As a house flipper, you’ll be dealing with a lot of motivated sellers. Some might be looking to get out of an underwater mortgage. Others may simply want to move to a more appropriately-sized home for their needs. Either way, motivated sellers are prized leads. Flippers like myself know that motivated sellers have the potential for quick dealmaking—often at prices that are lower than the market’s average.
But even the most experienced real estate investors will get all their ducks in a row before engaging with a seller they think is ready for a fast sale. Personally, I didn’t have any idea how to negotiate with motivated sellers when I first started my house-flipping business. Looking back on it, I’d have done a lot better if I had taken the time to exercise my compassion muscles before getting into situations where I needed them to be strong. Likewise, many of my earlier negotiations would have gone a lot smoother if I had known how to prepare for them.
Thankfully, you don’t need to face the same obstacles I did. Follow along as I pass on some hard-won wisdom about how to negotiate with motivated sellers.
What Kind Of Motivated Seller Are You Dealing With?
Before you can learn how to negotiate with motivated sellers in general, you’ll first need to get an idea about what types of motivated sellers you’ll likely be working with. Then you’ll need to find or create leads for them.
There are a handful of reasons why someone might be (or want to be) considered a motivated seller:
- They are on the cusp of preforeclosure or in a state of preforeclosure
- They have other extenuating financial circumstances
- They have an aggressive listing agent
- They are impatient
You’ll likely be dealing with a lot of people in the first two categories, but don’t forget the latter pair. Your approach should differ according to your assessment of the seller’s situation. People with genuine financial constraints are going to be more engaged counterparties than impatient folks, or those with a pushy listing agent. They’re also less likely to have firm red lines.
Above all, you should treat the seller respectfully and keep their economic situation in mind. Putting yourself in their shoes is a powerful technique that’ll help you connect with them, and it’ll also help you to better understand what your offering prices should look like.
How To Negotiate With Motivated Sellers: Core Tips
The initial step in any negotiation is to define your goals and red lines. Negotiating with motivated sellers is no different.
First, develop your valuation for the property. Many real estate investors use valuation software to help with this step, and I fully recommend it. The point isn’t to arrive at the one true and accurate price for the home; it’s to give yourself a reference point to build the rest of your negotiation strategy from.
Next, after using the valuation you have calculated for a home as an anchor, identify your ideal purchasing price. This is also where your profit margin will be at its largest. This price should be lower than the value you calculated, but by how much is up to you. Getting the seller to agree to this price is the best possible outcome, but it’s unlikely to happen if the price is far from what the seller is asking.
Then, based on the margin you need to buy, renovate, and sell the property successfully, determine the buying price. If it’s even a dollar higher than you expected, don’t move forward with a purchase. Personally, if I think a purchasing price is going to result in a deal that ultimately yields a profit margin lower than 10% after the flip is complete, it’s a pass. If the price is far lower than the seller’s ask, the deal might not be worth the trouble. But if the price is higher than the ask, you’re in great shape.
Now that you have your deal bracketed by two thresholds, I find that it’s also prudent to draw up a midpoint scenario. You can model the midpoint price as sitting exactly between the ideal price and the lowest acceptable price, but it’s often more effective to look at it as the price you think you can get if things go well in the negotiation. In other words, pick your midpoint according to how motivated you think the seller is.
Finally, determine your first offer price. This step is more of an art form than science, but it’s important because it will be the departure point from which further negotiations proceed. I suggest picking a number between your ideal price and the seller’s initial price to start. Being too aggressive at the start will sour the negotiations, so try to remain grounded.
Once you’re prepared to negotiate, remember the following:
- It’s essential to empathize with the seller and to recognize their financial interests
- You don’t need to tell the seller any of the values you picked, but revealing them strategically can be a smart move
- Driving a hard bargain can be off-putting
- Sometimes, the best move is to walk away
The gist of your plan should be to have a conversation with the seller by pitching them purchasing prices you know will result in a good deal for you. Start with the best price and work your way upward towards the seller’s if they decline your initial offers.
If you’re having trouble getting the seller to come down to a price that’s closer to the valuation you calculated, it’s a good idea to share that price with them and explain how you got to it. Other than that, learning how to negotiate with motivated sellers is a matter of engaging with them in good faith.
Making The Conversation Easier
If you’re overwhelmed by this guide on how to negotiate with motivated sellers, don’t be. It can take years of experience to become a skilled negotiator, and every discussion is a bit different. What’s key for investors is being strongly educated on negotiation best practices so that they’re well-equipped for any encounter.
On that note, becoming an independently owned and operated HomeVestors® franchisee can make the process of working with motivated sellers significantly easier. Franchisees undergo an initial week-long training course that teaches them how to effectively flip houses, communicate with counterparties, and attract motivated sellers. They also have access to the sophisticated HomeVestors® proprietary valuation software, ValueChek®, helping you quickly identify the right offers to make.
Plus, HomeVestors® franchisees use a comprehensive lead generation platform that’s rich with listings of motivated sellers who have responded to their nationally recognized “We buy ugly houses®” marketing campaign. When a homeowner goes directly to HomeVestors® to sell their property, franchisees have a massive leg up on the competition, and the entire process is much smoother as a result.
If you’re considering starting a real estate investing business and want to know more about how to negotiate with motivated sellers, request information about becoming a HomeVestors® franchisee today.
Each franchise office is independently owned and operated.