“The best negotiating technique I can share with you is to always care the least about getting a deal. Sounds simple, and it is. I really haven’t read any books that impressed me much, and the fact of the matter really is, the less I want a house, the less I can get if for every time. I really do make offers that make me blush.” Direct quote from William Tingle’s Ultimate Sub-2 Guide Book.
When negotiating with a seller you want to find out why they are selling. Robert Shemin in every one of his presentation’s tells us he asks a seller no less than three times “Why are you selling?” His goal is to find out their motivation to see if there is potential for a good deal. If the seller is not motivated, there is no point in looking at the house, talking numbers, or making an offer.
Your first step in negotiating starts with the first phone call with the seller. You want to find out their story.
What is their motivation – why does the seller NEED to sell? If they tell you they have a new job, they are getting a divorce, home is in foreclosure, or they just inherited aunt Millie’s house, you may have a high degree of motivation. Where something like we would like to find a bigger house might have a lower motivation.
What is their urgency – how soon do they NEED to sell? Phrased a different way, but you are still asking why. If they tell you they need to start work in another state on Monday, they are motivated. If they tell you that their next house payment is due in 2 weeks and they have no money to pay it, they are motivated. If they tell you the house goes to foreclosure next Friday and they already moved out, then they are extremely motivated. But if they still need to find another house first, or if I can’t sell it within 30 days I am going to rent it out, their urgency is not quite where it needs to be for you to move.
What is their flexibility – will they consider any terms and how much cash do they need? William Tingle talks a lot about this in his negotiation strategies. Whether you would really buy on terms is really irrelevant at this point. But if the seller would be willing to take a promissory note for all or part of their equity they are very motivated. If they are willing to let you have it for what they owe and walk away, they are very motivated.
So let’s recap. In the initial conversation, find out why they are selling, how soon they need to sell, and their flexibility. Build rapport with them and work these questions into the conversation. Many times you might start with “tell me your situation” and let them talk and you shut up and take notes. A truly motivated seller will more than likely get through all three of these reasons along with their full sob story. The motivated seller will work to convince you to buy their house and with a few choice questions to prompt them will give you everything you need to move on to the next step which is talking about or looking at the house.
An unmotivated seller will not want to give you their name, will tell you they are calling a lot of investors, will not give you the address of the house, insist that you come look at the house first before you talk, want to understand what it is that you do before they tell you anything, get offended when you ask questions. You don’t have time to waste with people who don’t want to work with you. So politely thank them for calling and recommend to them to contact a realtor to help them sell their home.
A lot of new investors are terrified of talking with sellers. What should I say? I don’t like cold calling? Well first – put out marketing pieces to get the seller to call you. Just be sure that you actually answer the phone and if they must go to a voice mail be sure to call them back with in an hour or less, because the motivated seller is going to call the next investor on the next sign, the next newspaper ad, or one of the other many letters they received in the mail. Don’t loose out on the deal because you are afraid to answer the phone or call them back.
So I would suggest sitting down and writing out some questions. First find out who they are and how they found you – you want to know what marketing works. Then ask your why questions above to find out their motivation. If they are motivated then you can start asking questions to see if you might be able to put together a deal. Tell me about the house? What is the address? Is it vacant? Have you been trying to sell it long? Why didn’t it sell? Does it need any repairs? What do you owe on the property? Is your loan current? If not, how far are you behind? What are your monthly payments? What is the least amount you would take for the house?
William cautions to not discuss numbers or specifics on price until you know they are truly motivated. And the main reason for this is that while you are discovering their motivation, you are also building up the sellers motivation in their own mind. You are making them feel motivated. They may drop their price in the initial phone call several times from the beginning of the call to the end as their motivation builds up and you don’t have to ask them to lower their price. And while you don’t really want to give them a number over the phone, you do want them to give you a number so you can determine if you want to take the time to view their house. If you are thinking $30,000 on the phone and they are thinking $60,000, then it probably is not worth your time viewing the property.
Many times in the initial “Tell me your situation” question your sellers will answer many of these questions for you before you ask. But take the time to write out what it is you need to know to make a decision so you have all your questions ready and then find a study buddy and practice screening each other. Then the next time you get a seller call you will be more comfortable. And if you screw up a call – so what! They don’t know you, and you had a great learning experience, and who knows . . . you might get a deal.
Ok, we know we have a very motivated seller on the phone. They are moving over the week end, they are have huge amount of equity in the house that they are willing to give you for a small note of $5,000 that you can pay to them over the next two years, they think the house needs paint and carpet, and can you come see their house this afternoon. If they are this motivated, you need to find a way to get in to see it as soon as you can. A very motivated seller will keep making calls until they get someone in their house who writes them a contract and solves their problems. And as a side note here – be sure to have your paperwork in the car so you can write a contract – if you do all this work negotiating them down on price and you don’t get the contract, the next investor might come in and sign up your deal while you are running home to get your paperwork.
So at the house, you meet them. Start right away and try to build a rapport with them. Find something you might have in common or something you know about that you can discuss with them. Do they go fishing, do they have a collection of something. Find something in the conversation or the house that you can relate to and bring them to their level. Make them feel like you are their friend.
Before you start taking numbers with them, ask to take a walk through the property. And yes please say “property”. You want to start detaching them from the property and as long as it is their house and home, they will still have attachment to it. As you walk through the property, let the homeowner tell you everything they would like, you might prompt them to show you things they think need repaired. Paul Well’s also recommends using the word “hmm” and “oh” a few times, especially when you might be looking at something more technical, like the inside of the furnace or taking the front cover off of the electric panel. Just be sure to have some good comeback if they ask you what’s the problem. This builds up the cost of repairs in the seller’s mind even if you really don’t have a clue and helps you lower the price.
After touring the home, if you have done your homework before hand, you have everything you need to start talking price: you know what the after repair value of the home is because you know the area home values, you know about what the home needs in repairs from walking through it, so you can figure out what a good number would be for you to make a deal. And you know what the seller wants to make a deal because you have been screening him all this time.
Now it is more of a matter of recapping what you know.
“Mr. Seller I understand that you need to move next week and want $40,000 for the house and you need $5,000 to pay for moving and the down payment on your new house. . . pause “Can we do any better than that?” At this point shut up and mentally count to 10 slowly to give them a chance to respond. The may say something just to fill the air and it might be a lower price or a negotiating point that you can work with.
“Mr. Seller, while you have a great house, we did note a lot of repairs that need to be made as we walked through it. If I can buy your house next week and pay you the $5,000 you need, do you think you might be able to take the other $35,000 in monthly payments?” This would take you from needing all $40,000 next week to just $5,000 and allow you to negotiate further on the rest of the payment in the form of the note: how long, what interest, etc and just saved you from needing to use your credit to get a loan with the bank.
At this point you have a great deal, and according to Lou Brown, when he gets a seller willing to take back a note, he just writes up the documents for as many years as he can in amortization and writes in zero percent interest, and only if the seller brings up interest do they even discuss it and he negotiates even more at this point. Lou further points out that once you have the transaction completed and you are making zero percent interest payments, to include a short note with every payment telling them should they ever need all their cash now, you will be able to pay them off for a 10% discount. In essence, you give them $5,000 up front and pay the remaining $35,000 in monthly installments, and then as you make payments, you ask the seller to discount your $35,000 note by 10% or $3,500 to pay it off early.
It might also be that the seller has some equity, but not much and is willing to sign their deed over to you right now before they get in the moving van and drive away. While they do have some equity, they don’t have enough to pay a realtor to sell the home, the house is going to foreclosure auction in a few days, and it needs repairs. They don’t have anything to loose at this point in signing the deed over to you and walking away with little to no money in their pocket, and if you can give them something for their troubles – say paying for the moving van and you will never hear from them again. It’s all in the motivation.
About the author. Kim Tucker has been investing in real estate with her husband Don and son Scott in the Kansas City market since early 2000. They currently wholesale houses, seller finance houses, offer some private lending and invest in non-performing 2nd notes. Find out more about them at www.KCInvest.com