If you purchase your investment properties from a private party (i.e. for sale by owner), you have the opportunity to interact with and negotiate with the seller directly. There is no realtor to present your offer.
As long as you are comfortable with real estate contracts, this is really a good thing.
If a realtor made your offer, it would be passed to the selling agent who would present it to the seller. And it would go something like this.
Not exactly a powerful close technique, is it? If I was the seller, I’d reject the offer.
And the same thing will happen in a private sale if you present it in such a cold manner. The words would be different but just coming out and saying "Sorry, $200K is way too much. The best we can do is $150K."
But suppose you took a different approach. One that spelled out in detail how you arrived at offering price of the house. There are very few steps and it makes many deals work - or at least keeps the line of communication open.
Step 1: Build rapport as you are examining the house. Point out defects but don’t beat the seller over the head with them. The seller knows they are there and is just hoping that they will slip by as part of the price negotiations.
Step 2: Discuss the neighborhood, how hard it is to sell a house, how long it can take to sell a house in the neighborhood and the challenges of having your life on hold while selling.
Step 3: Assuming that you believe that $200K is a fair top of the line retail asking price, show the logic of a lesser price before presenting it.
a) Show the typical discount from asking price for the neighborhood (5%, 10%, etc.?)
b) Show how much commission they would pay a realtor if they used one (and explain that the other houses that sell at the discount in "a" have a realtor commission figured into the prices.)
c) Go over closing cost concessions a buyer typically asks for - 1-2 points, etc.
d) Go over the repairs needed to make the house a nice, clean problem free house.
e) Explain that you are an investor and need structure the deal to make a reasonable profit on it - something like 10% is fair.
As you do each step, calculate the costs and show the discount from the asking price. If you have rapport with the seller, he may not like what he is seeing but he won’t argue with it as the number keeps going down and down.
After the process, you arrive at your offering price and the seller saw exactly how you got to that number. If it came to $150K, it is no longer a number just thrown on the table. It is a reasoned and emotionlessly calculated number based on reality.
Does this process guarantee that the seller will take your offer? No, it doesn’t. But it does pretty much guarantee that the door won’t be slammed into your face and allows for more negotiations to occur - negotiations that might result in a profitable deal by the time the dust clears.
Give it a try next time you are negotiating directly with a seller. You might find yourself pleasantly surprised with the results.
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