Real Estate Negotiation Tips

For those just getting into real estate and/or business, it’s worthwhile to spend some time getting familiar with basic negotiation techniques, both so you can use them to help your own cause, and also so you can use them to defend against others looking to get the best deal for themselves.

While this certainly isn’t meant to be comprehensive, here are some basic negotiating tips that you’re likely to find helpful in this (or any) business:

  • Make the other party state their position first: This is sometimes stated as, “Make the other party throw out a number first.” When negotiating, you rarely want to state a first offer; instead, if the other party states their offer first, you will likely be in a much better negotiating position. There are two basic reasons for this:
    1. It allows you to define a mid-point. Many inexperienced negotiators will find themselves “splitting the difference” in their negotiations; for example, if one inexperienced negotiator starts by asking $200 in the negotiation and another inexperienced negotiator starts by offering $100 in the negotiation, the negotiation result generally will end up somewhere around $150 (the mid-point). This is human nature not to want to give more or less than you’re getting, so people tend to increase or decrease their offers by the same amount as the other party. But, when the other party states their position first, you have the ability to define the mid-point of the negotiation. In the example above, if the seller had stated the $200 ask first, the buyer could easily have offered $60, thereby reducing the mid-point of the negotiation (where they expect to end up) down to $130. On the other hand, had the buyer offered $100 to open the negotiation, the seller could have increased his ask to, say, $260, thereby increasing the midpoint to $180. As you can see, the person who states the first position is at a disadvantage to the person who waits, as the person who waits can define the mid-point.
    2. It’s quite possible that the other party’s first offer will be better than the first offer you would make. For example, let’s say you want to hire a plumber, and your budget is $500 for a particular project. While you could state upfront that you have $500 to spend on the plumbing work (in the hopes that the plumber doesn’t ask for more than that), what if the plumber was only planning to charge $300? You’ve now told him that you’re willing to pay $500, so he has little reason to quote you anything less than that. By stating your position first, you’ve given away valuable information to the other party (you maximum price), and he will use that information to extract the most money possible from you.
  • Information is power: I’d estimate that in 95% of all negotiations between experienced negotiators, the one with the most information (pertaining to the negotiation) will walk away with the better outcome. When negotiating, it’s important to know as much as possible, not just about the object of the negotiation, but also about the party you’re negotiating with and their motives. Most people tend to assume that negotiation is always about money, but often it is not. Smart negotiators realize that in many cases, it’s more important to solve a problem than to offer the most money. For example, let’s say two buyers show up at an open house and both want the house. The first buyer assumes that the seller wants the most money possible, and offers full asking price, but needs two months to close in order to get financing in order, get inspections, etc. The second buyer asks the seller why he is selling, and the seller says that he has received a job offer in another state, and needs to move in the next two weeks; the second buyer makes an offer for $10,000 less than asking, but agrees to close in two weeks, and has no financing or inspection contingencies. While the first buyer offered more money, the second buyer likely solved a problem that was more important than the difference in the offers. All because he gathered some information from the seller before making an offer.
  • Speak less: One of the strongest maneuvers when negotiating is to keep your mouth shut. Unfortunately, it’s also one of the most difficult. People are naturally uncomfortable during a negotiating silence, but this is exactly why you should work to ensure those silent periods occur. If you’re uncomfortable, you can be sure that the person you’re negotiating with is uncomfortable as well. And the common result of this uncomfortable situation is that one party will make a concession to break the awkward silence. Next time you are negotiating and the person on the other side of the table throws out an offer, make a point to say nothing. Whether it be 10 seconds or 10 minutes, make the other person break the silence. You’ll be surprised to find that he or she will often interpret your silence as anger or disappointment at their offer, and will break the silence by revising their offer or offering a concession. Master negotiators will use this tactic to get less experienced negotiators to make successively lower offers without ever having to throw out a counter-offer themselves. This may be the most basic — but most useful — negotiating tactic you’ll ever employ.
  • Friction is Your Friend: On the surface, a negotiation that ends quickly and smoothly without too much back-and-forth appears to be a good one. But this isn’t necessarily the case. Can you remember the last time you went into a negotiation, and the other person quickly accepted your offer without too much protest or countering? How did it make you feel? If you’re like most people, you probably felt like you didn’t get as good a deal as you could have. You probably felt that, because the other party didn’t put up too much resistance, they were likely very happy with the deal, and therefore, you got the worse end. Oftentimes, though, the other party feels the same way! There wasn’t enough friction in the negotiation to make both parties feel like they earned a great deal. And because of this, what you will often find in negotiations that go quickly and smoothly is that one or both parties will want to back out of the deal. So, if you really want to ensure that the other side doesn’t back out after the negotiation is finished, make them work hard to get to a common agreement; this hard work will often translate into feelings of successful outcome for the other side. This is especially important in Real Estate Investing, when the other party often has several days (if not weeks) to back out of an agreed-upon deal.
  • Always Get the Last Concession: Part of being a good negotiator is “training” the other party to do what you want, without them even realizing it. Here is one way to do that with someone you will be negotiating with multiple times: Always make sure you ask for and get the last concession in the negotiation (a concession is something the other party gives in a negotiation — a price drop, better terms, etc). By always asking for — and getting — the final concession, the other party will, over time, learn to stop asking for things once he has essentially what he wants/needs from the negotiation. If the other party realizes that every time he asks for something, he will need to give something, he will naturally shy away from asking for more than what he needs in fear that he will be asked to give up something important in return for additional (non-essential) demands on his part. For example, when negotiating with a contractor, let’s say that he throws out a final price that you both agree on. Well, instead of saying, “I agree with that price, we have a deal,” instead try, “I agree with that price, can you start tomorrow?” Maybe he’ll come back with, “I can’t start tomorrow, how about the following day?” Your response could be, “That works, but I’ll need you to finish in three days instead of four.” As long as he counters your request, continue to ask for additional concessions. Eventually, you will train the other party that by “resisting,” they are encouraging you to ask for more and more; they also learn that by just giving in, they end up giving up less in the end. It should be obvious how this will help in future negotiations with this person.
  • Implement a Penalty for Asking for Concessions: Have you ever been on the phone with a customer services representative from some company negotiating some point (for example, your on the phone with your cable company trying to get your monthly fee reduced by $20), and find that every time you ask for something, the rep puts you on hold for 10 minutes while they “check to see if they can do that.” You can bet that it doesn’t really take them 10 minutes to determine whether they can give you $20 off your bill. But, they realize that when you ask for $20 off, then wait for 10 minutes, and then they come back and counter-offer you $5 off your bill, you’re going to be less likely to go another negotiating round (“How about $15 off?) if it means you’ll have to wait another 10 minutes to get the response. What they’ve done is implemented a “penalty” for each time you ask for a concession — while you’re sitting on hold, you’re powerless. You have the option to wait for some unknown amount of time, or hang up and get nothing. If you want to discourage others from asking for concessions in your negotiations, do the same thing — implement a penalty each time they ask (though don’t let them know you’re doing it on purpose). And the penalty doesn’t need to be same for each “offense.” Making them wait (like the example above) is a great example of a penalty — perhaps you say, “I’ll have to think about that, I’ll give you a call tomorrow and we can discuss further.” Or perhaps the penalty is that they have to fill out a bunch of forms to get their desired concession. Or perhaps they’ll have to drive somewhere to pick up that extra thing that they want. If you make the penalty for asking more cumbersome than what they asked for, it’s quite possible they’ll decide it’s not worth the effort — like having to wait 10 minutes to find out if you can save $10 extra.
  • Check Your Ego at the Door: Oftentimes, we assume that the other side is looking for something tangible in the outcome of a negotiation: more money, better terms, etc. But, a lot of people who pride themselves on their negotiating skills are more interested in having their ego stroked than they are in any real tangible outcome. While some people are going to be all about getting every extra penny in the deal, there are those who will happily give a discounted price (assuming they are still above their minimum threshold) in return for some solid ego stroking. In Real Estate negotiation, this might mean telling a contractor how highly recommended he comes; it might mean reminding a potential investor/buyer how good he is at rehabbing on a shoestring budget; or it might mean “confessing” to your wholesaler how much you hate buying from him because he is such a good negotiator. You’d be very surprised how far some sincere flattery will go in getting you a better negotiating outcome. Not only will it encourage the other party to put their defenses down, but they will feel an obligation to “return the favor” in some way — make sure you give them a way to return it right then in terms of a lower price (or whatever else you might want). Remember the last time you negotiated with someone who was really nice? How about the last time you negotiated with a complete a**hole? Which one did you feel better about “sticking it to them?” And which one were you happy to give a break to?

I’ll post additional negotiating tips in future posts…in the meantime, I hope these were helpful…

19 thoughts on “Real Estate Negotiation Tips”

  1. Great site! This is very informative, do you have any other sites or books you find helpful hone in on negotiating skills? Im a women in a very male dominated industry and I feel my negotiating gets trampled everytime. Any suggestions for females trying to make it in this industry?

  2. Thanks. This website is very helpful. And its at a great price FREE. Lol keep up the great work. I hope all your endeavors in real estate are very successful.

    1. Larry –

      If you have an Inspection Period (or Due Diligence Period) in the contract, its as easy as having your agent submit an addendum that requests whatever it is that you want during this time period. In general, you are going to want to support any requests that you make; for example, if you ask for $2000 off because the roof is in bad shape, youll want to include a proposal/estimate from a qualified roofer.

      Banks are pretty reasonable with giving concessions if its during the inspection period, but they will want you to support any requests you have so they know youre not just trying to lower the price your negotiated without good reason.

  3. J. Im curious to know how you find the majority of your good deals and what method you use to streamline the process. I buy 90% of my deals at the foreclosure auction, though we dont have termite issues where I live so Im not sure I would suggest buying site unseen in your area. I also send 5 direct mail pieces to probate cases. I send them to the probate attorney, beneficiaries and personal rep. Probates are sweet. I typically try to go where the equity is – estate & banks.

    1. Hey Jacob –

      We find 95% of our deals right off the MLS. We have good relationships with many of the big REO agents in the area, and leverage those relationships to help streamline the purchase process.

  4. Id love to hear more on your mls purchasing system. Ive been prospecting for deals on my local mls aggressively for the past 3 months with very little results. I wonder how my tactics differ from yours. Do you have a post about your mls process anywhere?

    Ive been making 10-15 “intent to purchase” offer emails per week and logging everything in my xcel database. Then following up every 20 days if the home is still active. Ive come close to purchasing 4 properties and have developed a semi productive relationship with 1 agent who has sent me notice on 2 deals, which ended up in a “highest and best” situation that didnt work out for us. In addition to the reo/cash sale offers once a month I have been attempting to build realtor relationships by sending spam email marketing to cash buyers agents and shortsale listing agents. About a 1% response rate after my 2nd emailing so far.

    If you were going to start developing realtor relationships in a different city how would you go about it?
    Do you give the buyers agent commission to the listing agent or factor that into your offer as profit to increase your purchase price?
    How/when/why do you typically submit your offers?

    I pick up 95% of my deals from the auctions (tax, foreclosure, public). If youre at all interested in seeing my systems for that Id be happy to send it your way. The other 5% have been probates.

    1. Hey Jacob –

      Are you actually submitting offers on these properties? Or just “intent to purchase” emails? The emails wont generate much information, as they likely arent being submitted to the decision maker for review. Sure, the listing agent can tell you what he/she *thinks* the response would be, but you dont know for certain unless you submit a contract.

      We typically offer the listing agent a percentage of our commission, especially if weve worked with them before. This definitely helps get our offer to the top of the stack, but it far from guarantees well get the property. Again, the decision maker is the asset manager, not the listing agent. If we were going to start developing relationships from scratch, wed continue doing what were doing — calling agents to introduce ourselves, taking them to lunch, making ourselves VERY easy to work with, offering part of our commission, sending candy/gifts to the whole office, etc.

      Ive been thinking about getting into auctions…if you have anything you can send me, Id appreciate it!

  5. Im curious to know if my mls offers are simply too low and how theyd compare to your offer. I wonder if I simply need to figure out how to cut costs to increase my offers.

    On a property worth $150k resale that needs $15k rehab Id estimate $17k profit and a 6 month hold, I could then offer $91,700 max. What would you be able to pay?

    1. Hey Jacob –

      I have an article in the Education section called “The Flip Formula.” This is the formula I use to make all my investing decisions.

      In your example, my maximum purchase price would be: ARV – Rehab Costs – Fixed Costs – Profit.

      Specifically, it would be: $150K – $15K – $15K – $17K = $103K. Id certainly try to get it for less, but that would be my max purchase price based on my specific set of fixed costs.

  6. Id love to send you my auction systems. Whats a good email address to send them to?

    For time and paperworks sake I just submit the email offers without an actual P&S. It appears that the majority of my responses have come from the actual bank via an email counter or outright rejection. Sometimes however I wont get a response at all. I figure its because my offer is 20k+ below their current asking price typically! :-/

    Its interesting that youre able to pay over 11k more for the home than I am… Thats HUGE! I wasnt able to determine where you save the 11k by looking at your “The Flip Forumla” post, but I assume that its in the financing (fixed costs). To compare, I typically pay 4pts and 12% IO for my investment capital. Only because these are the lenders I must use at the auctions. I simply planned on using them at the same rates for mls property. Perhaps I need to shop around for a different lender for mls property? Those rates, coupled with giving up my 3% buyers agent commission and it might equal 11k, no?

    My next big question mark is – How do you determine which properties to make offers on, assuming of course that theyre in your investment farm?
    Also, do you tour the property prior to writing the offer or do you wait for negotiations to start before doing that?
    When simply scanning the mls for potential deals I find that my max offer is typically 20-30k below asking, which means Im usually just responded to with a flat out rejection or high counter from the assett manager. Im dying to know, whats your process?

  7. Okay, in your “Calculating Fixed Costs” post
    I found some things that shed new light on why youre able to pay so much more than me for a property and still profit.
    1. You pay $2,000 in junk fees per loan. I pay $4,000 (4 points of the loan)
    2. Youll pay $2,500 in mortgage payments. Ill pay $5,000 for a 100k house over 5 months. 12% IO
    3. Most of the time you keep the majority of the 3% buyers agent commission. I calculate giving the 3% to the list agent.

    Totals- I pay $12,000 in costs for these 3 items. You pay $4,500 for these 3 items, which means Im able to pay roughly $7,500 less for the property than you are. In addition it sounds like you dont factor in a sales commission for your wife. Just $200 to her broker. I pay my realtor $500 per sale so theres another $300 extra.

    The conclusion Ive reached is that you have mastered the expenses in your business and are able to squeeze out profit in every way possible on these mls properties, which allows you to pay top “investor” dollar. I think if I want to become more competitive on the mls Ill need to build more realtor relations, find a new lender and not give up the buyers agent commission.

    So the question is- What kind of financing do you typically use for your mls flips and what kind of offers are you making to the bank? Cash or financed?

  8. Hey J. Scott,
    Im still plugging away with these mls houses. I have a deal that Im a little iffy on currently. Im just not 100% confident of its resale price because it backs up to commercial space and there arent any good comps for it. It would be a quick 5k rehab and 15k profit IF I can sell it for the price I have it at. I think if I dont pick anything up at Fridays auction Ill roll the dice. Im 85% sure I can get 85k for it. Worst case scenario, I only get 75-80k and I make 5-10k on a quick 5k (paint and carpet) flip. Itd also be my first mls purchase! Ill keep you posted. Still trying to perfect the mls buying game.
    Take care!

  9. I have a huge question, how do you negociate with a hard ball seller who doesnt understand their price point is too high, when they wont even listen.

    1. JEstate –

      You cant negotiate with those types of sellers. They dont have the motivation to seller at a reasonable price point, so you just need to cordially say goodbye, and let the seller know that if they ever find themselves in a situation where they have more need to sell, theyre welcome to call you back.

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