Every day, people looking into investing in a new piece of real estate ask "I thought the market had depreciated; why aren't these prices any lower?" The prices don't seem any lower because sellers are still hoping to sell for what real estate was worth four years ago, and it's your job to negotiate them down to a more realistic level. Here are eight tips to help you negotiate for a better price on your next real estate purchase.
Real Estate Negotiation Tip 1: Don't Dive In Before Researching It's tempting to just start looking at real estate, but the fact is you must know what you're looking at (and for) before you start meeting sellers, asking questions, and evaluating properties. Look up median neighborhood home values, median cost per square foot, and the values of amenities like pools or fireplaces in that neighborhood, before even speaking to a real estate agent.
Real Estate Negotiation Tip 2: Don't Tell Your Real Estate Agent Your True Price Range Real estate agents make a percentage of the total sale, and therefore make more when you spend more. Drop your true price range by at least 10% when speaking with a real estate agent, and make sure to emphasize the lower end of your range, so that they don't tempt you with homes outside your comfort range.
Real Estate Negotiation Tip 3: Don't Tip Your Hand When You Like a Home Don't belittle the property to the seller, as their home after all, but don't let them know just how much you like it, either. Rather, ask them five questions:
What's the asking price?
Why do the sellers want to sell the property?
How long have they inhabited the property?
What updates, maintenance, and repairs have they performed?
When are they interested in settling?
Real Estate Negotiation Tip 4: Learn the Sellers' Stories The reason the sellers are selling, and how urgently they want to sell the property, will make a big difference in how low they'll be willing to go. You can often learn a great deal from about the sellers' situation from their listing agent, so ask them all about the seller's circumstances. Sometimes people would rather sell immediately than wait for months and months for the "perfect" offer, so emphasize how quickly you can settle when you make that lowball offer.
Real Estate Negotiation Tip 5: Make Them Convince You As many real estate investing professionals know, the person who's being pitched has the most power, so let the listing agent and the sellers pitch you on the property. Show some reluctance, waver a little before making an offer, and don't seem anxious in the least.
Real Estate Negotiating Tip 6: The Low Offer Once you make an offer, you can't go any lower, you can only go higher, so start 25-30% lower than you're willing to end, so that you can slowly work your way up to the lowest price the seller will accept. When you make that low offer, offer a compelling explanation for the reason your offer is so much lower than the asking price, such as your limited budget, the condition of the property, or other home prices in the area. Let them convince you at each step of the negotiation process; let them work and sweat a little bit to pitch you.
Real Estate Negotiating Tip 7: Don't Meet in the Middle Only move upward in price in small increments, until the sellers look like they're finished negotiating and prepare to walk away. Start low and go slow!
Real Estate Negotiating Tip 8: Play Games! Hold a concession in reserve for the end of the negotiation, something you're willing to "give up" as a sign of good faith and a show of sacrifice. It will make the seller feel less abused, and soothe their pride enough to agree to the low sales price. When you make your concession, have your final demand ready, so you can score the maximum strategic advantage from your concession.
Negotiation is a difficult art, and most people are simply terrible at it. With these tips, hopefully you'll be armed that much better to find great real estate deals, and succeed in your real estate investing efforts, whether for a home or investing property.
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