Negotiating is one of the many skills you need to develop to be a successful real estate wholesaler, even if you plan to move on to other real estate investing strategies. Many people have the misconception that being a strong negotiator means you have to take advantage of the other person. I'm going to show you why that's not true and how you, as a professional wholesaler, can make each transaction a real win-win for both you and the seller of the property.
Before I walk through the steps below, I want to say something that should be obvious. For most people, it takes time to practice and hone your negotiating skills. Sure, for some, it will come naturally, and for others, it will take longer, which was true in my case. If you had met me as a teenager, you would have said I had no business going into sales, but trust me, If I could become a successful salesman and negotiator, you can too!
Your preparation to negotiate an excellent wholesale deal on a property starts with your first conversation with the seller. This is when you start asking questions to determine their motivation for selling. Once you decide to take a look at the property, it's important to remember to keep asking those questions...
Even if you know the reason, i.e., "I'm tired of being a landlord," 'We bought the house to fix up but changed our mind," or whatever they're told you, it's important to keep digging. You'll often find that in addition to the reasons they've told you, there is usually one or more additional reasons driving their motivation to sell.
Preparation Action Steps:
Step 1 - Do your research on the neighborhood and know the values.
Step 2 - Make sure you have investors that are buying in the area.
Step 3 - Plan the deal you would be excited about and know your maximum allowable offer.
Step 4 - Confirm the person you're dealing with is the one and only decision-maker.
Step 5 - Put yourself in their shoes so you can anticipate conditions or counteroffers.
While doing your property walk-through, it's important to write down (or take pictures of) everything that needs repair. Owners don't often realize how many things need to be done until you show them a big long list, and if you can add the repair cost next to the items, even better! Then when it's time to present your offer, get that list back out and review it with them.
Many will call and give their offer over the phone, probably because of nerves, the fear of rejection, or possibly just laziness, but this is a BAD strategy. Unless you're a virtual wholesaler working in another market or the property owner lives out of town, you need to present your offer in person for many reasons.
If you call and say, "Hi, Mr. Seller, my offer is $XX,XXX," he can say, "Okay, I'll think it over and let you know," and chances are good you might never get him on the phone again. On the other hand, things will go much differently if you're in person. You have an opportunity to explain how you came up with the number, and the seller can ask questions and make a counteroffer. The bottom line is if you're in person, you can have a conversation, negotiate, and have a much better chance of coming to an agreement that is a win-win for both of you.
Opening Offer Action Steps:
Step 1 - Ask them what they're thinking as a sales price first. It won't always work, but a few times, I've had people give me an amount that was lower than what I was getting ready to offer.
Step 2 - Explain the comparable sales, the cost of repairs, and how you came up with your proposal.
Step 3 - Display your knowledge and expertise without coming off as a know it all.
Step 4 - Make your first offer bold and aggressive (If you're not a little scared to say it, your offer isn't low enough). This gives you room to negotiate.
Step 5 - Watch for body language clues, gestures, and reactions to what you're saying.
Step 6 - Ask them a question about their thoughts, and let them talk.
After you've made your initial offer, there's a chance they might accept your offer, and that's when it's time to pull out the purchase agreement and get their signature, but there is a good chance there might be a little more work to do. Often in negotiating, the other party needs to feel like you gave a concession in the form of a lower price, agreeing to pay their closing costs, or maybe being flexible on the closing date, allowing them more time to take care of things on their end.
Again remember to look and listen for their concerns or hot button and do a little bargaining to make them feel like the transaction is a win-win for everyone.
The last thing you need to remember in this negotiation phase is that you can't exceed your maximum allowable offer, and sometimes you have to walk away. Doing this doesn't necessarily mean your deal is dead, but sometimes a seller needs to let the information soak in, other times they might try and sell it through a realtor, and you may hear from them a few months down the line when they're ready to make a deal.
Remember, if you can't come to an agreement after your best efforts, don't burn the bridge and leave the door open so they can go back to you at a later date if they change their mind about your offer.
Bargain Action Steps:
Step 1 - Be prepared to give a concession to the seller in the form of a slightly higher price, paying closing costs, or a flexible closing date.
Step 2 - Maintain your posture by staying calm, firm, and clear.
Step 3 - Present your offers in writing to avoid misunderstandings.
Step 4 - Make the transaction a win-win for you and the seller.
Step 5 - Be prepared to walk away if necessary.
Once you've come to an agreement, shake their hand, a handshake has a powerful mental effect on people (who are ethical) and will help solidify your deal. Also note if the seller seems wishy-washy, question them about it now rather than later; chances are, if something doesn't look right, your deal will go sideways before you know it.
Next, fill out the price on your purchase agreement and have them sign it. I have them sign two, so they can have one for their copy so they feel more comfortable with everything. Once everything is signed and everyone is happy, your job is done, and it's time to start marketing your deal to your list of cash buyers!
Closing The Deal Action Steps:
Step 1 - Once you've agreed to a deal, shake their hand.
Step 2 - Formalize the transaction by filling out and signing the purchase agreement.
Step 3 - Remember that no deal is much better than a bad deal.
Step 4 - Plan for bumps along the way; things always come up.