Learn To Negotiate If You Want To Make Money Fast
Posted on December 14, 2007
The fourth book in the Weekend Millionaire book series has just been released and is being shipped to bookstores as I write. Titled Weekend Millionaire Secrets to Negotiating Real Estate: How to Get the Best Deals to Build Your Fortune in Real Estate, this book couldn’t come at a better time. With real estate prices in freefall in many areas, and flat at best in the rest of the country, now is the time to buy.
Whether it’s buying a home to live in or buying investment properties, there are going to be some tremendous deals available during the coming years. As John D. Rockefeller is credited with saying, “The way to make money is to buy when blood is running in the streets.” Unfortunately, for many property owners, there is going to be plenty of blood running in the streets in the coming months.
During these trying times, the better negotiators will get the best deals and that is why our negotiating book couldn’t come at a better time. Negotiating is not about taking advantage of people through slick maneuvers. It is the art of understanding how people react in various situations and to various pressures and being able to anticipate and respond to their actions. For real estate investors, successful negotiations conclude when they get a good deal and solve the seller’s problems with the least amount of consternations.
There are many pressure points that both side face when negotiating and we cover these in detail in the new book. For example, time pressure is an enormous pressure point in getting sellers to give you a good buy. This is even stated in the classic definition of value:
“A property is worth what a willing buyer will pay a willing seller when both are informed and neither one is under pressure.”
Let’s take a closer look at that definition. Willing means that the buyer wants to buy and the seller wants to sell, and that neither of them is being forced to do so. Both the buyer and the seller are informed, which means that they are aware of property values in the area. And pressure means time pressure, even though it is not specifically defined as such.
Here are just a few examples of the time pressures sellers might be under:
� They can’t afford to make the payments, and are drifting toward foreclosure.
� They have moved out of town and can’t afford double mortgage payments.
� They can’t afford the down payment on a new home until they’ve sold the old one, and the clock is ticking.
� They want to relocate before the beginning of a new school year.
� Their adjustable rate mortgage just increased and they can’t make the new payment.
Time pressure is always a big part of a real estate transaction. If you were to list a property for sale with a broker and you asked the broker how much it would sell for, he or she would probably say, “How quickly do you want it sold? I can give you a 30-day price, a three month price, a six-month price, and a one-year price.” If you’re willing to wait a year, you might get 25 percent more for the property.
When you’re dealing with a seller, time pressure is a major factor in how flexible he or she will be. A big part of your information gathering should be to find out all you can about the time pressure the seller is under. You’ll do a lot better in the negotiation the more you know about this.
In addition, time pressure also plays a big part in how flexible the seller will be if problems arise before the sale closes. Vilfredo Pareto was an economist in the nineteenth century who never studied negotiating, but in his book Cours d’economie politique, he pointed out that 80 percent of the wealth of Italy was concentrated in the hands of 20 percent of the people. This 80/20 ratio, known as the Pareto Principle, applies equally to the incredible pressure that time can put on a negotiation. In real estate negotiations, 80 percent of the concessions will usually come in the last 20 percent of the time allowed for the negotiation.
For example, let’s say you sign a contract to purchase an investment property and agree that the closing will take place in 10 weeks. Your offer is subject to your approval of a home inspection report. The inspection reveals that the roof needs to be replaced. The seller doesn’t agree with the report, saying that it’s a 25-year roof that has been on the house for only 20 years. If you bring up this problem during the first 8 weeks, it’s unlikely that the seller will agree to pay for replacing the roof, which may cause the transaction to fall through. If; however, you wait until the last 2 weeks before the scheduled closing to bring up the problem, the seller will have more time invested and be much more likely to go ahead with the repair rather than lose the sale.
Here’s a tip! Learning this and the other fine points of negotiating will allow you to take advantage of the many opportunities being created by the current real estate crisis. As my good friend and Weekend Millionaire co-author Roger Dawson says, “You’ll never make money faster than when you’re negotiating.”
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