The most important thing to remember is that you are attempting to solve a problem for the seller. They have a need to sell. You buy properties and, if the two of you can reach an equitable agreement, you both win.
Anytime you talk with a seller, spend most of your time listening. Your goal is to find out their situation, why they need to sell the property, and make an offer that can, hopefully, solve their problem. I always explain to our clients, “I may not have your best solution, but I am ‘a’ solution.”
Once you’ve completed your due diligence for the property and have calculated your offer, present your real numbers to the seller in a way they are able to understand what you can offer and why. Never just throw out a low number and expect them to understand without being offended.
It’s easy – determine what you can offer, then simply write out the process you used to come to your number. That process becomes your presentation to the seller.
For example, start by writing down their asking price. Next, deduct anywhere from three to seven percent (depending upon where you live) as that’s typically how much any retail buyer will deduct from their offer. For example, if a seller is asking $100,00, most retail offers are going to come in at some percentage below that. Very few buyers offer full price and your seller knows that.
Next, deduct real estate commission because either they may have to pay that amount to sell or you may have to pay it later when you sell. Remember, these are the calculations of your true costs and how you determine your numbers.
Next, deduct any additional expenses you may incur – holding costs, pest inspection, repair/renovation costs, etc. – any costs you may realize later when trying to sell the property.
You may also want to throw in a “reasonable” amount of profit – maybe $5000? At the bottom of the page is your final figure, your offer, and you have completely explained how you came up with that number and why. You are after all, a business, not an end user.
These points make clear to the seller that you have done your due diligence and have a true reason for these real numbers. Many investors simply throw out low numbers and the seller, understandably, thinks they’re being taken advantage of.
Some of these number are negotiable, but it is imperative that you know the maximum you can pay and still make profit. This is truly about your numbers, not the seller’s, if you want to stay in business. If you become overly concerned with the situation the seller is in – a situation, by the way, that you did not create – your emotions can get in the way and cause you to pay too much for the property. This is why it’s imperative to know the maximum amount you can offer before you walk into the negotiations.
If the offer works for both of you, great. If it doesn’t, that’s fine and you walk away as friends but you’ve offered a solution and they understand why you offered that amount. Often you are the first person to educate the seller as to the true costs of selling their home. They may be disappointed with the offer but, when presented correctly, they understand it.
If you don’t end up buying the house, it’s very likely that the seller will eventually refer you to others because you have shown yourself to be both helpful and trustworthy.