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SHOW NOTES FOR EPISODE 313: NEGOTIATION FOR REAL ESTATE INVESTING
If you’re in real estate investor, you’re a negotiator! Getting the best property at the best price is fundamental to real estate investing success. In today’s podcast, two best selling authors who have done hundreds of real estate transactions and who are experts in real estate negotiation, Carol Scott and Mark Ferguson, will share their insider secrets on how to become an effective and successful real estate negotiator.
What You Will Learn
- 11 quick tips to give you an advantage in every negotiation
- Why negotiation is critical to real estate investing success
- Who do real estate investors negotiate with and how you should negotiate with each
- What single skill do you need to obtain the most information from the person you are negotiating with
- Why information is power in real estate negotiations
- The advantages/disadvantages of dealing directly with sellers vs. real estate agents
- Why you shouldn’t be stressed about a negotiation
- Two magic words you can use in every negotiation to really give you an advantage
- Another strategy that can get you above your asking price for a property
About Our Guests
Carol Scott
After 20 years in leadership roles in Silicon Valley, Carol Scott left the corporate world in 2008 to start a real estate investing business with her husband J Scott (a frequent Old Dawg guest). Specializing in flipping, buy-and-hold, and mentoring others, they have completed hundreds of real estate deals all over the country. Carol and J branched out into education by authoring several best-selling real estate investing books, including The Book on Negotiating Real Estate. She is known as an expert real estate negotiator and attributes much of her success to her negotiation approach, which focuses on listening and problem solving. Carol is also co-host (along with J) of a new podcast called the Bigger Pockets Business Podcast, a “real-world MBA,” in which she interviews company founders who share their stories, successes, failures, and actionable tips in an inspiring and engaging atmosphere to encourage other entrepreneurs, both new and seasoned, to grow a business and achieve financial freedom.
Mark Ferguson
Mark, who, like J, was a previous Old Dawg guest – episode #087 – Creating Wealth with Single Family Homes, has been a real estate investor and real estate agent since 2002, after graduating from the University of Colorado. Mark has flipped over 175 houses and routinely flips 20 to 30 houses a year. Mark also owns 20 rentals properties and a 68,000 square foot strip mall. Mark is the managing broker and owner of Blue Steel Real Estate and is a member of the Forbes Real Estate Council. Mark started InvestFourMore, a blog, podcast and YouTube channel, in March of 2013 to share his unique rental property investing techniques. He later expanded InvestFourMore to talk about his flipping business and real estate agent business. InvestFourMore has had up to 300,000 views a month and is one of the top real estate blogs. Mark has written 6 books and has a 7th being released soon if not already!
How the Book Was Conceived
- J approached Mark, whom he had known for a while, and asked him if he wanted to write a book together, and with Carol
- He knew that Mark has a lot of stories that would work well with this
- Mark thought that there is probably no one else he would want to write a book with
- J came up with the idea of the topic of negotiating, he felt that was a topic that was really missing from the real estate publication sphere
- They both have very different styles in how they write but they worked well together
- There were a few books on negotiating but they were very generic and didn’t really have any “actionable items”
- J said Carol is the “chief negotiator” on his real estate deals
- Carol said she loves negotiation
Mark’s Training in Negotiating
- Started with his dad who was a real estate broker for 27 years before Mark became an agent
- He found out that there’s so much negotiation going on and off-market, with banks, direct-to-seller in all aspects of real estate
- There’s not one thing to learn but a mass of everything you learn cumulatively, over time
- As an agent, buyer, seller, with flips, with rentals, all of it together, that gives you an idea of how to work with people and, therefore, how to negotiate together
- The one thing he tries to do with every negotiation to help both sides win.
Carol and Negotiation
- There are many different parties you negotiate with depending on what the transaction is
- You negotiate differently from a buyer than you do with a seller than you do with an agent on the buyers side than with a seller on the seller side and differently with banks
- There are many different nuances with each one but there are also common threads throughout each
- If you can get down to basic skills, they can be used with all different parties, and then custom tailor those skills to whatever negotiation you’re doing, then it really helps you seal your deal
Negotiating with Agents vs. Sellers
- Working with sellers is completely different than dealing with agents
- Agents have many different layers
- The seller’s agent often has an agenda of their own
- You have to take that into consideration, without letting them know that you are taking that into consideration
- Working with the seller, you can get down to the nitty gritty, the raw facts
- Can listen a lot more intently and gather more facts and information before it gets cloudy by the agent
- Carol prefers dealing more with the seller
- Mark said it depends on his mood
- It takes a lot more work to deal with a seller, but you can get a better deal and everyone’s happier
- You can tell them why they don’t have to have an agent, and why it’s better to deal directly with you
- Also, why you can help them out price wise/cost wise, to work directly with you
- When he deals with an agent, you try to get them on your side
- They’ll convey your message to the seller in a positive way
- If you just send an offer to a seller, through an agent, with no explanation, that is $50,000 low, they’ll automatically be mad, negative with the seller
- Whereas, if you get the agent on your side and explain things, then you can get the agent to portray the offer in a positive way
- MLS is easier because it’s all through contracts and there’s not as much communication
- It all depends on how much he wants to talk
- It takes a lot more work to deal with a seller, but you can get a better deal and everyone’s happier
- Carol agreed and shared how she dealt with a seller in a small town in Georgia where he first conversation lasted 3 hours
- She shared how important, though, it is to build a good rapport and to build trust
- It’s all about listening, asking for more information, seeing what other nuggets they can give you
- So that they (the seller) feels you are on their side and there is a good outcome in the end
- Mark said there is a big advantage dealing agent to agent (of course, he is an agent)
- If it’s on the MLS, he can get a commission as the buyer’s agent
- Last year, he saved over $300,000 either as the buyer’s agent or the listing agent
- There are also situations where not taking the commission has helped him get the deal with a $2.1 million commercial property he purchased. He hired a commercial broker to represent him and gave him both sides of the commission and still got a good deal
- Also, because he has a good reputation and experience, he often gets off-market deal referrals from other agents who have deals they don’t want to list
- Mark said there can be a disadvantage being an agent when dealing with sellers
- You have to disclose that you are an agent
- Have to disclose that you are making a profit because you’re buying the house below market value
- He’s always very upfront with people on both sides so that is not a big deal
- There’s also an advantage because people can look him up and see his record and they know they are dealing with someone who knows what he’s doing
Taking the Stress out of Negotiating
- Carol says negotiation does not have to be confrontational, ugly, scary or intimidating
- You need to remember, when you ask somebody something, what is the worse thing they can say? – No!
- It that’s the worse thing, then it’s really that big of a deal
- For example, for a property she is buying right now
- Relatively good condition
- Found some issues with HVAC equipment during inspection
- She is waiting to go back to the agent with a list of things that need replacement and to ask for X amount off of the price because of it. But to avoid confrontation, the way she will present it is as follows:
- Go to the agent and say, “You already told me that the seller wants to move quickly – wife is having a baby in the next three weeks. Let’s help her out and just move things along and figure out a way to meet somewhere in the middle so ultimately she can sell her house, we’ll buy this place, they can move on, and everyone is happy!”
- The worse thing they can say is “no”
- You need to look at what the other side is looking to accomplish in this deal
- Look at it as solving problems together
- It’s a matter of…
- Asking questions
- Getting to what both parties need
Information is Power
- In every negotiation situation, Carol “researches the heck out of the situation”
- There’s tons of information online. Become familiar with how to look up online
- Deeds
- Permits
- Mortgage information on a property
- Do your research starting at a micro level and moving to a macro level
- Example of buying an on- or off-market property
- Micro
- Who are the sellers? Check out…
- They may post on social media that they found this great property they want to purchase. So now you know their motivation
- Knowing that information, you know you can go back with a full-price counter offer because you know they are motivated to move so they can get the other home
- Who are the sellers? Check out…
- Macro
- House
- Deed
- Mortgage
- Info on the house
- The Neighborhood
- Will send people out different times of the days to see what is happening in the neighborhood
- Kids getting on and off buses
- Is it calm or loud and rowdy
- Will send people out different times of the days to see what is happening in the neighborhood
- Department of planning and zoning
- What is coming up for that area in the future
- Highways
- Shopping developments
- New construction or developments
- What is coming up for that area in the future
- House
- You take all that accumulated information back to the negotiations
- Mark added:
- If listed, look at the MLS info
- How long has it been on the market
- Notes like “Needs TLC!”
- Fast price changes (i.e. house is on the market for 7 days and they lower the price 10%) – shows they want to sell it fast
- If listed, look at the MLS info
- Micro
Biggest Negotiation Mistakes
- Mark bought a commercial building where his current brokerage is housed
- Pocket listing
- Got an amazing deal
- When they did the inspection, it said the roof needed work and other issues
- His broker, who was representing both sides, recommended that Mark push hard to ask for as much as he could because he thought the seller was desperate
- Mark asked for $150,000 price reduction
- Seller said he’s backing out of the deal and will sell to someone else
- Mark freaked out and ended up contacting the seller directly because he wasn’t sure what he was saying was being accurately conveyed by the broker
- He told the seller that he really wanted to make the deal work
- He ended up working with the seller for inspection credit and paid the full price
- Because he came in with too large an amount reduction, he got nothing
- If he came in with a more reasonable discount amount, he may have been able to negotiate the price down
- What he learned:
- Take the middle ground
- Try to be more reasonable
- Don’t push too hard
- He saw this happen with banks when he was listing REO properties
- He had a cash buyer who made an offer on a house
- After the inspection, 57 things were listed that would bring the price down
- Things were listed like replacing light switch covers
- He told the buyer to only list major things but buyer said no
- The bank said no and cancelled the deal
- He ended up going back to the bank and saying “OK, we’ll still buy it.”
- They got nothing off the price
- Carol, when they first got started flipping
- She had transitioned from the corporate world where she was very dynamic, energetic, super enthusiastic
- Took the same approach when she was dealing with buyers, sellers and agents
- She was dealing with a seller, and Carol just started pouring out all the details of the deal
- The seller looked like a “dear in the headlights” and was overwhelmed with the information and Carol’s high energy presentation
- Carol was reading her body language and though, “Gee, I need to slow this whole thing down.”
- She immediately said, “Let’s go sit down, have a cup of coffee and we’ll work through the numbers and take it from the top.”
- Taking things more slowly really made a difference
- She now does this with every negotiation
Biggest Negotiation Successes
- Mark
- Letting the seller talk
- The seller is more at ease
- You can collect more information, which is helpful for the negotiation
- Finding out upfront how the seller likes to talk
- In person
- By phone
- Text
- Letting the seller talk
- Carol
- Two magic words you should use in negotiations – “What else?”
- If you just let people talk! Let them tell their story and what their motivating factors are and when they seem done, ask this – “What else?”
- You’ll get more information than you ever dreamed possible
One Word Every Negotiator Should Know
- Carol said her one word is no words – just silence!
- Use silence to your advantage
- Yes, listen to them but then…
- For example, an agent comes back with a counter offer and they are trying to justify the counter offer – don’t respond. Remain silent.
- Before you know it, they will start throwing concessions at you
- She was helping a friend of hers had a house for sale
- It was a Friday or Saturday
- It was a hard season to sell
- They had 14 to 15 showings and then they had an offer right off the bat
- They listed the house a little higher than they wanted to sell it out. They said they would be thrilled with $625,000 for the house but they listed it for $650 to see what would happen
- Their first offer from a potential buyer was $635,000
- She wrote back, “Offer received. We’ll let you know when I have a chance to talk with the sellers”
- She told her friend and she said take it and do whatever you have to do
- Carol waited until the next afternoon
- The agent called but Carol couldn’t take the call
- The agent called back again and when Carol got on the phone, the agent started apologizing for the offer
- Because Carol had been silent overnight, the agent was panicking
- She said we just want to wrap this thing up and we’ll take the house for full price
- This happens all the time with Carol
- Their first offer from a potential buyer was $635,000
- Mark’s word is “Easy”
- That means he is just trying to make it easy as possible for the…
- Seller
- Agent
- Buyer
- Whoever he’s negotiating with
- A lot of times agents come back to him after a transaction saying, “That was so easy!”
- No inspection
- Nothing to worry about
- You closed
- When you’re an agent, you realize how many deals you do that are horrible
- There’s always something that comes up that’s horrible (an inspection, appraisal, is just wrong)
- If it’s a direct seller, leave what you don’t want in the house. You don’t have to clean anything
- “If it goes well, we’ll rent the house back to you for a month until you can make the transition.”
- Make it as easy as possible
- Make their life smooth
- Then, if we can do that, then they’re more willing to negotiate on price or terms that helps us out
- That means he is just trying to make it easy as possible for the…
Negotiation Advice for Old Dawg Newbie Starting Out in Real Estate
- Mark: The whole goal of negotiating is to get the best price. So, if you have reached retirement age or are retiring soon, a lot of people are focused on cash flow and how much cash flow you can make. But, there are so many advantages to getting a good deal in that it will get you more cash flow and more equity.
- If you’re using banks for your mortgage, they will look at you in a better light if you’re getting a better deal
- Continue to focus on the cask flow but try to get the absolute best deal you can because it makes everything else so much easier.
- Carol: If you don’t have a lot of cash at hand to work with, often the seller will be willing to help with the financing so that you don’t have to lay down all your cash
- For example, you may have someone who is just tired of being a landlord (they’re tired of the headaches of maintenance, having to move in and move out tenants, etc.) and they don’t need a lot of cash right then so they may be willing to do owner financing
- Keep other scenarios in mind when you go in to negotiate
- Look to see what other options might be available for both of you
Rap-it-Up: Quick Actionable Tips to Help You be a Better Negotiator
- Carol: Practice negotiating for real estate by practicing negotiating on everything.
- Mark: Do not let the list price dictate what your offer price will be. Use the value of the property and ignore the list price in some cases.
- Carol: When you’re dealing with the other party, make sure you use their name. (“Mark and Bill, make sure you have a really good day because I want to make a really good deal with you.”)
- Mark: When you’re talking directly to sellers, always ask the what their plans are after they sell. There may be other ways you can help them (and benefit) to accomplish their plans.
- Carol: Make your offers really super simple clean and easy. Don’t put in there a purchase price, plus a closing date, plus 14 things you want fixed, plus concessions in a huge crazy laundry list. Make it a super simple summary (i.e. I will pay you this much money. I’m paying you this much earnest money. I will pay in cash. I will close in 14 days. “As Is” sale.
- Mark: When we’re sending offers to agents, we always email the agent first to prep them to say, “Hey, this might be a low offer. Be prepared for it. Don’t fly off the handle as soon as you look at it.” That helps them to understand that they may not be submitting a full-price offer.
- Carol: Make a concession up front. Give a little nugget from the beginning and then they’re going to feel obligated to give you something back later.
- Mark: Don’t be afraid to tell the sellers you’re making money, that you’re making a profit on properties. And with that, explain all the costs involved and why your offer is what it is.
- Carol: Talk to the neighbors in any area you are doing a deal. You’ll get information about the property, the neighborhood, and, another bonus is that they may help you find other properties.
- Mark: When he’s working on or rehabbing a property, they always put up a sign in the yard or post it on Facebook to generate pre-sales (can shorten the negotiation process)
- Carol: If you do have cash on hand and you are going to get financing for the property preferably, write up in your offer that it will be a financed deal but it is not contingent on that financing. Give them a Proof of Funds in cash. They will feel like it is a cash deal and they’re more likely to accept
How to Reach Carol
- Subscribe to the BiggerPockets Business Podcast
- Her and J’s website: 123Flip.com
How to Reach Mark
- His website: InvestFourMore.com
- eMail: Mark@InvestFourMore.com
- YouTube Channel: https://www.youtube.com/user/InvestFourMore
To Order Their New Book on Negotiating
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