For some reason, new (and aspiring) investors think that negotiating is really hard. And while I don’t disagree with them, in my opinion real estate negotiations are simple and straightforward. This is probably because I don’t start negotiating until I have an inspection and/or a contractor’s bid in hand.
At this point, the property is already under contract and both the buyer and seller are ready to close on the property. And since we have a list of issues and the costs associated with each, it’s not emotional. It’s black and white and remarkably simple.
The key here is making sure you include an inspection contingency and resolution period in your contract. Whether you’re using a real estate agent, working directly with a seller, making an offer on an official state offer form, or simply submitting a letter of intent to purchase, it works for To do this a contingency section should be created. If it isn’t, you won’t have the power to negotiate and you won’t be able to protect yourself.
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With that said, here are several reasons why I wait until after the inspection to have the conversation.
Benefits of Negotiation After Home Inspection
1. You’ve got vendors ready to sell.
After you’ve closed on the contract, sellers will usually breathe a sigh of relief. The hardest part of listing a property is usually waiting and hoping that someone will make an offer. With a binding contract, sellers will feel like they are making progress toward closing. And when it comes time to negotiate repairs, the buyer has all the power and can ask for essentially anything they want. Because the seller knows you can walk away if they don’t agree, many are willing to negotiate.
2. You can make your offer strong.
I almost always offer full price, maybe even more if it’s a highly competitive market, and do all of my negotiating during the inspection. This allows me to compete when necessary and usually results in an awarded contract because I am offering the seller exactly what they are asking for. Other ways to make offers strong are: quick closing, cash purchase, few or no contingencies, etc. However, committing to negotiate after the inspection allows the buyer to present a strong, competitive offer and move on to the due diligence phase. If you lower the listing price or try to include too many discounts in your initial offer, you risk offending the seller or not being awarded the contract.
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3. You don’t need to waste time on due diligence unless you have a contract.
If you make your offer contingent on the inspection and resolution period, most of your due diligence can wait until after you submit the offer and it is accepted. This means that after checking the numbers first and with general confidence in the property and returns, you can make an offer and feel good knowing that if something doesn’t turn out as you expected, you can go ahead with the contract. can walk away from. ,
4. You already have a solid contract closed and now have complete control.
You can ask for whatever you want, and if you don’t get it, walk away. If you know what’s important to you and what’s really a deal-breaker (something you wouldn’t be willing to accept), you simply terminate the contract if the seller doesn’t want to give you what you want. You wish. Since you are still within the time limit for your inspection and resolution period, you should have no problem collecting the earnest money deposit.
5. The possibilities are limitless.
After you’ve determined what needs repair, replacement, or further investigation, you can begin to put together a creative solution so that both parties walk away from the material. You can claim the money from the purchase price, checks sent to sellers or contractors at closing, or even a credit back to you in the form of cash after closing. You can also ask the seller to make repairs using licensed contractors before closing or any combination thereof.
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In the case of rentals, my rule of thumb is, “if it ain’t broke, don’t fix it.” But I still ask for money as credit at closing. So if an inspector tells me the water heater or HVAC can give any day, I usually ask for money off the purchase price. However, I don’t do those repairs or replacements unless the system is actually broken.
Bottom-line
So, get out there and start bidding! Once you have the property under contract, hire a good, reputable contractor and get bids for the work that needs to be done so you know what to expect from the seller. Then, start a conversation. Decide what’s most important, but have a list of things that are non-negotiable. That way, if the conversation starts to get tense, at least you can give a little while still getting at the things that matter to you.
Do you agree or disagree with this strategy? If you disagree, what do you recommend instead?
Join the discussion in the comments section.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
