Like marathons, real estate transactions seem to never end.  Even at the closing table, the deal could be derailed by a myriad of issues.  Despite these potential challenges, buyers need to stay focused until they take sign the papers and take the keys to their new investment property.

Before you get to the closing table all buyers should do a final walkthrough to ensure that any requested repairs have been made and that the property is in the expected purchase condition.  Ideally, the premise will be unoccupied and you will be able to see the property free of furnishings and other miscellaneous items.  However, if this is not the case, you should go through the property with a fine tooth comb.  Remember, this is your last chance to save precious capital.  Come prepared with a checklist of all of the negotiated repair items and the inspection report if available.  Make a thorough list of items that have been neglected or items that seem to have fallen into significant disrepair since you last saw the property.  The goal is not to be nit picky, but rather to ensure that the deal you negotiated for has been executed.

Your list should be hard and fast.  While it may not be possible to repair all of the things you mentioned, the seller should be willing to negotiate a reduce purchase price based on the items that where not repaired as agreed to.  At this point in the deal, your real estate agent will not be your friend.  Remember, they are compensated based on a percentage of the selling price and their commission check is less than a day or two away.  They will do everything in their power to bring you to the closing table, so stick to your guns if your needs have not been met.  If the seller thoughtlessly left two garbage bags in the basement, that should not be enough to keep you from closing.  However, if the seller said they would bring all electrical outlets up to code and those have not been fixed, that should be enough to take a step back.  Again, it may not be necessary to hold up the closing, but it will certainly be necessary to get additional compensation in the form of a reduced purchase price.  Use 0.5%+ of purchase price to decide if something is worth mentioning.  This should include the time it will take you to get the item fixed as well.  If it’s a small item that takes 5+ hrs of your time to get fixed, it’s worth mentioning.

Never be eager to close.  It’s fair to be excited about the deal, but always remember that an honest penny saved is an honest penny earned.  Don’t let your hard work go to waste by being too eager to get the deal done.  Sellers are notorious for promising to do an enormous amount of work and then doing nothing because they know buyers and their agents make arrangements to move into the property immediately.

When everything is finally over, remember to send thank you notes to all the parties involved.  Relationships are important and despite the challenges of closing a real estate transaction, business is business and people are people.  Don’t mix the two up.  Always remember, negotiate everything and do it hard, but fair.

After the first offer has been submitted, sellers will most likely come back to buyers with a counteroffer.  Sellers will typically only not counter offers if they see the offer as being egregiously low (or high).  In down markets, sellers may also be more likely to accept a well crafted first offer for fear of losing even more value while waiting for the next one.

If you have followed this guide and made a fact-based offer based on your returns and constrains as an investor, the counteroffer process will be fairly straight forward.  Start the counteroffer by giving on some of the less important contingencies (i.e., shorter due diligence period, seller financing, etc.).  Note, never give up the financing contingency.  No matter what anyone tells you, bank supported financing is never a guarantee and even if you can cover the entire purchase price, your return on investment will be significantly negatively impacted.  Again, NEVER give up the financing contingency.

Next, consider the price that the seller countered with.  Is this is hard counter or a soft counter.  Many sellers will try the nibble, countering with a 1-5% increase in price.  Don’t fall for that.  If a seller will sell a house for $105,000, they will probably also sell that same house for $100,000.  Buyers should be looking for specific selling price increases because it might not be possible for a seller to sell below a certain price.  There could be a recent second mortgage or refinance that you might not be aware of that has to be paid off at closing.  While the seller and their agent will probably not tell you this, their counteroffers might betray some additional information.

After giving on a few of the lesser contingencies and double checking your original offer price against market comparables, consider putting up additional earnest money.  Sellers will value a firm slightly lower offer with a strong closing potential higher than they will a high priced offer with a small earnest money deposit and heavy contingencies.  Additional earnest money costs a small amount in forgone interest payments, but could save you 1%-5% on your purchase price.

When instructing your real estate agent to send your counter offer, ensure that he/she sends the market research that you have done as well.  You want to communicate that your offer is fact-based and fair.

This strategy will vary based on the market conditions.  In a buyers market, buyers should be prepared to give very little and expect to receive three or four counteroffers.  In a sellers market, buyers should be prepared to ditch more of the contingencies (never the financing contingency) and do more market research.  Avoid getting so wrapped up in the negotiation process that you fudge the numbers so that you can offer a higher price.  Stick to your guns and wait for good deals. 

Remember, not every seller or buyer is sophisticated and many make a lot of mistakes.  If something seems to rich, it probably is.  Stay fact-based and unconnected.

Many buyers solely rely on their real estate agents to negotiate their real estate deals.  Regardless of how well a real estate agent performs their job; their financial interest does not align with the buyer.  Real estate agents often argue that they have a fiduciary duty to the buyer and that their reputation is too valuable to sacrifice by not representing their clients properly.  If this were truly the case, they would change the compensation system.  The system has been designed to keep real estate prices high and all parties benefit financially, except the buyer writing the check, from higher pricing.

With that understanding in mind, the buyer should drive the negotiations.  Start by arming yourself with market data.  Many of these items should be provided by the real estate agent, but be sure to do your own research on/in the neighborhood.  Potential investment buyers need to know what comparable properties sell and rent for.  Next, they need to understand the current inventory and the average days on the market.  Then, they need to figure out the trend of the neighborhood (new retails, more jobs, new developments, etc.).  Finally, buyers need to try to understand the motivation of the seller.  This is the hardest piece of the equation because many buyers never meet the seller or never get straight answers from the seller’s agent.

The information above should be used to determine a fair price for the property.  Once an investor gets the value of comparable properties, these valuations should be adjusted for positive and negative trends in the neighborhood.  If market rents seem to be declining or retail sectors seem to be trending down, comparable values might be too rosy.  Additionally, if inventory in the market is high and days on the market have been increasing, potential buyers should take this as a sign that they have the upper hand in the negotiation.

Once a buyer develops comfortable around a potential offer price, they should verify their potential return on this investment.  Investors looking to purchase stable properties should be looking for a return of 5-10% annually.  If you buy a $100,000 home today, assuming no positive or negative cash flow, and sell the home in a year, you should be able to sell it for $105,000 to $110,000 (in two years, $110,250 - $121,000, etc.).

Buyers should also be generous with earnest money deposits.  Sellers equate the size of the earnest money deposit with the seriousness of the buyers.  Be sure before you send a check for the deposit, the contract contains the appropriate contingencies. 

Finally, buyers need to consider what additional terms and contingencies they need in order to secure a painless (and costless) exit if they decide not to buy the property or to maximize their investment.  Buyers should consider asking for seller financing, a 30-day due diligence period where they verify the financials of the property and the soundness of the physical structure, financing contingencies and anything else they can think of to address potential concerns.  Even if these needs are not presented, they can serve as an alternative to price, should the seller prove unwilling to accept the initial offer.

Sellers will make a lot of decisions when it comes to selling their home.  The pricing of a home is probably the most important decision.  Pricing is rarely as simple as looking at comparable properties and pricing your home accordingly.  Pricing should factor in the sellers motivation, the market trends and potential buyer’s highest and best use of the property.

First, pricing should be considered in the context of why the seller is actually selling the home.  Sellers looking to cash out of an investment to move to a new investment area with better growth potential have the option of refinancing.  Rather then price a home on the lower end of the market; it would be an excellent opportunity to test the higher end because of the refinance alternative.  On the other hand, if an investor plans to move across country and would like to liquidate their portfolio locally, it would be smarter to price the property more conservatively.  This places a higher value on a quick, sure-fire sale and hopefully ensures you a worry-free move.  By understanding your alternative to selling your property, you can make a smarter pricing decision.

Second, pricing should factor in market trends.  Many times realtors will show you comparable properties currently on the market and suggest you price your property at the midpoint.  Pricing is far more art than science.  Before considering comparables, you should have a view on the market pricing trend.  If the market is strong, shoot for a price on the higher end of the neighborhood and let the market catch up to you.  Aggressive pricing is a good strategy in a strong market.  Conversely, a declining market is the seller’s enemy.  In this market it is often wise to price your home 2-5% below the comparable average.  Many times sellers will begin lowering their prices in a race to attract buyers, often times well after the market has passed them by.  Avoid this problem altogether by sacrificing a small profit for a quick sale.  Chasing the market will ultimately result in you getting far less than the original perceived discount you are offering.

Last, consider the best use for your property.  If you have been using your property as a rental home, but you notice a mix of new home buyers and investors coming to your neighborhood, cater to the buyer group that will pay the most money.  While this seems obvious, it is often not an easy task.  Investors traditionally want a blank canvas to work with, while new home buyers are drawn to homes with a bit of character.  If you notice investors paying 5-10% more, remove all the furniture, paint the walls white and provide pertinent information on the rental market in your area.  If new home buyers seem to be paying a premium, consider a simply staged home with a few local touches.  Every little detail adds that much more to the offer price you receive.

Pricing is far more than looking at comparables.  Realtors are out to close a transaction, so consider your motivation and drive the pricing process.  Ultimately, it’s your bottom line.

Real estate transactions slant in the favor of the seller.  The seller pays both agents commissions and both agents are rewarded for transacting at the highest price possible.  Given these incentives many sellers select the agent that offers to list their home for the highest price, and then simply waits for the offers to come rolling in.  Sellers employing this tactic are making a big mistake, particularly investors looking to sell their investment property. 

Sellers should first understand that time is money.  Even the best realtor will only dedicate two or three months to actively selling your home.  Furthermore, realtors want to get paid.  Commission based employees love to see a big check.  From a realtors perspective, selling a $100,000 for 6%, nets them a commission of $6,000.  Increasing the price by $10,000 only nets them an increase of $600.  Given the challenges of getting to the closing table, most realtors value a quick closing more than they value getting the extra $10,000 for their seller that could take months to materialize.  What means a lot to you, really only means a little to your real estate agent. 

Always remember that you as the investor should drive the process.  Hire great professionals and let them work for you.  After selecting the best realtor a seller must prepare for the negotiation.  Start by understanding your potential pool of buyers.  Is your neighborhood an active investor community or should you position your property for new families?  By understanding your potential buyer, you can shape your property into a blank slate, with subtle hints of character that might appeal to your audience.  If you expect to have a lot of investors coming by, it might be helpful to do some research on rental rates and neighborhood occupancy details.  Young families might enjoy a list of local parks and recreation activities gear towards family.

Sophisticated buyers will be armed with facts about the neighborhood and property values.  You should know your property and know your competition as well as or better than the buyers.  Shop your competition.  It’s always helpful if you are able to comparatively list off details that make your investment property unique.  These unique items should increase the value proposition of your property.  While your house may be the only one on the block with a bird feeder, that will not drive traffic or stop a buyer in his/her tracks.  On the other hand, if you can say my house is the only one in the area with newly refurbished hardwood floors, buyers might certainly take notice.

Check your emotions at the door.  Creating a value proposition for the buyer means offering a superior product at a competitive price.  Don’t be offended by low offers.  Even low offers tell you something about the market and potential buyers mind sets.  Getting more than one might suggest you are in a buyers market.  Take every opportunity to seek to understand the value of your asset.

Real estate negotiators achieve their optimal outcome when they understand their needs and the potential investment opportunity.  Negotiations should never be emotional, but rather they should always be rooted in tangible data. 

Fact based negotiations keep everyone focused on the numbers and helps the buyer formulate an investment basis for the property.  If you are seeking a 20% return on an investment property and you know based on the current rents and projected selling price, you can only pay x for the property, make sure that you can justify x is the appropriate price.  If it’s lower, than this could be an excellent opportunity, but if it’s higher, then you have already set your maximum bid price.  Stay focused on the numbers and never bid more than your research suggests you bid. 

Novice investors also miss the opportunity to increase their market knowledge through their negotiation sessions.  Sellers typically have a very good grasp on what is going on in the market.  Regardless of the outcome of the negotiations, understanding where the seller feels the market is head in the next five years could provide value insight into future investments.  Obviously sellers will be overly optimistic to achieve the highest selling price, but by probing a potential buyer could find out about potential new developments, retail or residential units coming online or going offline and a variety of other neighborhood specific items outside buyers might not be aware of.

While buyers should come prepared to negotiate based on facts and market research, they should also be prepared for a seller negotiating solely on emotion.  Sellers have invested time and money into the property they are currently marketing and will always believe that they have the best property on the market.  Many times sellers feel like a low offer is a reflection on their management skills or their skills as an investor rather than simply the prevailing market price.  Never take anything personal and always stand behind the research.

Buyers should also avoid being overly concerned about what the seller paid for the property, but should request this information from their real estate agent.  Buyers need to know what a seller paid for a property (public records that any realtor can provide) because it can help them understand if a seller might be holding a mortgage worth more than the property or if they might be underwater after paying commissions and other selling costs.  Furthermore, sellers will be much more eager to provide financing if they receive a large settlement from selling the property.

Always keep the end goal in mind when negotiating.  Buyers should consider price and terms when considering purchasing a property.  Market customs vary, but always remember, everything is negotiable.

 A strong return on investment starts with achieving the lowest purchase price with the best terms.  Novice investors spend too much time solely focusing on price, at times to the determent of an excellent real estate investment.  Real estate negotiations tend to be a zero sum game when the two parties solely focus on price.  However, when consider items like seller financing, capital improvements, tenant removal, and others, both parties can come away from the deal better off.

Before thinking about negotiations from a buyer’s perspective, it is important to understand the motivations of the seller.  A majority of sellers would like to get the best price from a buyer that can close quickly and without any major issues.  Veteran real estate buyers can do their due diligence, secure their financing and close on a simple real estate transaction within 30-60 days.  Sellers also prefer no contingencies, clauses in the offer contract that allow buyers to walk away from the transaction with their earnest money.

On the other hand, buyers want the lowest price and the ability to have the property under contract for as long as possible before closing.  Additionally, buyers would like to be able to walk away from the transaction and receive their earnest money back if there is anything wrong with the property, their financing falls through or they simply find a better deal.  This additional time also allows the buyer to shop the property.  In extremely hot markets, it is not out of the ordinary for a buyer to put a property under contract, find another buyer at a higher price and flip the property before they even purchase it.

Buyers need more than the right price.  Seller financing can be an excellent way to increase the return on your investment and conserve much needed capital for future investments.  Seller financing is a deferred payment to the seller with interest.  Since 2008, seller financing has been on the rise and should be a potential negotiating point for any real estate transaction. 

Negotiations should always be fact based and unemotional.  Buyers should enter negotiations with the seller armed with market data and a clear understanding of neighborhood fact patterns that justify their bid price.  If all the comparables from the past six months show decline property values, then it is fair to say based on the trend in this neighborhood, your property appears to be worth x, not y.  During the due diligence process, a buyer discover the tenant has been late with multiple payments or worse, the seller can not produce an accurate payment history, it is perfectly fair to say, due to concerns about the current tenant on the property, your property is worth x and not y.

Over prepare for the negotiation process.  Do not solely rely on a real estate agent, whose interest is not aligned with yours.  Remember, they are compensated as a percentage of the selling price.  The higher the price, the more they get paid.  Remember, the buyers perspective is more than just a low price.