In wholesaling, there is a huge misconception that price is the main sticking point in negotiating. Today, I’d like to provide some key areas to consider during the negotiation process to help you secure the deal.
Motivated sellers are not only motivated by money. Situation and circumstances also play a big role in accepting or rejecting an offer.
I’ve spoken to hundreds—perhaps thousands—of vendors during my travels. As a real estate investor myself, I can confidently say that there are a lot of deals I have on my team and have secured that have nothing to do with value. As we negotiate, there are certain areas that we strategize to make the deal attractive to both parties.
Before we get into it, I would like to add some context to what I am referring to.
A recent deal that had nothing to do with price
As a virtual wholesaler, we are marketing in multiple cities. Chicago is a hot market for us.
I personally got a call from a woman who was interested in selling because of the passing of her husband. Due to the memories, she left home and is currently living with a family member.
During the call, I acknowledged the excellent condition of the home (here are some photos) and informed her that, unfortunately, our offer would be well below what she was looking for. I said she should consider listing the house with a realtor. We ended the call, and I figured I wouldn’t hear back from him.
Unexpectedly, I got a call about four months later. It was the seller again, asking if I was still interested in the house. I reminded her about our previous conversation and the proposal, but she insisted that I meet her at the property.
During the walk-through, I was even more amazed by the condition of the house. She recently had new windows installed, the floors redone, a new roof added, and it’s all located on a double lot—just to name a few of the impressive properties.
She told me she knew she was leaving home, but was willing to work with me because of my honesty and transparency. All she asked was that we pay the closing costs and reduce the closing escrow deadline. She wanted to speed up the sale, as she was going to use the money to buy another property so she could re-locate.
We agreed and the deal was done. We are now in line to close the deal and clear approximately $100,000.
Connected: 10 Tips for Negotiating Like a Pro
areas to focus on during the conversation
I wanted to give you the backstory above, because too many investors get hung up on money being the main negotiating factor… when sometimes it isn’t. (Though with this deal, we didn’t have to negotiate much – only closer to the escrow date.)
There are other areas for conversation here.
1. Earnest money
This is a major area for conversation. The Earnest Money Deposit is not a standard amount as some people believe ($1,000). We use higher or lower deposits depending on the seller. If the seller is looking for a higher price and we cannot reach it with our offer, it is good practice to raise the earnest money to prove that you are in the deal.
We know that earnest money is refundable, but sellers will be more comfortable negotiating if they know you are willing to increase the deposit.
2. Closing Escrow
Closing fast (as with the example above) will relieve some of the stress and uncertainty of the sale.
Sellers may get sellers’ remorse. If you limit the time they have to consider their decision, they may be willing to accept a lower purchase price.
3. Rehab
Negotiating should not be a win-lose proposition. It is good practice to make this clear at the outset – but especially during rehab evaluations.
Chat around rehab numbers. Tell the seller that there is some work that can be done for less.
However, some corners just can’t be cut. When negotiating from a position of integrity, it can break down barriers.
Connected: 6 Effective Tips to Make Sure Your Proposal is Accepted
4. Title Company
It may sound absurd, but some sellers prefer to close with their own title company. Inform the seller that it is common practice for the party paying the closing costs to determine the title company.
However, as an alternative, offer the seller the facility to meet an escrow officer or mobile notary at a location of their choice. This is a huge win for sellers.
Bottom-line
These are just some of the areas around negotiation that can put the seller at ease. The more you offer, the more the seller understands that this is a mutual agreement between the parties and not a war.
Don’t get hung up on the price. Offer options that are a win for the seller in exchange for negotiating the offer amount.
Are there other areas for conversation that I haven’t mentioned above?
Add them in the comments section below.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
