Buying an investment property is rarely as easy as making an offer and closing the deal.
There’s a fair amount of negotiation that has to happen between the time that you identify a potential investment opportunity and walk away with the keys to your newest asset. If you’re an excellent negotiator who loves the challenge and the give and take, you’re going to do just fine.
If you worry about your negotiation skills, you’ll need to partner with a professional real estate agent who can bring some of that muscle to the table.
We know it’s not always easy, especially in a market that seems to be shifting away from sellers, who have held a lot of power over the last couple of years. With interest rates rising for buyers and home prices peaking, you are in a stronger negotiating place right now than you might have been at this time last year.
How can you leverage that to your advantage, especially when the market is still so competitive?
We are sharing some of our own negotiating tips and strategies in the hopes that you’ll walk away from your next deal feeling like you got what you wanted.
Know the Market and the Competition
You need to know what and who you’re up against before you begin to strategize how you’ll negotiate. What kind of market are you approaching, as an investor? Is there a lot of inventory, or are you pressed to find the right investment opportunity to match your goals?
If you’ve found a few homes that might make a good investment, you’re in a stronger position than if you are working overtime to identify anything that fits what you need. Think about your non-negotiables and what you’re willing to walk away from, based on the current market conditions.
Typically, you’ll make an offer as the buyer, and the seller will give you a counter-offer. When you understand the market well enough, you can judge what that counter offer is likely to be before it even arrives. Will you be eager to accept the seller’s terms and agree to the sale, just to get the deal closed? Or, will you negotiate to get what you want?
Housing markets change. They’re unique, and you need to know what to expect from the Cleveland real estate market before you make an offer or negotiate a deal. Educate yourself on how the market is performing and what you can and cannot get away with when it comes to pricing and sales terms.
- Gather data. You’ll find yourself in a strong position when you have the data and the comparable sales figures to support what you’re hoping to get the property for.
- Do your research. The research you conduct on the Cleveland market could potentially save you money, as well as time and frustration. If you learn something that could save you even a thousand dollars on your final price, you’re likely to turn that savings into some impressive returns five or 10 years from the date of your purchase price.
- Know your own numbers before you even enter the market. Set some boundaries for yourself in terms of how high you’ll go. Be consistent to those as you negotiate.
Don’t make an offer or begin negotiating on a property you want without analyzing comparative properties in the neighborhood. The stats over the last year don’t necessarily matter to you because home values and prices have changed. Look at what similar properties are listed for right now, and how long they’ve been on the market.
With the right data and market evidence, you can support an offer that’s less than asking. You can also negotiate terms like inspection requirements, repairs, credits, closing date, and even closing costs.
Information is power.
Surround Yourself with Local Experts and Professionals
Do you want to negotiate on your own, or do you want an experienced real estate agent to negotiate on your behalf? Unless you have your own real estate experience to lean on, you’ll probably get better results when a professional is negotiating for you.
A good Realtor is only the start. Surround yourself with experts. This is the best advice we can provide when we’re talking about negotiating from a place of strength.
If you’re not already working with an agent, talk to friends and colleagues who may be able to recommend a good one. Property managers have excellent working relationships with agents. Take some time to research various agents and look for someone with a great reputation and a background that reflects an understanding of investors and investment properties.
When you’re buying investment property that you’re likely to turn into a rental, it makes sense to specifically look for a real estate partner who can also provide property management. Advice and insight from a property manager during the negotiation of the deal can be invaluable. Your property manager will understand rental values, Ohio’s rental laws, and the cost of maintenance and renovations.
Enter Negotiations with a Strong ‘Plan B’
You know what you want out of this negotiation, and if all goes well, you’ll get everything that you’re asking for. When you get some of what you’re asking for, that’s a negotiation that still went well. The other side will want to walk away feeling like they’ve won, too.
What if it doesn’t look like you’re going to get the price you want or the terms you need?
Fall back on your Plan B.
If you don’t have a Plan B, put one together before you begin negotiating.
Things don’t always go to plan, especially when we’re talking about real estate negotiations. You cannot go into a deal with a fear of failure. There’s a lot to learn if you do fail or if you simply don’t get what you were hoping to get.
Maybe you thought you had a great negotiation plan, but you can’t get anywhere. What’s your next move? It’s important to always have a backup plan in case the process doesn’t work out the way you envisioned it. That backup plan will help you hold onto confidence. You’ll stay focused on what you really want and keep your emotions in check.
Your Plan B might be a different property. It might mean bringing in a partner or deciding to do some renovation work yourself to save money. Put those contingencies in place for yourself.
Remember that Everything is Negotiable
Everyone thinks about pricing when we talk about negotiating, and that’s important. You’ll want to negotiate as hard as you can when it comes to purchase price.
Remember, there are other points you can negotiate.
Leverage whatever you can to get the best possible deal. If you are leaning towards accepting the seller’s latest offer, ask for something in return. Maybe you can ask them to leave the washing machine and the dryer. Or, you can negotiate the repairs they’ll make before you close the deal. You can offer to waive the requirement that the water heater be replaced if they’re willing to come down a thousand dollars on the asking price.
Using inclusions can help you get closer to your target price when you’re negotiating a Cleveland investment property purchase.
Be Direct and Avoid Emotional Moments
It’s almost impossible to negotiate effectively with someone who won’t say exactly what they want.
Don’t be that person.
Instead, be straightforward and direct. Share what you want while you’re negotiating. This will be a bit of a tug of war, and you’ll have a lot of back and forth as you work out a deal. Don’t focus on the rejections. Don’t get stressed.
Being direct will help speed up the process. It’s more efficient, and you may get to acceptance and close much faster. You’ll never get something you’re unwilling to ask for.
Remain patient. Don’t let emotions like anger and frustration take over.
In addition to avoiding an emotional response, remember that you’re not trying to look desperate. You don’t want to seem overeager when something is offered. A lot of the best negotiators will work hard on keeping a poker face. Can you do the same?
You don’t want to approach the negotiation with an emotional energy that lets the seller know you’re eager to buy this property no matter what’s required. Desperation is going to destroy any advantage you might have had during the process of negotiating a real estate deal. Try to remain detached.
Give your seller the impression that you’re considering a number of different properties and you’re not even sure you’re completely sold on this one. Try to appear interested and willing, but not over-eager.
This doesn’t mean you should be arrogant or boastful. The seller will likely come to the table with their own plans for negotiation. And they likely have other interested buyers, too. So compliment the property, express your interest, and then see if you can come to an agreement.
How can we help you negotiate a better deal when you’re ready to invest in a new property? We’d love to talk about it. Please contact us at IIP Management. We work with owners in Cleveland Heights, Lakewood, Lyndhurst, Parma, Solon, and South Euclid (Cuyahoga County).