Buying a rental property is one of the biggest real estate transactions anyone could ever undertake. This is why every investor should have negotiation skills for real estate purchases. However, this skill doesn’t come naturally to every property buyer. Negotiation in real estate needs to be learned, practiced and perfected over time. Having strong real estate negotiation tactics will enhance the chances of getting a good deal when buying an investment property.
Here are 10 real estate negotiation tips for buyers:
Related: 10 Steps to Buying Your First Rental Property
1. Know What You Want
Successful real estate negotiation begins by knowing what you are looking for exactly. For example, are you looking for single-family homes or multi-family homes or condos? Should the investment property be in a busy city or an up and coming neighborhood? Are you looking for a move-in ready rental property or are you willing to consider a home that requires renovations? Having a detailed list of what you are searching for will help you find properties that fit your criteria much faster and negotiate to get what you want.
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2. Set Your Budget
Setting a budget from the onset will allow you to negotiate more effectively since the property seller will understand what exactly you can afford. Besides the purchasing price, your budget should also include other costs such as renovations, structural and environmental assessments, downtime during transitions, legal fees, realty commissions, taxes, and contingencies. You should also consider the financing options available for your investment property. If you’re going for a mortgage, getting a pre-approval will strengthen your position in negotiations.
3. Investigate the Real Estate Market
Once you are clear on what you want and what you can afford, take time to investigate the real estate market. Check the sales history for similar properties in the neighborhood over the last six months. Besides the asking price, you should also consider the purchase price of local real estate properties. The asking price is what sellers are looking for, while the purchase price is what the properties are actually sold for. You’ll get a good idea of what is going on in the market and whether the properties fit your budget. Knowing this will allow you to make a reasonable offer and back it up with evidence, whatever the actual asking price is.
The good news is that property data is readily available from sites such as Mashvisor. Book a demo now to learn how you can get access to this data.
Related: How to Research Real Estate Markets: The Beginner’s Guide
4. Assess the Seller’s Motivation
Understanding why the seller is selling is very crucial in real estate negotiation. Ask questions such as “Is the property a real estate investment or a home?” While investors are business-minded, owner-occupiers are usually more attached to their property for sentimental reasons. Secondly, you need to find out how long the property has been on the market. If it was listed recently, the seller might be unwilling to lower their price immediately. However, if the property has been on the market for a long time, the owner is probably desperate to make a sale.
5. Avoid Getting Emotional
A good negotiator should refrain from getting emotional during the real estate negotiation. Does the property bring back memories from your childhood? Are you seeing yourself living in the home, surrounded by friends and family (remember, you’re looking for a rental property, not a home!)? When emotions take control, real estate investors are likely to make offers that are beyond their budget or above the market value. Keeping emotions in check and thinking soberly during real estate negotiation will enhance your chances of getting good real estate deals.
6. Make Your Offers Face-to-Face
While making an offer on a house via email or a phone call could work, it is better to meet the property seller in person. A face-to-face real estate negotiation will give you a chance to gauge the seller. You will see how they react to your offer (body language and facial reaction) and get an idea of how interested they are. If you cannot meet physically with the seller, consider a video conference. Frequent interaction will help establish a more personal connection and make it easier to close the deal.
7. Make a Cash Offer
Most property sellers want to be sure that an offer will actually go through. One of the best ways of showing sellers you are serious is by showing that you can buy the property with cash. This means that they won’t have to wait for a long, tedious financing process with lenders. It also eliminates the chances that the deal will fail due to lack of financing. As a result, most sellers would be willing to accept a lower cash offer rather than a higher bank-financed offer.
Just be sure it fits in your budget and doesn’t ultimately hurt your return on investment (ROI).
8. Understand Your Competition
Checking out the competition will help you decide what kind of offer to make. This is why it is important to establish a good relationship with a buyer’s agent. The agent will help you find out the number of offers already received and how much they are. If you don’t have access to a buyer’s agent, you could simply do your own research and ask the right questions.
9. Negotiate Counteroffers
Sellers rarely settle for the first offer on the table. Therefore, during real estate negotiation, expect a counteroffer. When the seller makes a counteroffer, step back and think about it instead of offering an immediate counter. You could then raise your second offer slightly to show the seller that you are still interested. As you counter, mention other details such as renovations and repairs required in the property. The main aim of negotiation should be to create a win-win situation for the seller and buyer. Never act desperate since this will give the seller an upper hand in the negotiation.
10. Consider a Third Party
If you lack real estate negotiation skills or are likely to get emotional, consider asking a friend or family member to help you. Give them all the information they require and avoid interrupting them during the negotiation process. Alternatively, you could hire a professional buyer’s agent that has an established track record in negotiation. Such agents are either paid a flat fee or a commission based on the value of the purchase price.
Related: The Best Ways to Find a Real Estate Agent
Conclusion
Real estate negotiation can be very stressful. However, with the right attitude and good real estate negotiation strategies, anyone can become a great negotiator. During real estate negotiation, always be ready to walk away. If you allow yourself to get too obsessed with winning the deal, you might end up paying much more than is necessary. Knowing that there are other investment properties out there will lessen the pain of losing the deal.
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