From JP Moses and Alex Joungblood, Negotiating Advisors...
Look, I know it's kind of a strange name. But work with me and it'll make sense in a minute.
Your goal:
When you’re talking with a motivated seller, you want to find out how they value / handle money.
Why this matters:
Because if you can size up how they feel about money, you can pick up valuable clues on how to approach them when it comes time to make them an offer and negotiate price. And better, savvier negotiating = more money and better deals for you. (Duh :-)
Where this comes from:
This all started with a brief conversation I had with my wholesaling buddy Alex Joungblood recently. We were discussing the art of negotiating with motivated sellers and the topic turned to mind reading – or how to casually ask the right questions, and then read the seller’s mind in between the lines of their responses.
As a special goody for some Moguls, I've included a recording of our original conversation about all this in the Power Pack Tools for this lesson. To make sure you really absorb this, I definitely suggest you give it a listen too, if you have access to it on the page here.
How it’s done:
This is the art of strategically feeding the seller information during your conversation, so they can feed it back to you and indirectly communicate how you should close them.
Basically you’ll toss them little softball questions or statements that involve money in some way. Each one is designed to evoke some kind of response that you can measure, and then posture yourself mentally for a more effective negotiation with them later.
So you just pepper these things casually into your conversation with them, read between the lines a little in how they respond, then plan accordingly for when it comes time to start deal making.
Softballs you can toss:
Repairs Overwhelm…
As they’re walking you around showing you the house, talk casually with them about the cost of repairs that you notice. $2,000 for new carpet… $2,500 for new paint …$300 for a new front door... Roof, HVAC, landscaping…
And as you casually mention the expenses you see, try and gauge from their response whether or not this seems to be a lot of money to them.
By subtly feeding them price/money related information and sizing up how they react, you’re trying to see whether or not they’re likely to fight you for every single dollar out of this property.
Does mentioning the costs of repairs seem to stress or overwhelm them, or does it seem like no big deal? If the repairs seem to overwhelm them, then you could really emphasize in your offer the huge benefit to them that you’ll buy the house exactly as-is, with no need for them to spend even one single dime on repairs, or even bother to clean up the place.
Basically you’re looking for their stress point here, so you can posture yourself to be their easy relief with how you make your offer – while at the same time, trying to see how much talk of money seems to impact them at all, which might give you clues about how much they’ll focus on price with you later.
The Low Comp Drop…
Typically by the time you’re visiting with a motivated seller, you’ve already at least looked up some local comps for the house. If you happen to notice a similar house or two that recently sold pretty cheap – like a foreclosure down the street that went for $100K even though it was a $250K sale 5 years prior – you could mention this to the seller and see how they react.
Something like, “Hey, I noticed the house down the street…1456 Maple I think…went for only $100K. Did you know about that? Why do you think?”
Now you may know quite well why it went for only $100K – you’re not really asking for their input here as much as trying to measure they’re awareness of the local market conditions, and how they might see their house fitting into that.
The seller might seem flabbergasted that a house in this neighborhood could sell for so cheap…and then might begin to reassess their own perspective on how much their own house is worth.
Or they might say, “Yeah, it was a foreclosure – neighbors totally trashed the place, so no wonder. My house is nothing like that.” Now you know they likely don’t see their house selling for only $100K.
Or they might say, “Wow, geez yeah… the values have really dropped, which is why we want out now, before we get underwater with what we owe.” Bingo, now you know they may be looking for just enough to cover their mortgage.
Basically, let them know of any low sales in the area, but don’t give your opinion. Don’t be the expert right away. Just drop the info and see how they respond and what they think. This’ll give you some quick, easy insight into their perspective on market values.
Prying…
That’s right, get a little nosey by casually asking the seller, “So…what are you planning to do with the money when you sell the place?”
This one tends to get quickly to the heart of what they’re real motivation for selling probably is, and could also give you some real clues about whether or not the bottom line price is even the most important thing to them.
Consider this…
For some people in a negotiation, “How much are you going to give me for my dang house?” is absolutely the most important thing to them. They’re focused on money, money, money – so when it comes time to negotiation, this is of course the problem you want to focus on trying to solve for them if possible (Remember, you’re in the business of solving people’s “house problems” when possible)
But most investors automatically (and often mistakenly) assume from the get-go that all sellers really care about is the bottom line price they’ll get for their house. This is a mistake. Because in reality, the money piece is often NOT the most important factor to the seller in many cases.
Some people really just need O-U-T of a stressful situation. The house has become just another expensive bill they can’t afford to pay, so if they can just get relief so they don’t have to worry about it anymore, they’d be thrilled. What some folks really need is emotional relief from a stressful situation – or just to open up some mental bandwidth that’s been consumed for far too long by dealing with old grandma’s house.
For some people – especially older people – getting a large lump of cash for selling their house would be nice, but getting some stable cash flow month after month for a few years could have even more appeal.
These people may have only thought in terms of selling their house for a lump sum up to now, only because they’re not aware of all options. But if you presented them with a sensible owner financing offer and highlight the benefits of getting a consistent check every month, and suddenly you've crafted a win-win scenario they didn't even have on their mental radar.
Feeling a little awkward?
Some folks may have a hard time finding the guts to whip this one out. After all, you are kind of prying, right? But really the secret is all in acting like you’re just being curious and friendly, and shooting the breeze – almost like a coworker who knows you've got a nice bonus coming and you’re just wondering how they plan to use it.
You may also consider saying something with a little joking smile, like “Hey, so what are you planning to do with the money once you sell the place? Headed to Disney? Paying off some old race track debts?”
Bottom line, asking them what they plan to do with the money when they sell the place can really open up your eyes to their motivation level, how much money really means to them, what their real needs, and maybe even more/better options for your offer than simply an all-cash price. Like maybe owner financing. Or even a tasty combo of cash mixed with some owner financing!
The cash flow carrot…
This one’s about two things in my mind:
1. Finding out if keeping (i.e. not selling) the property is even an option for them – How desperately urgent is this sale for them?
2. Finding out if they might be open to an creative offer that involves cash flow to them – i.e. owner financing, lease option, etc.
So maybe you start off with something like, “Hey, if you don’t end up selling the place, have you considered renting it out instead, and maybe collecting some monthly income from it?”
Let’s say they respond, “Oh gosh, no! I’d never want to be a landlord! Collecting rent would be great, but I can’t stand the idea of dealing with tenants?”
Based on this, how might you tailor your offer? Maybe consider a lowball, all-cash offer and an alternately higher owner-financing offer with low interest and low/no down payment, but that gives them the monthly cash flow without the landlord headache?
Or let’s say they respond with, “No can do – I gotta sell this thing like yesterday to pay off old Vinny and his boys down at the Rio”
– Well now you know an all-cash option is pretty much your only play.
Bottom Line: Practicing Being a Mind Reader
Most investors all know they should only be dealing with motivated sellers – it’s like the first day of REI 101 class. But few ever really move past that knowledge, to a deeper understanding that casually asking the right questions, then reading between the lines of the sellers answer, can reveal important clues – clues that can really give you an edge when it comes time to get down to the nitty gritty and start negotiating.
Your job now: Take these tactics and start experimenting with a little friendly Jedi mind trickery of your own.
Unless of course you're dealing with Admiral Ackbar. He always knows it's a trap.
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Practice on a small-scale. Garage sales, pawn shops, and flea markets are a great place to hone your negotiation skills and build confidence. Go to one this weekend, then come back & share your biggest success.
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Watch a couple episodes of Pawn Stars on The History Channel. Pay attention to the subtle negotiation tricks of Rick Harrison (the bald guy). He's a master at framing & justifying low offers.
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Try it on a deal. That's right. On your very next potential deal, start experimenting with a little friendly Jedi mind trickery of your own. You'll get better with practice!
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Have a Jedi negotiation trick of your own? Share it below! That's one of the great things about a community like this ... the ability to learn from each other (and earn Mogul Points!)