Practical Advice To Help You Profit From Rental Property
How to Buy a House at Below Market Value
tips for negotiating with motivated sellers
Would you like to quickly build a property portfolio using little if any of your own
money ('no money down')? If so, you need to buy at below market value. To buy a house at 15% to 25% or more BMV it is
vital you negotiate with a motivated seller. This is a seller who, for some reason, is desperate to sell the house within a short time
period and for whom the price he/she gets is not the most important issue.
Negotiating a great below market value deal when making a house purchase is about listening, finding out the facts and solving the problems
that the seller faces. It is based upon generating enough leads e.g. it may take 100 leads to produce 10 offers, which
result in one property bought.
An important part of your negotiating strategy is to be clear about your goals and how you are going to finance the purchase. If you are
going to rent it out long term you do not need to go as far below market value (say min. 15% BMV), as if you are going to sell it on after
refurbishment (say min. 25% BMV).
As possible motivated sellers approach you through your lead generation system (flyers, adverts, web site) you must qualify them.
This is one of the most important parts of the negotiation. You need to compile a list of qualifying questions that you put to each prospective
seller. You can do this using a form on a web site set up for this purpose, or through a phone call. The purpose of qualifying is to
find out who are the truly motivated sellers. Follow up on these and discard the rest.
Here are some questions that you should ask:
Why are they selling? Uncover their real motivation.
How quickly they need to sell? Do they have somewhere else to go?
Is it on the market with an estate agent, and at what price?
What do they think the value of the property is?
Details of the property e.g. number of bedrooms, type of house.
Have they had any problems with the house e.g. with damp, central heating, electrics.
Work out how much you are willing to pay - you will need to research comparative
properties that have been sold in the area. You may decide to make an immediate exploratory offer on the phone, or by e-mail or
letter. It is important to explain why it is the low offer. Give a deadline for receiving an answer to your offer. Ask if this
is an offer that could be a basis for negotiations.
If the seller is sufficiently motivated, or if you get a positive response to your first offer as the basis for negotiations, arrange to
visit the house. Be friendly; ask what they do and admire their home. Make small talk and be alert to their hobbies and
interests. Then move on to the tough questions you need to ask about the size of their mortgage and debts. If their total
liablities are greater than what you are able to pay a deal is not on.
If the figures do stack up make a firm offer in writing and explain why it is a low offer. Point out that selling through an estate
agent means extra costs for them, mortgage payments for many months ahead while they wait for it to sell, estate agent fees, and legal
fees. If the house is in a poor condition they will also need to spend money to bring it up to a saleable standard. Your
first offer is most likely to be rejected and if so make a slightly improved offer five to 10 days later. Then allow them time
to think - they will come back to you unless they receive a better offer.
If your offer is accepted keep up communications with the seller. Let them know that
you are actively pursuing your purchase. This means there are less likely to back out of the sale and you will have successfully completed
your below market value property purchase.