Practice seeing both sides of the deal.
by James Miller
It is common to analyze a deal from only our own perspective, after all, watching out for number one is pretty important, but in doing so we may be cutting ourselves short.
In order for a deal to work it has to benefit both sides.
We all know about win-win negotiating, but do we really do it? Or do we really just focus on what will benefit us? Do we ask how the deal affects the other side and what they are trying to get out of it, or do we bury our heads in the spreadsheet, trying every combination and permutation to make sure we will come out on top?
Now I am not against doing your homework, I am just saying you may want to do theirs as well.
This doesn’t involve a financial analysis of their situation, but instead centers on asking the right questions. Here are a few of my open ended favorites.
If I am buying:
Why are you selling?
This cuts right to the motivation of the seller. In my experience the answer can often be a lie. Your best bet is to ask it three times in different ways over a few different conversations with the seller. Often times the truth eventually comes out that they are behind on payments or taxes and are going to lose the property if they don’t sell it.
If this is the case you can be looking at a short sale, “subject to” or a myriad of other creative ways to purchase .
What are you going to do with the money you make off the sale?
Sometimes they kick back on this one as “it is none of your business.” but it can often be breached after you have established some rapport with the seller. It lets us see what their needs are. If you find that the seller is going to live off of the money or invest it in a CD or other low interest security, you may be able to negotiate that they hold the note for yo in exchange for a reasonable return on their money.
Are you just trying to get out from under the debt?
Will you sell it for what you owe?
These two are beautiful. They reveal whether or not the seller is in dire straights and how badly they want out. They can be tough questions to ask, but you will get more comfortable with them when you have asked them a few times.
Any “yes” answer indicates a possible “subject to”, land contract or lease option type purchase.
How long have you owned the property?
This question can reveal their mental and financial position with regard to the property. A short time can mean they are trying to flip it for a profit, and if it is less than a year I know that a higher capital gains tax will be a factor for them. If they have owned it a long time, they have probably been depreciating it out the whole time and will likely be facing a low (or no) tax basis on the property.
If I am selling:
What are you looking for?
This question is great at establishing some hot buttons. Hot buttons are the sales term for the items that a buyer is interested in. By getting them to tell you what they want, you can direct them to the aspects of the property that best fit their needs.
While some will try to verbally bend the property to fit these hot buttons, I think it is often times better to just let the buyers off the hook if what you have doesn’t fit their needs. I don’t buy into the “if the man wants a blue suit, you turn on a blue light” mentality. I think buyers are savvy enough to know when you are trying to sell them on something. It can be a real turn off, as well as, kill any potential future deals you may have with them.
If you honestly keep their interests in mind, people will respect you for it even if you don’t have what they need.
For example, if a buyer were to absolutely need a two car garage, I mean, if they can’t live without it, and I don’t have one, there isn’t much I can tell them about the property that will get around this issue.
With that being said, I will always give them the option of seeing the place if they still want to.
When are you looking to purchase/move?
This question actually reveals motivation. If they have no set date or time frame, they are probably just “kicking the tires” on a few properties. The more specific they are, the more serious they are in my mind.
How much do you have to put down?
Do you need help with financing?
Often times I will be marketing my properties using seller financing,so I may already know if they are looking to be financed. These questions reveal the relative financial ability of the buyers and segways into a conversation about whether or not they need help in purchasing. In order to sell quickly, you should always be open to some sort of seller financing. Don’t think that you aren’t they type to be open. Everything works at some price and if you knew you could get a 10% premium by waiting a short time for your money, I bet most of you would do it. I know I would.
The value of these questions is that it gets us to understand the other side. Instead of focusing on what price and terms that we want, we get to know what their needs are. In exchange for this effort we are often rewarded by a much better deal.
If you are the one person who will take the time to look for their pain and can take it away, you will be miles ahead of the competition. Besides potentially making a friend, you will end up with the best deal possible for both sides.