When it comes to fix-and-flip investing, there are a lot of required skills — research, math, analysis, etc. But the art of negotiation is often forgotten.
While the ability to negotiate isn’t something most people are just born with, it can be learned. To help you sharpen that skill, we’ve compiled a list of tactics that will help you generate better deals and, ideally, maximize your margins.
1. Do Your Research
Before any real estate negotiation, make sure you’ve used all resources at your disposal to learn more about the property and the comps in the area. How long has the house been on the market? What are similar properties in the area selling for, and how long have they been on the market? How are the schools and crime rate in the neighborhood? Every detail you learn will help you better negotiate in your favor.
2. Make the First Offer
While researchers have found that the person who “shows their cards” first in a negotiation is often left feeling dissatisfied with the outcome, those who do go first more often get the best economic outcome. Even though you may feel anxious or worried about how you did in the negotiation, ease your mind with the knowledge that the data shows you most likely did better than if you went second.
3. Don’t Be Hasty
According to the Harvard Law School Program on Negotiation, great negotiators come to the table with a best alternative to a negotiated agreement (BATNA). Being hasty makes it appear as if you have no alternative, which puts you at a disadvantage. Therefore, don’t say things like, “I can meet anytime, anywhere.” And know that silence — such as being quiet for a bit when hearing the other party’s offer — can give you the upper hand.
4. Start Well Below Your Goal
If you find a great property, you might at first feel that starting negotiations closer to your goal price will help you close the deal more quickly. However, in nearly every case, this is the wrong thing to do. You’re better off starting well below your goal price every time. If the other party doesn’t have a strong BATNA, you could miss out on additional savings.
5. Listen to the Other Person
Obviously, you’re coming to the negotiation thinking about what you want, how you’ll counter, and concessions you’re willing to make. But you should also come prepared to listen. Doing so will allow you to learn the seller’s true motivations for selling, which will give you more to work with as negotiations progress. Also, be ready to adjust what concessions you’ll accept. If you give them what they want based on their true motivations, you have a better chance at getting everything else you want.
6. Watch Body/Facial Language
Body language and facial expressions will give you a better understanding of how the other party is currently feeling about the negotiation. Are they smiling? Are their arms crossed? Are they constantly looking away? Use these clues to know when you can push forward or when you need to pull back. Experts also recommend establishing a body language baseline. Get together with the other party in a neutral location to just chat. That way you can see the difference between their relaxed state and how they’re acting during your negotiation.
7. Don’t Be Offended
In all negotiations, both parties are trying to get what they want. Keep that in mind as you go back and forth — it’s not personal, it’s business. If they come back with an offer you think is way overboard, take a deep breath (this is a good time to practice the silence we talked about earlier) and then counter with an offer you find to be more reasonable.
8. Don’t Be Offensive
It’s an unfortunate truth that some people think badmouthing a property or even the seller’s asking price is a way to get what they want. That couldn’t be further from the truth. In a great negotiation, both parties walk away feeling satisfied, but if you start the process by insulting the other party, they’re already feeling negatively about the deal.
9. Avoid Being Too Hardline
On a recent BiggerPockets Podcast episode, they compared negotiations to fishing. If you get a big fish on the line and don’t reel it in fast enough, the hook will come loose and it will get away. On the other hand, if you reel fast and pull hard, the tension will break the line and — you guessed it — it will still get away. That means don’t put too much pressure on the seller or keep chipping away at them for more concessions. Keep an eye on that “fishing line” and know when to back off.
10. Have a Line in the Sand
While you should avoid being too hardline, you do need to stick to your numbers. If you’ve done your research and all the calculations needed to figure out your margins, ROI, etc., you have hard numbers that won’t change just because you really want the property.
11. Use Hard Data
It’s harder to argue with numbers, so come to the table ready to explain your math. This also helps both parties avoid allowing emotions to control the negotiation. If you’re both discussing the breakdown of costs and returns, logic will lead the way.
12. Get the Last Concession
Asking for and offering concessions is a part of negotiations. But if you respond to requests for concessions with more of your own, the other party “will naturally shy away from asking for more than what he needs in fear that he will be asked to give up something important in return for additional (non-essential) demands on his part,” according to J. Scott, author of “The Book on Flipping Houses.” So if they ask you to waive repairs, you can say yes, but then ask them to cover the closing costs. If they say they’ll only cover part of the closing costs, ask them to include a home warranty.
13. Be Ready to Let It Go
You’ve done the research, crunched the numbers, and come to the negotiation table ready to make a deal. But if you’re just not able to come to a deal that will set you up for success, you need to be prepared to walk away. It can be hard to do. You’ve spent so much time just finding that property, not to mention doing your due diligence before negotiations. It could feel like a waste of time. Yet it’s better to have lost those hours than tens of thousands of dollars.