate Escalation Clause
A real estate escalation clause is a contract that allows you and the seller to escalate any existing offers. The clause is found in the underwriting and indicates that the buyer is willing and able to increase their original offer if a buyer submits a higher offer. A real estate escalation clause is a safety net for prospective buyers if another buyer outbids them.
The escalation clause contains three important pieces of information:
- You, the real estate investor, are serious about purchasing the property.
- A cap that specifies how high you are willing to buy the property.
- How far you are willing to go to outdo any subsequent offers for the property.
An escalation clause can give you peace of mind if you really want the property. However, it can prevent you from overpaying for the property regardless of how much you want it.
Always Negotiate in Person
Regardless of emails, video chat apps, and social media, nothing replaces a face-to-face real estate negotiation. Your willingness to show up and meet with the seller gives you credibility and ensures that everyone is on the same page. In-person meetings cannot be misinterpreted in the same way as an email or phone call.
When meeting with the seller, use affirmative language. Be decisive and direct and do not show signs of doubt or ambiguity. Stay away from negative wording like “not.” Some examples of affirmative language include:
- “The house needs some renovations.”
- “The neighborhood is currently experiencing growth.”
- “I’m sure we can come to an agreement on that issue.”
- “The asking price is a bit high, but I’m sure we can work something out.”
- “I have some ideas on how we can make this deal work.”
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