As a real estate investor, you never want to offer full price for a property. When we first started investing, we offered full price. We didn’t realize that you could, and should, offer less than the asking price. Real Estate Agents will caution you not to make too low an offer, but their commission won’t be affected that much by offering 5% less than the asking price. For example, if a property is listed for $100,000, and the Real Estate Agent’s commission is 3% of the price, offering $95,000 will only reduce the agent’s commission by $150.00 bucks!
There are several opportunities to negotiate in a real estate transaction:
- Negotiate the Sales Price
- Negotiate the Terms
- Negotiate After the Home Inspection
- Negotiate at Settlement (Yes, at Settlement!)
Negotiate the Sales Price
The first opportunity to negotiate is on the list price. If you make an offer of 5% less than the list price, hopefully the seller’s agent will encourage the seller to make a counter-offer if they aren’t happy with your initial offer. If a Real Estate Agent is inexperienced, they may not advise the seller to make a counter-offer. That’s why it’s very important to work with an experienced Real Estate Agent. There will be a series of offers and counter-offers until both sides can agree on a price. As real estate investors, we have no emotional attachment to a potential investment property, therefore there is no need to become angry or frustrated if the seller is not willing to negotiate. There is always another opportunity available.
Negotiate the Terms
By “terms,” we are referring to other aspects of the contract between the seller and buyer, such as the settlement date, whether there are contingencies for mortgage financing and home inspection, etc. Locate a copy of a typical sales contract for your state. Google makes searches very quick and easy. Read through all of the clauses, especially the clauses where the Real Estate Agent has to fill in blank areas. These are opportunities for negotiation.
Negotiate After the Home Inspection
The most fertile ground for negotiating is just after the home inspection. If you have a home inspection contingency in your sales contract, the ratification of the contract is dependent upon a satisfactory home inspection. If your home inspector finds problems, you can ask the seller to make repairs; or ask the seller to reduce the price by the amount of the repairs; or ask the seller to deposit funds in escrow to take care of the repairs.
The reason you have leverage after the home inspection is because the seller has mentally committed to selling. They are already starting to pack, or they may even have a contract on their next home. It is at this time that both the buyer and seller have maximum leverage!
Negotiate at Settlement (Yes, at Settlement!)
We have threatened to walk away, or actually walked away, from a settlement 4 times during the past 25 years. In one instance, the lender had not sent the funds to the title company by the settlement date. We were uncomfortable signing mortgage documents that committed us for the next 30 years, so we got up and left. Yes, we walked right out and went home. The seller, agents, and closing officers were left at the table! The title company called us the next day and told us that the seller signed the deed and all of the settlement documents, and the lender had sent the funds to the title company. We agreed to go to the title company and sign our share of the settlement documents.
Never be afraid to walk away from the table.
The opinions expressed herein are solely those of the Author/WebMaster. Before taking any action, please consult your real estate, financial, and legal advisors.