Deal or No Deal
On the hit television game show, Deal or No Deal, there are 26 different briefcases, each representing various amounts of money ranging from $0.01 to $1,000,000. The contestants choose which of the briefcases is opened next, and the last briefcase opened reveals the amount of money the contestant wins. The ultimate goal is to open all of the briefcases except the one representing the $1,000,000. If the last briefcase opened is the $1,000,000 case, the contestant wins that amount, and is a very happy camper indeed!
While it is a fun show to watch if you have nothing better to do, most would not see a correlation between real estate investing and this popular game show. However, every time an investor makes an offer on a property, they are essentially playing real life deal or no deal. Unlike the television show, which is purely a game of chance, real estate investors can have substantial influence over whether the seller says “Deal,” or “No deal.” Improving your sales and negotiating skills can definitely increase your chances of winning big in the real estate investing game.
As you already know, finding motivated sellers is key to the success of your real estate investing success system. However, just having a motivated seller to deal with doesn’t guarantee that your discounted offer will be accepted. If the seller doesn’t say yes, you have a “no deal,” and you don’t make any money. So what can you do to change a lot of those “no deals” into “deals?”
First of all, you need to realize that identifying good deals is just one part of real estate investing. Your numbers may look great, but in order to finalize the investment, you need to deal with people. Successfully dealing with people takes good selling and negotiating skills.
If you’re like a lot of people, you have less than positive feelings about sales people. The word “salesperson” may even make you think of someone who is dishonest and will take advantage of you just to make a sale. It is critical that you get rid of any preconceived notions you have about being a salesperson. You need to realize and accept that as a real estate investor, you are a salesperson; realize your mind will not let you be good at something you don’t believe in. True selling is about solving problems and creating win-win situations. It’s about building lasting relationships with people by being honest and having integrity. Nothing is accomplished that isn’t first conceived in the mind. So purge your mind of those negative feelings about selling, and train yourself to be a selling superstar!
As an investor, your first product is yourself. You’ve heard it before and you’ll hear it again, “People do business with people they like and trust.” This means your job is to show people you are trustworthy, honest, and likable. You are not only going to be selling yourself to potential sellers, but to potential buyers, tenants, funding sources, real estate agents, attorneys, other investors, and everybody else you deal with. In the process of investing, remember that it’s all about finding out what the other person needs and discovering a way to meet those needs. If you can’t find a way to solve a problem, be honest and let the other person know right away. If you deal fairly with people, your reputation as an honest individual will spread quickly.
Selling involves learning the techniques of positive communications. Essentially, whenever two people are communicating, elements of the sales process are occurring. Just think of the last time you tried to convince someone to do something: your young child to eat their spinach, your teenager to clean their room, your wife to go see the Monster Trucks. Yes, you were selling.
One of the biggest parts of selling is listening and comprehending, and then constructing the deal based on what you have learned. Gather information by asking questions, hearing what is said, and understanding what isn’t said. Keep asking questions until you are sure you understand what the other person has said. Then repeat to them what you think they mean and ask, “Is that what you mean?”
If the other party is receptive to your proposal (your offer to purchase their property, for example), but not entirely satisfied with your terms, you need to know how to negotiate so you can work out the details. Too many people think that in any negotiation, you must have a winner and a loser. That’s just not true. Your goal is to communicate clearly, consider all your options, and come up with a solution that benefits everyone. Both parties have to be able to give and take to some degree, but it is usually possible to come up with a win-win solution.
Here are some helpful negotiating tips:
• Before you begin negotiating, set your limits. Run your numbers, know what you are willing to pay for a property and what concessions you are willing to make, and don’t go beyond those limits!
• Don’t allow your emotions to override your common sense. Set your limits and be prepared to walk away from the deal if you can’t get it for a price that allows you to make a profit.
• Early in the negotiation process, clearly state that you want to do the deal, but that the numbers must make sense. Let them know that you are an investor, that this is your business, and that you must make a profit or you can’t do the deal. Let the seller (or buyer) know you also want them to be satisfied with the deal. By setting a goal by which everyone walks away a winner, you are establishing a positive tone for the negotiations.
• Don’t start off with your best and highest offer. If you do so and the seller says no, you have nowhere to go. Always start with a lower offer and allow the seller to negotiate you to a higher price.
• In your initial offer, ask for things that you really don’t care whether or not you get. This gives the seller something to refuse. Feeling as if he or she is getting you to give up things may make the seller more willing to make his or her own concessions in order to get the deal to work.
• If the seller rejects your initial offer because it’s too low, you can expedite the negotiation by asking, “What is the lowest price you would accept for your property?” With that number, you can decide how (or whether) to proceed with the negotiation. If the price they give you is substantially higher than you can afford to pay, then you can say, “According to my research, I can afford to pay $X for your property. I’m not saying that you property isn’t worth more, but $X is all I can afford to pay at this time.” Then be silent and wait for an answer.
• If the seller still rejects your offer, start to gather up your papers and prepare to walk away. The seller will then realize that you are serious and may call you back for further negotiation. If not, leave the seller with an open-ended offer. Tell the seller, “I wish I could pay more for your home, but $X is all I can pay at this time. Please, continue to try to sell your home. I hope you can get more for your property; you deserve more if you can get it. But know that I will buy your home for $X. So if you can’t sell it for more, please call and we can talk again.” Be friendly and concerned about them and their situation and leave on good terms. Ultimately, you will buy a lot of properties from people who told you no to start with! It is important to follow up with these folks every few weeks to see how things are going with the sale of their property. That way, they know you really care and will be more likely to do business with you in the long run.
• If you are dealing with people who are not that familiar with selling or buying property, explain all the details of the transaction and walk them through the sequence of events leading up to the final closing. Keep them updated as the process moves along. This will give them more confidence in dealing with you and your team.
• If the seller or buyer seems to be confused and unsure about your offer, you could use what is known as the Ben Franklin or balance sheet close. Tell the client when Ben Franklin had an important decision to make, he would get a piece of paper and draw a vertical line down the center. On one side he puts the positive (for) reasons and on the other side the negative (against) reasons. Then you get a sheet of paper out for them. You fill in the positive side with all the good reasons for the decision to move ahead with the deal (i.e. gets them out from under the payments, allows them to move on with their life, etc.) and then slide the sheet over and let them fill out the negative reasons. If you have listened carefully and asked lots of questions during the initial conversations, you will have lots of positive reasons to put down on the paper.
• Another technique to help with negotiations is the “higher authority” approach. If the seller comes back with a counter offer that is reasonable, but still too high, simply tell them you will have to run it by your partner, your associate, the board of directors, or some other higher authority. You can say something like, “I will run this by my partners but I don’t think they will go for it. Is that the best you can do?” The seller may just come down enough to make the deal work, creating a win-win situation.
• “He who speaks first loses.” Silence is a powerful negotiating tool. Use it often. Simply make your offer or counter offer and then shut up. Don’t run off at the month trying to convince them to accept your offer. As difficult as it may be, just wait. If you start talking again and give too much unasked-for information, it can kill the deal. Just wait, and wait. They will eventually speak, and hopefully, will accept your offer. The silence technique can be used very effectively when first inspecting a property you are looking to buy. If you go on and on about all the defects in the home, you risk insulting the owners. Better to look closely at that water stain on the ceiling, take a few notes, and say nothing. If something like a counter top is somewhat uneven, take a marble out of your pocket, put it on the counter top and let it roll to the edge. Catch it in your hand and say nothing. Silence is golden!
There are many other negotiating techniques that can be used. Entire seminars are taught on the subject, and you should continually study and improve your skills. But at the end of the day, if you are honest and deal fairly with everyone, and really try to solve your clients’ problems, you will have a lot of deals accepted and will make many friends along the way. Now, go out and make lots of offers so you will have the opportunity to use your negotiating skills!