While we’re submitting for Permit at the Hoyne house, drywall is going up in Kenwood – that is, of course, after we figured out how to get 10-foot sheets onto the upper floors (we took out a plank of the floor from the master bedroom and shot it upstairs like those tubes in bank drive-thrus). We were thoroughly bruised after last week’s blizzard so it’s nice to see substantial progress this week.
In other news, what I haven’t been mentioning is the flurry of investor activity happening in the real estate market over the past couple months. ‘Tis the season and my clients have been smart to start looking for their buildings when it’s cold. Chicago is an incredibly competitive market for investors and though good deals aren’t hard to find, they are hard to get. It can be a frustrating process and the only real tool that we have (aside from money) is negotiation. So, without further adieu, here are some of my best practices for negotiating real estate:
1. Prove your worth. It takes maybe 2 days to get pre-approved for financing or to obtain a letter proof of funds from your banking institution. Do it. When you submit an offer, you want productive responses – “Is your client capable of obtaining funding?” is not a productive question. If you’re competing for a property, it’s a question that will never be asked because they won’t call you back. Think of it as bringing your resume to a job interview, it’s a given.
2. Do your research. Knowledge is power in any deal and you have tons of information at your fingertips. First, get the PIN for the property. Then, enter that PIN at the County Assessor’s website and the Recorder of Deeds website. The Assessor will tell you the lot square footage, the type of building, even an estimated property value (not always accurate…more to come on that later). The Recorder of Deeds will show you when the Deed was transferred to the current Owner of Record (seller), what type of Deed it was, and for how much it sold. This is a strong indicator of the bottom limit the seller is capable of selling without short sale. Then, have your broker do some research on any mortgages in the system – was it refinanced? If it was, that’s a strong indicator of the seller’s new low value. Now, check out the Zoning map. You want to verify the building is compliant and you want to use it in negotiations if it’s not (you may also want to run in the other direction).
3. Know your comps. I know you want this place for $400k – what does the market say? This is one of the key places a good broker comes in to play (I mean, we’re not just your password to the MLS, right?….right??????). In Chicago, some neighborhoods are only a block and a half long. Some neighborhoods are cut on a diagonal. Some neighborhoods have a random hole in the middle. Pay attention to trends – I just recently did some research for a national investment firm who couldn’t figure out why a 2 bed/2 bath unit in the same building as another 2 bed/2bath listing was worth $90k less. The answer? Square footage and layout…and I don’t mean dollar per square foot, the market changed once the 1,000SF threshold was crossed. Can you list your property for whatever you think it’s worth? Absolutely! Can you sell it if someone else feels the same way you do despite the comps? Of course! Will that person be able to finance 80% of the value? No! Why not? Appraisers: we’re the bane of your existence. If you have cash, no worries. If you’re financing, your purchase price needs to agree with the market otherwise you will only be able to finance the appraisal value, the rest is cash.
4. Be cool. You love this place! It’s perfect! YOU CAN’T LOSE IT! Well, if you really feel that way, make a competitive offer based on the comps (usually this means somewhere close to the listing price). Otherwise, try not to be emotional until the deal is done. Don’t get attached, it could be taken by a tornado any given summer. Also, don’t lose your temper if the deal is going south or people are being snarky (and there is a lot of snarky, trust me). Anger helps nothing, instead…
5. Be friendly. Don’t be angry, be happy! Even if the other side is not so happy. Stick to the facts if the seller’s negotiating tactic is negativity. The hardest and fastest talker is rarely the winner. People work with who they like. At the end of the day, it’s always about people.
6. See the big picture. Often, real estate negotiations become about the money when they’re really about the people involved who never see each other until we’re closing. What happens is that strangers use money to convey bigger concerns. For example, a seller’s broker once said to me “They’ve lived in this house forever, they’ve already come down $70k. No way.” – my response? “Yeah, it’s a gorgeous house. I love how you can meander through the rooms and all the sunlight that pours in from every direction!” 3 weeks and a $165k reduction later, I owned the property. Do you see what happened? The homeowners were emotionally attached to the property and they didn’t want some “rehabber” coming in and “ripping the place apart”. They wanted to know I respected them. They wanted to know that I loved their home as much as they did. Once you see their big picture, you can then start to….
7. Trade items of unequal value. Just because you haven’t found a happy place in the deal doesn’t necessarily mean more money needs to be put on the table (although sometimes it does). There are lots of other items of value present. Especially with investors, time is money. How about we do a 10-day closing instead of 30 days? How about we throw in the living room furniture? How about we put carpet in the basement? How about you appeal your taxes because the Assessor has way over-valued the property? Every deal is different – if you see the big picture, you can find the values to trade.
8. Be realistic. Not every negotiation works out. At a minimum, there are 4 personalities at play. If you want a property for 20% or more below asking price, know that it’s likely going to be an uphill climb. If you’re in a bidding war, know you’re at a disadvantage. If one of the brokers is smoking on the porch when you walk up to see the property, know the process is likely not going to be a smooth one.
9. Be fast. In the investment world especially, good deals fly off the market in 2-3 days. Sometimes they’re sold before the listing is live online. Even more are sold through personal networks of brokers that have whisper campaigns. I’ve also seen properties that have been on the market over a couple months and then all of the sudden after one busy Saturday, a bidding war ensues. If you want a property, then go get it. This is not a dating game, it doesn’t work to your advantage to make anyone sweat – brokers aren’t sweating, they’re selling.
10. Pick your poison. Manhattan? Martini? Wine? Shopping? Boxing? Eating? Dark n Stormy? Know your vice and be prepared to use it. Not all of the above steps are easy, in fact, many are stressful. It’s nothing you can’t handle with a healthy dose of self-worth and a reliable outlet.
PS I should point out that this is coming from a broker who almost completely bit it on concrete stairs in front of an investor and then hysterically laughed at him when he did the same.