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Tuesday, September 11, 2012

A Real Estate Investor’s Guide To Negotiating

Many people seem think that real estate negotiations need to be hostile. I just don’t believe this to be the case. The buyer and the seller are not opposing forces. In fact, they have similar goals. They each have something the other needs or wants. Real estate negotiating is all about finding that common ground.

Strong-arm tactics may be effective in the short run or it may work if you have a very desperate seller or buyer. Just keep in mind that the sales process takes a long time. There are many twists and turns between ratifying the contract and final settlement.

The buyer typically has the most leverage during the initial contract negotiations. However, once the ink dries on the contract, the buyer starts to lose his advantage. During the three to six weeks before the property sale becomes final, the buyer usually has to put up an earnest money deposit, pay for inspections, appraisals, surveys, and sometimes lender fees. Within just a few days, the buyer could be out thousands of dollars.

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As the settlement date approaches, the advantage turns in the favor of the seller. A pushy buyer may find himself facing the choice of accepting the seller’s terms or forfeiting thousands of dollars and being homeless. Establishing a good rapport early almost always pays off in the long run.

As I wrote in my previous blog post, once you find the perfect home, you have to be able to negotiate the final deal. Negotiations are rarely one-sided. Here are some things to keep in mind when negotiating:

Play nice, remembering that you are trying to make a deal. You can’t demand your way through negotiations. I’ll regularly pay a seller far less than what his or her property is worth but I never try to bully him or her into a deal. I offer what I can pay for the property given the situation. If my offer meets the needs of the seller, then we make a deal. I often try to make up for the low price by being accommodating in other ways such as letting the seller choose the closing date, by taking the property as-is, by taking care of clean up after closing, etc. It’s surprising how far a small gesture will take you. I’m always nice, considerate and professional.

Don’t bully, but also don’t be bullied. Remember that you have something they want and vice versa. I will walk away from a deal where I know I’m dealing with a bully. I know that a real estate deal has far too many twists. Something unexpected will almost always come up. When the unexpected arises you have to renegotiate. You might be wasting your time if you start down a path with someone who is going to be a constant adversary. You should be willing to walk away from any property.

Don’t tell the seller his home is ugly. This unfortunately happens all the time. A buyer goes to the seller and lists all the things that are wrong with a property and then makes an offer to buy. It’s insulting personally and intellectually. You’re insulting the home that a person has made for his family. You’re insulting their intelligence because if the home were so unappealing then you would not be offering to buy it.

I just recently sold a home that I renovated and the buyer’s realtor was the perfect example of a real estate bully. I was flexible with the offer. I came down on the price and I was generous with the closing costs. When the home inspection came in I agree to fix 95 percent of the items on it. But, the inspector noted that a piece of the plastic sash was broken on a window. The window was probably less than five years old. The plastic did not affect the operation of the window or its insulation. I have a real problem with filling landfills with perfectly good building materials. So, I declined to fix that particular item.

When the buyer’s realtor saw this he became very nasty. He insulted the home that I renovated and attacked my work and business ethos directly. He was clearly trying to guilt or scare me but it raised a major red flag. Had he come to me and said that it was important to his buyer or even just asked nicely then I certainly would not have killed a deal over a $300 window. But, what he did was reveal himself to be a bully.

I refused to fix the window. I offered to release the buyer completely from the deal. And, I demanded a letter of apology if he wanted to continue. He changed his tone significantly.

Later, the buyer had a problem with her financing and needed an extension. At this point, she had paid more than $1,000 in inspections and put up a $1,500 earnest money deposit. Now we were well into the spring market and I was confident I could get $10,000 more for the home than what we had agreed to. Instead, I gave her the extension.

I could have demanded to pay less closing costs or raise the purchase price. Her only option would have been to walk away, forfeit the inspection costs and earnest money deposit and start all over. But that’s not how I do business. I don’t want to get a reputation as a real estate bully.

By following these suggestions, your negotiations not only will go much smoother but also more successfully.

By Justin Pierce

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