Real Estate Negotiations

Real Estate Negotiations

Foreclosed properties are unique cases in the wide world of real estate negotiations. Typically, when someone buys a home they have to negotiate a mortgage rate with a bank, a purchase price with the seller, and closing costs with the realtors. When buying or investing in foreclosed properties, however, the terms of the negotiation are a little different. Especially when dealing with preforeclosed properties, the seller’s bargaining position is so weak that a savvy negotiator can really leverage a favorable deal. While using,  consider the following guidelines for negotiating purchases of distressed property and you will have a much easier time dictating the terms of your new investment.

Anchor the negotiation

Research has shown that the single most important factor in determining what the final purchase price is in any negotiation is the point at which the deal was anchored. Always open with an asking price lower than you expect to get. If you offer to buy something for ten dollars that you really value at around twenty, you’re much more likely to get that item for fifteen than if you had opened with the fifteen-dollar offer. A good rule of thumb is to figure out what your desired price is, then to add twenty percent. Open with the twenty percent higher price.

Know your reserve

Reserve is a technical term in real estate deals – it means the most amount of money you can pay for a property and still expect to turn a profit on the flip. Do your research before hand and know exactly what your reserve price is, then stick to it. Never agree to a contract in which you pay more than your reserve. Investors who violate the reserve rule run the highest risk of losing money on the deal.

Know your seller

The more you know about your seller’s financial position, the better you can manipulate the terms of the deal. A large real estate development company trying to unload a bad mortgage is in a much stronger position than a personal homeowner in over his head on a property he can’t afford. The more desperate your seller’s position, the more muscle you have to negotiate favorable terms.

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This is filed under Home Buying.

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