Episode #14: How to Renegotiate With the Seller Based on Your Due Diligence Findings
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Often after conducting due diligence on a property in contract to purchase, a Thoughtful Real Estate Entrepreneur learns new information about the property and its condition–such as previously unknown physical repairs needed– that may need to be discussed with the Seller so that it can be fairly accounted for in the deal. In this episode, we discuss how to prepare for and conduct a conversation with the Seller in which you share your due diligence findings and successfully facilitate a conversation to renegotiate parts of the deal with a win-win outcome.
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Full Episode Transcript
This is Jeff from a Thoughtful Real Estate Entrepreneur, welcome to episode 14 of Sleaze Free Real Estate Investing. This is a show for those of us, we never really felt at home in the We Buy Houses crowd. And in this show we take a stand against what we call the lowbrow approach the mainstream guru seminar distressed seller broker ends up getting real estate investors and slimy reputation, and instead we discussed the strategies tactics and philosophies that we call the thoughtful way, and enlightened approach to real estate entrepreneurship that focuses on constantly sharpening the sophisticated real estate entrepreneurs, three most critical capabilities. So relations skills deal architecture skills and opportunity vision. When all three of these capabilities are successfully in motion you can make an excellent today, and build long term wealth while creating value for everybody that you touch along the way. Today’s show notes are at www.thoughtfulre.com/e14. Please do yourself a big favor, and also do us a big favor by hitting the subscribe button in your podcast app. If you would also be so kind as to rate and review the podcast with your honest feedback. It would be very helpful to us as it will help others find the podcast. In the last episode, you may recall that we discussed a concept called deal feel deal feel is the art of keeping a very sensitive finger on the pulse of the various nuanced aspects of an acquisition deal. So go back and listen to that one if you haven’t already, because it’s a great episode but also because it leads nicely into today’s topic and in today’s main course we’re going to discuss how to renegotiate with a seller based on your due diligence findings and so this is going to be one of the main parts of your transaction process were having a deal feel is going to be really, really important. But first, a couple announcements and then a little food for thought. There is now a group on Facebook, just for us, for Thoughtful Real Estate Entrepreneur, and it is called—wait for it–Thoughtful Real Estate Entrepreneur,. So head over to Facebook, and just search for Thoughtful Real Estate Entrepreneur, in Facebook and you’ll find the group, and just request to join the group, and we are really excited to have you in there for a lively discussion on all things related to the unique way that we as TREEs, go about our business and thoughtful real estate. You know, real estate investors get so caught up in which strategy to use what the best way to do flipping or wholesaling is or to make money with this with that are the shortcuts and the tips and the techniques, but we often forget that all deals have one thing in common and that thing is that there’s a human, on the other end of the transaction especially when you’re doing business the thoughtful way and working directly with sellers. If you could master the art of working with those people in a way that gets you to a yes, that you need from them, and gives you both a win, then it’s going to transform your entire business and that’s why I’ve created a brand new webinar that I want to invite you to attend. It’s called How to earn an incredible living and build lasting wealth and real estate by mastering the uncommon art of selling relation skills, without working harder or doing more deals. What you’ll learn in this free webinar presentation is primarily based on three secrets secret number one is how to easily uncover the hidden motivations of every seller secret number two is how to confidently meet face to face with the seller and come across as a trustworthy pro and secret number three is how to market to sellers in a way that makes the phone ring and helps you buy properties that nobody else, even those are for sale. So come join us on this free webinar to register, all you have to do is visit WWW dot seller relations mastery.com seller relations mastery. com and we hope to see on the way. All right, time for a little bit of food for thought as we always like to have a little nibble of something to think on. Before we jump into our main course and you know that’s something we like to do as TREE stuff for real estate entrepreneurs and we’re always feeding our minds with things to think about. And so today what we’re thinking about is the topic of empathy. Now I really believe empathy is one of the biggest keys to having success with seller relations. And, you know, if you look up empathy in the dictionary its, its definition, is the ability to understand and share the feelings of another. And in our case the way. This translates specifically into our the context of our business as Thoughtful Real Estate Entrepreneurs, is it’s the ability to see things from the other person’s perspective. And so that other person might be a seller, oftentimes it is it might be a tenant it might be a buyer might be a wholesale assignee wholesale buyer. It could be a lot of different, different parties, but it’s important to note that empathy is not the same as sympathy sympathy. I looked that up to the definition of that is understanding and understanding between people and a common feeling. And so, there’s an important difference between, empathy, the ability to understand and show the feelings of another with sympathy. Because sympathy, is when you share the same feeling as the other person and we don’t actually have to share the same feelings as the other party but we do have to be able to understand what those feelings perspective is. And I think the hardest part of empathy and key difference that we that we need to be able to practice is we have to be able to separate the, I understand how you feel, side of things from the. I agree that you should or should not feel that way. side of things, because if I’m trying to have empathy with you, I need to understand how you’re feeling I don’t need to agree with the fact that you’re feeling that way. But I do need to be able to at least understand it. And this is what makes it so hard because it’s really difficult to pull apart in our minds. Understanding how someone feels and believing or green with the fact that they do or don’t and that whether they should or should not actually feel that way. And so it doesn’t mean that once you do see things from their perspective you have to change your mind your opinion your perspective or any of your decisions, it’s just that when you’re trying to negotiate something and you’re trying to reach agreement. You need all of the information, and all of the context that you can possibly get your hands on. And this bit of information, what does the situation look like from the other person’s perspective is a huge bit of information, and it would not be smart to, to try to reach agreement with only part of the information available. So it’s important that we do the work needed to get into the other person’s shoes because that is an important piece of information we need. Now I know this is so much easier said than done, it is for me as well. Trust me. It doesn’t just happen naturally for most people, we really, when we, when we know we need to have empathy, we really have to almost manually make ourselves step into the position of the other person and their shoes I have, I have literally in my mind many times when I realized I needed to have more empathy in a situation I almost literally pictured myself, moving. Taking a step forward and then turning around and looking back at myself and trying to say, if I was them looking at me What would I be thinking and feeling. Here’s a quick story. It’s kind of an example of this. A few years ago I sent a letter to a group of owners of small Plexus and and the owner of one particular four Plex reached out by sending me an email and in that email they told me exactly what they wanted. In a transaction, if they wanted to sell it, and they said they wanted $550,000 for this property, and they insisted that their sales going to have to be a contract so, and as a side note, yes, people do that seller financing is not just something we talk people into by any means. Sometimes they absolutely already understand the incredible benefits of it. But that is a side note so this person said, I want to sell the property here’s the price here’s the method and the process the structure of selling it. And I thought to myself that this works for me I could see this working so I took a drive to see them essentially in a couple hours away from where I live. And I wrote it up as a deal exactly as they wanted it, and we signed it around. And we went into escrow, and I did my due diligence and we got through that. And about a week before closing I got an email. Unexpectedly, from an attorney who was working on the seller’s behalf and the attorney said that the sellers are no longer comfortable with the deal, and that they have lots of concerns, and probably want to cancel the deal. So I’m really worried and upset at this point and this deal actually had implications of lots of other things I was working on as well. So I reached out to the sellers myself, and I, I realized I was going to have to see things from their perspective, if I was going to be able to get anywhere with them. So I reached out to them, and I suggested we do something that to me almost always seems to help and I just simply call this pulling apart. Take all of their all of their thoughts listen closely to all their thoughts but instead of it being one big jumble of thoughts. We need to pull it apart and look at each issue, one at a time. And instead of that jumble and so I asked them to explain it all to me and I just listened closely. And then I worked hard to sort of itemize it basically break it down into three or four specific issues on their minds. And then one at a time. We went through each of those issues and they explained it to me. And I worked hard to put myself in their shoes on that specific and single issue just one at a time. And then once I understood their
perspective, I was then I then had enough context and information to be able to work with them to resolve that concern for each of those things one at a time, either by simply providing more information, you know, maybe they just maybe their concern was sort of based on not understanding something. And so I was able to either provide more information or I was able to actually suggest a little tweak to our deal that would better address a particular issue or concern that they had so we went through that process we did three or four or five times. And we just checked off each list or each item on the list and they felt really good about it that got the deal back on track, and we got it closed on time. The thing about empathy is it requires you to take a pause, you have to pause long enough, first of all to even realize that you need to go through the empathy process, and then you actually have to pause long enough to give your time yourself the time needed to do exactly that because it does take a minute sometimes to manually force your brain to step out of your own perspective into somebody else’s it but when you know you go back to somebody and you demonstrate that you’re seeing things from their perspective and acknowledging their perspective, it’s really powerful because they feel heard, they feel understood and that’s that’s just a human need and want that we all have we want to be felt like we’re being heard and understood. So sometimes in this sense conflict can actually be something that makes the relationship stronger because it gives you a chance to demonstrate your empathy, which then makes the other person feel even better about your relationship. So that is today’s food for thought. And it’s a carefully chosen piece of food for thought a morsel of food for thought at that because empathy, does play a big role in the topic of today’s main course, and today’s topic is how to renegotiate with a seller, based on your due diligence findings. So I want to set the scenario here I want to provide some context for this conversation. So, you’ve put a property in contract and you’ve been working directly with the seller. To do that, you got, that’s how you got to this point you made your offer. Based on all the information that was available to you. At that time, from the seller from what you could just see with your own eyes, etc. And in this case, your offer included a contingency for due diligence which, as TREEs that’s a pretty standard process for us. Maybe we should note that in the world of low ground real estate investors. The world of fast cash, as is bs then there are often contingencies that are just, you know, it’s overflowing with contingencies that are basically just escape clauses but in this case, we’re actually talking about a real sincere desire to do due diligence to make sure that what we’re buying or getting ready to assign with a wholesale transaction is indeed what we think it is. So we have written in a contingency for us to have the right to have the time to make sure that it is indeed what we think is reasonable sellers, by the way, never really object to this, they very easily having a enough, empathy, to know that if you’re going to spend a ton of money to buy something you want at least know what you’re buying. So, in most cases, sellers. The types of sellers that TREEs work with are not objecting to due diligence contingencies. Anyway, back on track. So you do really sincerely want to do this deal, your offer was made in good faith and you’re not looking for reasons to say no and due diligence you’re actually looking for information to make sure that you’re making a good decision, or to even fine tune the negotiation a little bit which is a lot of what we’re going to discuss today. You did not pull a low brow move where you know you knew there was no way you could actually pay what you were offering. And there’s no way you’re going to close on it at this price and terms and you’re just tricking the seller around and kind of getting ready to just stick it to them after due diligence that’s not what’s going on here, you’ve conducted your due diligence which is often physical inspections, it could be a series of physical inspections like. In addition to regular Home Inspection might be sore scope it might be a search for an oil tank and might be a test for radon or some other types of thing, which varies a little bit from Market to Market and neighborhood to neighborhood. But you’ve done this, you’ve done this inspection or seven inspections, with a paid independent third party home inspector, and this is super important, but we’re going to come back and talk about why that is so important in just a minute. In addition to having hired this set of independent third party inspectors, you may have taken some time to look at zoning codes and building codes and making sure that you understand the property, what it what it allows what what work has been done on the property so far if it’s been permitted etc. You’ve also probably inspected the leases if there are leases or rental agreements involved. And now through all this stuff you really know what it is you’re dealing with. Now in my business, in most cases, I am but I know that I’m going to find some felt of new information that I didn’t know about before, that could change the picture a little bit. If not, a lot but at least a little bit is very common for my due diligence to turn up something that changes the picture a little bit, some type of physical inspection finding some type of, you know, issue with the lease or something like that that could change the picture a little bit. Now sometimes you really do find some truly deal breaking truly shocking new information that, you know, either has to be addressed or you’re just going to have to terminate, but my findings in my own business are usually more along the scale of minor to medium in severity. And I see this normally as an opportunity to kind of quote, tighten up the deal that’s actually an expression we use a lot tightening up to deal with a little bit of a renegotiation after due diligence and that’s really what today’s episode is all about. In this case the deal is already pretty acceptable but based on and in light of some new information that you now have due diligence which you’ve collected independently and objectively with third party professionals. You might be able to make your deal a little bit better. Through fine tuning the negotiation. On a real, genuine, and continuing to be Win Win level and type of approach. So that’s what this episode is about it’s how to handle this new information, how to present it. How to discuss it and perhaps how to renegotiate to some degree, with a seller based on those findings. So let’s talk now about the seller’s perspective on this point and this this topic. This point of the transaction right so in other words, let’s have a little empathy here and think about what the experience of this is like for the seller. So we’re going to make some generalizations here but these are things that I’ve found to be pretty consistent in the mind of the seller once they’ve accepted an offer. They already feel like the property is sold. We discussed that a bit and last you’ll feel, and you’ll find sometimes or oftentimes that sellers actually even use the language that implies the deal has closed they’ll say oh I sold my property, even though it hasn’t actually closed yet they just accepted an offer, but in their mind, it’s sold. And they know you’re going to do your due diligence, but they’re seeing due diligence, as a, quote, check to make sure everything is as you think it is process. They’re not seeing it as a check to see if I want to buy this place. And that’s good. Hopefully we’ve not led them to think that that you’re just tying the property up so that you can look at it, and then decide. We really want them to feel that way, and we want to let them run with that feeling because it’s important that they feel like, you know, things are moving forward unless something really unexpected comes up. Now one of the things that it’s really important for us to talk about, as it relates to the seller’s perspective, is the topic of as is now in my own business I do make most of my offers, as is. But what I found is that sometimes what as is means can be interpreted differently by sellers than by me and what I’m intending when I say that, you know, the lowbrow folks, they, as is is one of the words that they, we hear from them all the time and the point I want to make to you is that as is this not by itself, make an offer lowbrow because you made an offer as is. But let’s just take a moment here to talk about what as is really means because I have experienced this being a real point of potential disconnect with the seller, and it can become a difficult point to address. So let’s just talk about an example, if I offer to buy this house as is for $300,000. With a contingency for inspections and due diligence. Okay and the seller accepts. But what does that really mean. So, what I found is that oftentimes the seller, what they what they’re hearing is, you’ve agreed to pay me $300,000 for this house, and that won’t change, because you’re taking the house as is. That’s what they hear. Oftentimes when, when they hear the words, as is. So to them. They’re thinking that you know you know the house is imperfect, and you know the house has issues, and you’re willing to pay $300,000 with the knowledge that it’s imperfect. Okay so that that’s their perspective on this topic of as is often. But what I feel that what I’m really saying is I’m going to make this sale easy for you. And I’m not going to be asking you to fix anything before closing. That’s what as is means, I will take the property, as it currently is. But the $300,000 I’ve offered is based on what I currently
know about the house today, and I need to do my due diligence to make sure that I know what I’m actually buying and that there aren’t any surprises lurking. And if I do find something unexpected that I’ll still take the house, as is but at this point. The IS is different than what I originally thought it was when I made my first offer. So in other words, if you look at this difference in perspective on as is from the buyer’s perspective in the seller’s perspective. In other words, the seller often feels that you don’t have the right to renegotiate with me. Because you said you were buying the house, as is. But what we as the buyer are saying is, as is means I’m not going to ask you to fix anything, but I still need to know what the is in as is actually is, as is, is great but I have to do my due diligence to understand exactly what the current state of affairs is and I will take the property in its current state of affairs. But if the current state of affairs is different than what I thought it was based on our initial conversations. And what I can see and what you’ve told me, then we’re going to have to address that, as well. I found that this can be a major disconnect sometimes and it causes big problems. And if it’s not handled correctly the seller may feel like you bait and switch them right that you. You said you pay $300,000 but you never had any sincere intent of doing that. And that’s not good because when they start to feel that way, then the relationship is is starting to snowball in the wrong direction. And so we really want to preempt that by letting them know that as is means you do want to buy the property in its current state but you do have to make sure that you understand what that current state is and if the current state turns out to be different than you think it is then you’ll just have to have that conversation across that bridge. If you come to it. After recently having one of these, one of these disconnects with a seller and her not understanding it in a way that I intended for you to understand that I was trying to think of an analogy that I was preparing to use with her to help convey what it what it was I was trying to say. And the analogy I came up with is, is a little bit silly in it. It’s a little bit extreme, but it does make the point I believe. So if I were to offer to buy someone’s used car, as if I’m going to buy this used car as is for $5,000 but before I want to buy it. I want my friend who’s a mechanic I want him to come over and take a look at the car for me, right, and the seller accepts so this is an offer this condition upon due diligence basically as is for $5,000. The seller accepts. So, if my friend who’s the mechanic comes over takes a look at the car and says, Jeff. This car doesn’t have brakes. I would, I would go back to the seller and I would say look, hey seller I’m still interested in buying your car thousand dollars anymore because I discovered in my due diligence that it doesn’t have any breaks I’m gonna have to obviously install breaks. It doesn’t seem likely that the seller is going to get mad and yell at me and say, but you committed to paying $5,000 for it as is. Obviously I’ve now discovered something unexpected, that was undisclosed and in terms of the value of the car and I’m still interested in buying the car. But I can’t buy it for $5,000 in light of this new information, and it doesn’t seem likely that the seller would look at me like I was crazy for saying handed me a discount on the car, given the fact that I don’t know it doesn’t have brakes. And for some reason though in real estate. This is more convoluted in that car example I can’t imagine the seller of the car, getting mad at me for wanting an adjustment based on some shocking new findings, but in real estate, oftentimes, it can be that way. And the seller can be become upset that you found something, and you must need to know. Change the deal in a way that reflects this new reality. So this brings us to the topic of how is it that we best present our findings from due diligence in a way that is going to facilitate the best possible conversation and allow us to successfully. Have a little renegotiation. So when you’re presenting your findings. The key to the setup of this is you need to frame the situation in the phone way. It needs to come across to the sellers, like this. seller in my due diligence, the inspectors that I hired gave me some new information that neither you nor I were previously aware of, and neither of us could possibly have known about. Okay, then you might say that literally, if you want to verbatim. But if nothing else, at least, you need to frame the situation in that particular way, and this is really really key for three kind of main reasons. Number one is, you’re setting the table here to explain why a change is needed. Because there is no new information new being the key part here there’s no new information that you didn’t know about when you first made your offer. And so when you, when you frame it in this way now they can’t possibly suggest that you’ve made it and switch them because you gave your best effort and your best offer at the time, based on what you knew but now you know more and different things. So, reasonable one it’s really important to do this type of framing is because there’s no showing there’s new information and now that means there has to be a new conversation. Secondly, you’re positioning this new information, not as your own information not as your own opinion, not as your own findings but new information findings and opinions, provided by independent professionals, independent people so now you have a situation where you’ve, you’ve intentionally created a dynamic where, if, if the seller is upset with anybody. They’re not upset with you because you didn’t go in and create the report inspection findings yourself the professional inspected it so if they’re disappointed or upset with anybody. It’s now not aimed, the same to the inspector. And the third reason is you’re really you’re nicely pre framing this situation with a subtle message that says seller. It’s not your fault, that this property is in bad shape. You couldn’t have no you know you’re not a professional contractor professional inspector an engineer or a plumber. This isn’t a reflection of you. It’s not something that has come as a result of your mismanagement of the property or the you unethically withheld from me you could not possibly have known that XYZ was wrong, either. And without this very very deliberate pre frame like this. These findings that you’re about to present can easily be taken as a personal attack on the seller themselves, the silicon see it as you basically pointing the finger at them saying you haven’t managed to place well you haven’t maintained it well. You showed poor ethics and what you disclose or did not exclude disclose to me. So, for those three reasons it’s very very important that you frame this whole situation that seller in my due diligence the inspectors gave me some new information that neither you nor I were previously aware of or could even reasonably possibly know. So what this means is that you’re now presenting information about a new reality. This is a new reality, about the property that is a shock to both of you. Neither of you were expecting this new reality. Neither of you could possibly have known it. And you’re both equally disappointed to learn it now you know they’re disappointed because all this stuff is going to be telling them that their property is not worth as much as they thought it was, but through this positioning, you’re communicating that you’re just as disappointed to learn it as well, because you’re excited about this property you want to own a property in great condition, and you’re just as disappointed to learn about these shortcomings as well. But this new reality is just that it’s a reality. And we can’t really deny reality. So what this means is this new reality. This new reality and the property issues that comprise this new reality, this new reality is the common enemy of both of you. It’s not you, versus the seller pitted against each other in a negotiation, or a debate. It’s you, and the seller together pitted against the reality. As the enemy. It’s you and the seller sitting on the same side of the table, looking at the new reality and saying, Okay, how can we defeat this, the information is the enemy, not the other person. The inspector is almost like the enemy. So I hope you’re starting to see why having an outside third party inspector is so important, because their opinion is their opinion. And you, it’s not you who’s judging them property and deciding this property is good or bad or anything else, it’s a third party who doesn’t really have a vested interest in the outcome. So you’ve now created on purpose. Somebody who you can point, the burden and the blame at which that keeps the five more positive between you and the seller. You know subconsciously. The seller knows that they can’t be mad at you for this new information you’re just the messenger. They can’t they subconsciously they realize they can’t shoot us the messenger because you know you’ve, you’ve discovered some unfortunate news it’s not like you went and, you know, rested the galvanized plumbing out to a point where it’s almost useless. They know that, and so suddenly you are reminding them that you’re just the messenger and the information is the thing that they should be disappointed about. This doesn’t mean now that they’re going to be excited, you know, to hear that there’s a problem they’re not going to because of your great job framing this they’re not going to go, Oh, I’m so glad to hear that the foundation is crumbling, but they are going to be mad at a problem, not mad at you and this is so important when it comes to then taking the steps
to renegotiate or revise your deal in a way that continues to work for both of you. So, the obstacle here that the new reality is is the enemy. It’s not that the other person is the enemy, the sellers not seeing you as the enemy you’re not seeing them as the enemy. you’re saying, boy this new reality is unfortunately the enemy that we need to work, and the sort of the flip side of that is you’re both also kind of equally the victim of this new reality right and I actually hate talking about wanting to come across as a victim because that’s really the opposite of what Thoughtful Real Estate Entrepreneurs, you know, think of themselves as but the point is, you’re both just as equally disappointed to get this new news. You’re both as bummed out and concerned about what it means but that also means that you now are set up to have a perfect collaborative approach to resolving this issue. And, you know, the message here is some, you know, whether it’s suddenly and unstated or whether again you actually might literally say this verbatim. But the good news Mr seller is that you have a property you still want to sell you have a property, I still want to buy. So let’s just find a way to work together to deal with this new reality, I’m sure that if we put our heads together, we can find a way that works for both of us to get past this it positions us both being on the same team. Sitting on the same side of the table. Metaphorically speaking, and it, it suggests the optimism that we can get past this obstacle. Now that we’ve discovered this unfortunate new reality, we can’t pretend it’s not a reality but, you know, I’m sure that we can find a way to work together to get something figured out. So you want to start with this process with your own preparation. And it’s really important to start with the end in mind, this is before you, way before you’re sitting down with the seller to have this conversation. You want to start with the end in mind. Now that you’ve done your due diligence. And you, you understand what’s going on with the property. It’s important that you start with the end in mind. So what is it that you ideally want to have happen from this. What is the outcome that you would like to steer this conversation towards how exactly would you like to see this deal change. Have it get better, or otherwise sort of quote tightened up the expression that I like to use, you’re going to want to gather up all of the written documentation of your due diligence findings that you possibly can get. That’s why it’s so important that all of the information you gather is documented somehow in writing and you’re going to want to print all that stuff out and have it at the ready in your notebook now, it’s very important to note and you’re not going to necessarily share all of it. And you’re not going to just come and drop a huge stack of paper on the table with the seller but if you need it to reference or to provide as evidence in this conversation you want to make sure that it’s at the ready. It’s really important. This is independent credible third party documentation, because that’s what makes it real. That’s what makes it not just hearsay from the seller’s perspective. They know that you spent money to get this information, and that these are licensed independent professionals without any vested interest in the outcome. So then you’re going to want to write a simple one page summary. I like to create just a line by line item summary that itemizes out each of the issues that really came up in due diligence, that we didn’t know about before. And I want to present all of these unexpected things, but I want to show them that I’m also not expecting them to take care of all of these unexpected things to come up. So I write out this list of unexpected findings. And I want that list to be long. I want it visually to look like, Oh my gosh, that’s a long list of things that came up. And here’s the reason because next to each one of these things. I’m either going to put an expected cost to each, or I’m going to write the words buyer to handle this. Next to it. And I want the list to be long, because I want the majority of these items to have the words buyer to handle this next to it. That way they can see visually without even really digesting the gist of the, the items on the list. They can look and see that’s a long list, without even reading it it looks like a long list, but also without even really reading it. 65% of the things on this list have the words buyer to handle the buyer to handle this written next to it. So visually, you can, they can see that you’re taking care of the majority of the items. And I think that’s very important from a psychological perspective, because they’re already feeling without digesting these things that you are not being nitpicky that you are being thorough in the identification of all these things but you’re not being nitpicky you’re not going to sort of Peck them to death by ducks kind of a of an approach, nickel and diamond. It conveys without you saying anything that you’re being fair, you’re being more than fair and you’re looking to make a compromise. So here’s what I say. When I go to share this with them, I sit down and I said, Look, I always expect to find some unexpected things that’s the nature of my business. I know some unexpected stuff is going to come up. And so I plan for that I accommodate that I know that that’s going to come up I don’t know what the things are going to be, but I know something unexpected is going to arise, but there are a few unexpected things from my due diligence that came up that truly are honestly beyond the scope of what I was anticipating could arise. And those are the things that I wanted to sit down and chat with you about today, and to see if we could find a way to handle or accommodate these topics. Then with the seller I go through every single item on the list, no matter how kind of small it is. And if the list is long this is going to take a few minutes for you to go through and that’s again part of the point is that of this long list you’re actually suggesting that you’re going to handle the majority of these things a lot of which are small things, but you’re just reserving a few of the bigger things to really talk with them about. So again I read through every single item on the list I further reinforce the fact that I’m actually handling most of this list for them. And at this point, if I’m if I’m feeling at all like, I see them wavering if I’m reading their body language and it seems like they’re getting uncomfortable. I will often plant a seed in their minds, by saying something like this, you know, I hired a regular home inspector to conduct all of these inspection items and these are all normal standard inspection items, you know it’s it’s safe to say that this set of findings is exactly what any other buyer would find in their due diligence, as well. And this is an important message because it plants the seed that makes the seller feel like if they were to decline, you know, to work with you to address any of these issues in favor of just starting over right if they were to just let the deal die because they weren’t willing to work with you and start over. That would probably be a bad idea because a new buyer is going to come along and the new buyer is going to do the same standard due diligence and the same standard home inspectors are going to find the same standard findings here, and they’re going to, they’re going to find themselves having the same conversation in the future, but having lost time, along the way. So you want the seller to be thinking, It looks like I’m going to have to address all this stuff eventually anyway I could either do it now and just be done with it. Or I could find myself having this same conversation like deja vu five weeks from now, and have the outcome be no different, but it’s just later on I’ve lost more time and money as a result. You can do this confidently, and you can feel good about this because it’s the honest to goodness truth that you did do thorough but pretty standard inspection and due diligence and you do but sincerely believe that if the seller were to sell the property to somebody else who was going to also do a respectable job with due diligence that they come up with a lot of the same concerns later. And in almost all cases, I am not asking them to fix these issues for me again that’s what as is means to me, and it’s what I’ve conveyed to them, it means, I’m also, and I am happy to remind them that this is a real estate professional as an entrepreneur. I’m set up to get work done probably better than they are. I have my subs lined up. I, you know, they respond to me I know how to work with these people, whereas the seller is normally things kind of starting from scratch finding seller finding subs for different projects. So I remind them like Look, I don’t need you to fix this particular particular problem, I’m happy to take care of it myself but the truth is this reality that’s going to affect me and cost me money that I wasn’t anticipating spending. So, instead, that means of course I’m mostly just asking them for an adjustment to the price, or to the terms of the deal, potentially, instead of the price but or some combination of to accommodate this new reality, and I almost always have a very specific proposal in my mind of what I think is fair that I’m going to be ready to suggest to them, usually a very specific adjustment to the price, or to the terms. And I also always go into this meeting knowing to myself, just keep it to myself but I always know what would I actually be willing to live with. If they don’t go for the main proposal so I might go into this into this meeting, knowing that I am presenting a lot of due diligence findings that I’m actually proposing results in a $5,000 credit.
But in my mind, I know that I’m going to ask for $5,000 but if I could get them to give me 20 $500 and I would be able to live with it. So again, just like starting with the end in mind it’s important to know what you want and what you could live with what you’d be willing to accept before you actually get into this meeting. So what is the sellers mindset about this experience. Well, again, this is back to our topic of empathy isn’t it. If due diligence, is the only contingency of your offer. You know, which in most cases means your offer did not also have a financing contingency. If due diligence is the only contingency of your offer. Then this seller knows that if they simply agree to what you’re asking for, then they’re moving forward towards closing. And there’s probably an increasingly reasonable degree of certainty in their mind that this deal is, indeed, going to get closed, so it makes them want to lean towards just saying yes to keep things moving forward. I know when I’m the seller of a property. That’s how I feel too. I don’t always love the repair Denham’s and the adjustments and things that come back when buyer has done their due diligence and they’re asking to work for me to work with them to adjust the deal. But I also know that I really don’t want to be starting over and if I just said yes, I’m moving forward. And again if you know if you’ve done your job well the sellers is feeling like if they say no and have to start over with that new buyer then the new buyers is going to come up with all the same concerns anyway. And then they’ll just be back at the same spot but having last several weeks for no real reason in the meantime. Furthermore, by demonstrating your fair approach to compromise in the, in the face of these unexpected challenges which you are doing by showing that you’re all the majority of the unexpected things that came up. It really honestly can actually strengthen your relationship with them because again you’re showing them you’re demonstrating to them that you are being fair. And these things often work in your favor and help you get the deal done. Now I do need to give you a disclaimer, there is a wild card. When it comes to renegotiating with sellers and a wild card is that people are human. And sometimes we humans are unreasonable. And sometimes we are unrealistic. So what this strategy does is it sets you up to have the highest possible chance of success. When working with reasonable people because you built a logical argument, you’ve taken the emotion out of it. You’ve positioned the new information that you’ve got this new reality as a shock to both of you, you’ve presented a solution that shows that you compromise and are willing to work with the seller and involves you handling a lot, you know as much if not more of the unexpected stuff. As you’re asking the seller to handle. But there’s always the part that the seller is simply not a reasonable person. In that moment, or be rational of being realistic. You know there are people who will say, you know, understand this 30 year tenured engineer says the foundation needs to be replaced, but he doesn’t know what he’s talking about. Those people exist, I’ve met them. And there are people who will say, Yes, I know the house is only worth $300,000, if it has a functional roof, but I’m just not willing to adjust the price to reflect that $15,000 roofing job. Okay. Well, those people exist and these are the same people who might say something like, I realized that if I drop a tennis ball, it will hit the ground, but when I step off this cliff I’m pretty sure that I’m not going to end up at the bottom of the ravine. Okay. Whatever you say. People cannot always be counted on to be rational and realistic. And if you’re rational and realistic sometimes doesn’t mean you’re always rational in realistic. So that is the wild card that is the disclaimer, but by following this process of preparing for renegotiation and framing the situation as independent third party information that is the common enemy of both you and the seller, but that showing that you’re willing to work with them and provided a proposed solution on how to get past this hurdle that you two are just as disappointed to have learned about. You really set up to have your best chance of success, getting your deal renegotiated or tightened up, but unfortunately sometimes deals will die because some people are just not being realistic it’s just part of the game. So in summary, oftentimes your due diligence does turn up new information that has to be factored in has to be considered. Because it was not reflected in your original initial agreement with the seller. And as always, as a Thoughtful Real Estate Entrepreneur, you want to conduct yourself with integrity and honesty and seek a win win with the seller you’re not doing due diligence to gather up a bunch of evidence to then go and railroad somebody. If you conduct yourself with empathy. And you conduct this this process with strategy. And you communicate clearly and logically, the meeting that you have to do this renegotiation can really be a powerful turning point in your deal, and can really help you tighten it up and make it the best it possibly can be going into closing the ability that you have and you develop to conduct this process is such an important part of the seller relations process and the skill set overall. And as a reminder, if you want to keep working towards Mastering the Art of seller relations, go to seller relations, mastery.com, and sign up for our free webinar. Thanks again for listening to yet another episode of sleaze free real estate investing. On the next episode we’re going to be discussing the beginning of an ongoing conversation about how Thoughtful Real Estate Entrepreneurs approach rental properties and why we love them so much. And here’s a hint. They are the key to building wealth in our way of thinking of doing business. So again, please do yourself and do us a big favor by hitting the subscribe button in your podcast app, and rating and reviewing the podcast with your honest feedback. You’ll know when the next episode comes out immediately because you’ll be subscribed and you will also be helping others find the podcast reminder, today’s show notes, including a transcript, can be found at www.thoughtfulre.com/e14, and until next time, this is Jeff from the Thoughtful Real Estate Entrepreneur, signing off.
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