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August 1, 2017

One of the most crucial elements of real estate negotiation is time. Understand and master the use of time, and you can buy a property for thousands less.  Here is one of the most important aspects of time:

In Real Estate, Time is Money

Time is of the essence.  It even says as much on most real estate contracts.  What does this mean?  It means that whoever controls or understands the “elements of time” has the better negotiating position.

When an investor recently bought his first property, he asked the seller why he was selling.  The seller said he said he was moving.  The investor asked him when he was moving, and he said in a couple weeks.  He also mentioned that he wanted to close the sale before he moved.  The investor offered him 20% less than he was asking, and he accepted.

The seller gave away too much information.  Specifically, he gave away his deadline.  One of the most important things to understand in real estate negotiation is deadlines.  The two specific things to remember are: 1) Don’t give away your deadline(s), and 2) Find the other side’s deadline(s).

Find out whatever you can about any relevant deadlines.  Sometimes there isn’t a clear deadline, or there are several deadlines for different parts of the negotiation.  Whatever the case, the more information you can gather about those deadlines, the better.

How do you use that information once you have it?  The crudest method is to simply delay and wait until the last moment to negotiate.  This only works if the other side doesn’t walk away, and if your own deadline permits it.  It also requires that you don’t violate any of the terms of your purchase offer, so the seller can’t sell to someone else.

A bit of sophistication is required to use this information effectively.  You may want to start by identifying what is most important to you in the negotiation.  For example, is the price or the terms the crucial element for you?

Let’s assume that price is most important to you.  When you wrote the offer, you put some price on it, but you have inspections and other contingencies that allow for everything to be renegotiated.  The process of inspections and negotiations ties up the property, so your competition is excluded for the moment.  Then you learn that owner really wants to sell by the start of the school year, because he will be moving with his children.

Work on everything else in the negotiations except the price.  Have inspections done, agree on what will be included with the property, etc.  As the seller’s “deadline” approaches, he will be getting anxious to close the deal.  Then you let him know you’re ready to close quickly.  Of course, you’ll need the price adjusted due to the results of the inspections.

At this point the seller has the choice of throwing away the whole deal.  This means starting over, and not moving when he wanted to.  Alternately, he can be happy that he got what he wants most – a quick close.  This means giving you your price.

This points up the importance of getting information on the other’s deadline, but also the importance of not revealing your own.  There’s the story of a man who sold his property for a large profit.  He had to pay $80,000 in capital gains taxes unless he rolled the money into another property, as a “1031 exchange.”  He had 60 days to close on the new property.

Imagine the abuse he would open himself to if, with ten days to go, the seller learned of his deadline and the cost of missing it.  He could threaten to delay closing unless the buyer paid $10,000 extra for some old coin-operated washing machines, for example.  Overpay by a few thousand, or lose $80,000.  What do you think he would do?  Many investors overlook the power of time in real estate negotiations, yet, it can be your most effective negotiation technique of all.

Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.

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