Negotiating real estate is a skill that can make or break deals. The best investors can not only find good properties but acquire them with favorable terms that reduce risks and increase profits. You may not enjoy haggling, but every investor needs to have solid negotiating skills if they want to buy more properties, especially when inventory is low.
While commercial real estate investors tend to rely on brokers, this doesn’t eliminate the need to have strong negotiation skills. In fact, they can learn a thing or two from investors with a completely different approach to real estate: wholesalers. Good wholesalers are known for being sharp negotiators as they have to find deals that work for both the seller and buyer, while still leaving some profit for themselves.
If you’ve ever read Chris Voss’s Never Split the Difference or seen the movie The Negotiator, you understand the importance of top-notch negotiating skills. The books and movies make it seem so easy, but the truth is most people will need a considerable amount of practice to truly develop these skills. The good news is we’re not talking about life-or-death hostage negotiations — we’re only talking about real estate.
Tom Zeeb has been wholesaling real estate for 20 years. After trying his hand at being a landlord and flipper, he realized he excels at marketing for real estate and negotiating deals. He also realized that many investors have a misperception about negotiating.
“We’re not making a Godfather offer,” said Zeeb. “I want to get to the lowest price the seller is willing to go, and I do that by helping them solve their biggest problem.”
Zeeb follows a “3 P” process to win real estate negotiations and drive profits.
How to Win Negotiations Following the Three Ps
1. Identify the Problem
The first step in negotiations is to clearly identify the problem. These negotiation tips are less effective if there isn’t a real problem to address. The problem could be a maturing loan or a large repair that is needed. It may have nothing to do with the real estate itself. Maybe the owners inherited the property and don’t want to manage it, or maybe they’re going through a divorce and need to sell the asset.
In the current lending environment, there are a number of investors with maturing loans and a serious problem. Many of these deals face obstacles with refinancing and some may even be worth less today than when they were acquired. This will create opportunities for those with strong negotiating skills.
2. Package Up a Solution
Once you know the problem, you can package up a solution. This is where creative terms come into play. According to Zeeb, “If we’re both focused mainly on price, there will be a winner and a loser.” Instead, he likes to create win-win arrangements where his win is the price, and the seller gets their problem resolved. This could mean the buyer is handling repairs, cleaning out a hoarder's home, or taking over operations. Packaging up a viable solution is key to a successful negotiation.
3. Persuade the Seller
The last step is to persuade the seller. This is where most negotiations fall apart. You may have the perfect solution, but things can fall apart if the owner believes they can get more money or has other doubts about your offer. The ability to help owners see that your package is ideal and a win for them requires practice and thoughtfulness.
Even if they like the package, you may still need them to come down to your price. Tom suggests having the seller throw out the first number. When there is a gap between your target price and the seller’s asking price, Tom suggests that you flinch out of surprise. It suggests to the owner that something is wrong with their figure.
When people negotiate, they tend to meet in the middle. This is why it’s important to bracket their asking price with your initial offer around your target price. For instance, if an owner says they want to sell for $200,000 and your target price is $150,000, you would need to offer $100,000 to start working towards that target number.
Remember to Be Specific
The final tip is to be specific with your offer. Instead of offering $100,000, use a number like $103,292. A specific number indicates that there is some data or research that supports this figure and may make the seller more likely to believe you have the market knowledge and solution for their situation.
Negotiating real estate is a skill that requires practice and patience. You may never become Chris Voss, Chris Sabian, or Danny Roman, but you can develop enough skills to get a great deal on your next investment. Use these tips to identify problems, package up solutions, and persuade owners to accept your offer, and you will close more deals and scale your portfolio.
About the Author:
John Casmon has helped families invest passively in over $100 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Multifamily Insights. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com
The views and opinions expressed in this blog post are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.