The Importance of Patience in Negotiation for Real Estate

The Importance of Patience in Negotiation for Real Estate

The Importance of Patience in Negotiation for Real Estate

If you’ve been in the real estate game long enough, you’ll eventually have to learn the art of patient negotiating.  This might be counterintuitive for those of you who have been investing in smaller scale real estate in hot markets.  That’s fine, as that was also our own experience.  When you’re starting out, you’re likely looking at your local MLS and being fed deals that are already on the market by brokers.  If you’ve read our Five Tips for Targeting High Density Zoning Areas for Long-Term Real Estate Investing and Demand Generators for Real Estate Explained articles, you are likely already investing in markets where there is a very high level of demand.  

Different markets have different entry-level price points, but the point is that investment opportunities in the lower price brackets in your market will by default be in higher demand.  When going down the tried and true path of real estate investment, most investors begin by targeting properties in the 1-10 unit range.  This is because these are more affordable and beginner investors often do not have the capital, network, or the credibility to syndicate larger deals.  

This is of course fine, and we got our start using this same method of purchasing smaller scale condominium development projects and rental buildings.  You have to start somewhere, and there are many very wealthy people who never leave this smaller scale tier and just focus on volume. That said, you’ll likely want to eventually scale to larger and more complicated deals.  Through syndication and your investor network, you can begin to purchase very expensive properties with prices in the tens of millions.  

The problem is that when you are used to competing with dozens of other investors on the open market, you may begin to develop bad habits that would lead to you overpaying or being too aggressive when negotiating for larger properties.  You might also just be in a market where there are stable fundamentals, but the amount of competition for smaller deals is lower.  In these situations you need to keep the importance of patience in mind during negotiations.

Here are a few examples, based on our own experiences, where patience is key to achieving the best possible outcome during your real estate negotiations:

1. Larger Multi-Family:

As we described earlier in the article, as you scale up to larger residential deals, whether they be new development or existing rentals, the negotiation conditions are different from smaller development deals.  There are less potential buyers and savvier sellers in these higher tiers.  The seller may very well have a cash-flowing property on their hands, or a piece of land they have owned for many years and are in no rush to part with.  Keep this in mind during your negotiations for larger multi-family deals.  If you’re too pushy you could blow up the deal and if you’re too desperate you could overpay.

2. Retail and Office Commercial Real Estate

Similarly to larger multi-family, owners of commercial real estate are usually not in a rush to sell.  Of course this is not always the case, but if a commercial real estate owner is desperate to sell it’s likely a bad sign to begin with.  A good investment and a good owner will already have a cash flowing asset on their hands.  They will view their real estate investments as a business and may take several rounds of offers and negotiations to reach a deal that works for both parties.

3. Off Market Deals (Small or Large Scale):

When you’re trying to convince a property owner off-market, patience is even more critical because the potential seller may not even have previously entertained the notion of selling to begin with.  We have had many deals where we scouted out certain properties that fit our investment criteria and contacted the owners directly to see if they were interested in selling.  Some of these “negotiations” (in a very loose sense of the word) were ongoing for months, with in person meetings, phone calls, and multiple offers with lots of different terms before reaching a deal.  You’re trying to plant a seed in someone’s head that selling might be a good idea.  Many of those seeds don’t take root, but even the ones who do may take some time to sprout.

4. More Complicated Deal Structures:

5 Steps to Real Estate Condominium DevelopmentWith larger deals or off market deals, it sometimes is necessary to include contingencies in your offer to satisfy both parties.  For example, were you to purchase a potential development deal that required entitlement through a zoning variance, it would be wise to pursue a zoning contingency during the negotiation phase, unless you had some reason to be very confident your petition for a variance or special permit would be approved.  We describe zoning contingencies in more detail in our Offer and Contract Contingencies for Real Estate Explained article. 

5. On-Market Deals with High Days on Market:

Sometimes a deal has sat on the market for a long time and has started to be overlooked by other investors.  This can happen for a variety of reasons, the most common being that the seller hit the market with too high of an asking price and has lost all their momentum as time went on.  As properties accrue higher days on market, potential buyers may become skeptical and wonder if something is wrong with the property, avoiding it entirely.  Remember that you need to keep in mind the average length of time for a property to trade in your market and at your price point to properly gauge when properties start to go “stale.”  We had one deal that was very profitable for us that sat on MLS for several months with a few price cuts before we went in with a lower, more complicated offer with some contingencies favorable to us.  It might seem like common sense that properties sitting on the market longer may potentially have sellers that are more flexible, but people seem to forget than and only focus on their anxiety about why the property is taking longer than usual to sell.

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Invest with Winterspring

The Importance of Patience in Negotiation for Real Estate
The Importance of Patience in Negotiation for Real Estate
The Importance of Patience in Negotiation for Real Estate
The Importance of Patience in Negotiation for Real Estate