[0:00:58.3] MF: Hey everyone, it’s Mark Ferguson with InvestFourMore. Welcome to another episode of the InvestFourMore real estate podcast. Today I have a couple, awesome guest for the show. J and Carol Scott who are extremely experienced house flippers. Moved from the corporate world to real estate. J has written multiple bestselling real estate books, and we all wrote a book together, which we’re super excited to talk about today, The Book on Negotiating Real Estate: Expert Strategies for Getting the Best Deals When Buying and Selling Investment Property. It’s all about negotiating, not just real estate, but anything.
J is the only person who have had twice on my show. It might be because he wrote a book with me, maybe not, but really excited to talk to them. Learn about the book. Learn about what they’re up to right now. Then, talk about how this book can help you, and even if you don’t want to pick up the book, we’ll have some awesome tips in this podcast on negotiating.
Let’s start up. J, Carol, how are you doing today?
[0:01:53.5] JS: Doing great. Thanks, Mark.
[0:01:55.1] CS: We’re doing awesome. It’s so good to be here. Thanks for having us.
[0:01:57.3] MF: No. Thank you guys for having — I love talking to a husband and wife team, it’s really cool. We haven’t really done that before on the show. To get started, maybe you guys can catch us up in the last year, two years, what’s been going on investing-wise with you?
[0:02:11.4] JS: Sure. We’ve been investing for about 10 years now. We started with — Check some flips. 10 years ago, we’ve done probably about 200, 220 deals at this point. The last couple of years, we’ve kind of tried to do a few things with our business. One; we’ve tried to diversify, so we’ve started in some new constructions, some spec building. We’ve been buying some rentals. We’ve been doing some lending. Just trying to get out and kind of franchise into other niches, because while we love flipping houses, there’s always other opportunities. Flipping isn’t always the best choice in every market, so we try and stay flexible.
Second; we’ve been trying to kind of scale our business a little bit by putting certain aspects of the business while on autopilot. We’ve been working a lot more with other flippers and partnership type deals where we’re either providing the knowledge, or the money, or both, but we’re not necessarily doing boots on the ground, dealing with contractors everyday type work. That’s allowed us to focus on other aspects of the business while making the actual day to day tasks a little bit more passive for us.
We’re still doing 20 to 30 deals a year, which I think compared to you isn’t very many, but for us, it still keeps us pretty busy. Within those 20 to 30 deals a year, we’re actually a lot more hands-off than we were a few years ago.
[0:03:27.5] MF: That makes sense. I know getting caught up in the flipping business and doing a lot of flips at a time, you get stuck working in the business and not working on it. Like you said, with flipping, a lot of people call it investing, but it’s more of a job. Once you sell a house, that money is — You’re not making any more money on it, and you’ve got to work really hard to make that money. Getting the rentals, doing the lending, kind of being partner would be more passive, like you say, and more of a business, not really a job.
[0:03:54.9] JS: Yeah. I often talk about the fact that when you’re flipping, like you said, it’s a job, and you’re making X-number of dollars an hour. If you work on a flip for 100 hours and you make $20 in profit on that job, you are essentially making $200 an hour. It’s really that simple. It’s no different than working a job where you might be making $10 an hour, or $20 an hour, or $50 an hour. When you’re flipping houses, you’re earning some dollar per hour.
What Carol and I like to think when we’re working on our business is what are those tasks that allow us to make the highest dollar kind of per hour earn, or income? What we found is when you’re in your house doing the painting yourself, you’re essentially replacing a $15 an hour painter and you’re making $15 an hour. We ask ourselves, “What are those tasks that really generate the high dollar per hour income?” What we found is things like raising money, finding new deals. These are the things that generate the $5,000 an hour income for us. Instead of spending everyday onsite, dealing with contractors, or doing the work ourselves like a lot of investors do, we prefer to really focus on those high dollar per hour tasks, like raising money, and finding deals, and finding partners, and doing things like marketing and branding, the things that really can generate lots of money quickly without a ton of time invested on our part.
[0:05:22.0] MF: That makes perfect —
[0:05:22.1] CS: Like he said — I’m just going to interject here for a quick second. Like J said, by automating all those other tasks, that are those menial things, the picking out the tile, or doing the light fixture yourself, and that type of thing, we really have come up with a system at this point to put all those things on autopilot. They really also affords us the opportunity to be out there just talking with more people in general.
Whether it is truly a real estate related task we happened to be focused on, whether it’s specifically looking for a deal, whether it’s specifically teaching other people, or whether it’s just being out in a community meeting more people. As you know, the more people you talk to, the more opportunities come along for new deals.
We have a great example of that. There’s a guy a couple of streets up and we hadn’t seen him in a couple of months. We’ve just been busy doing what we’re doing. He’s like, “Oh my gosh! What a great timing. I’ve got such a great lead for you.” I’m like, “Oh my God! I haven’t seen you all winter. First time I see you —” He remembered that we do real estate, of course, and he said, “A friend of mine has an uncle who just passed away. I think they’re going to want to sell the estate pretty darn quickly. Here’s the phone number. Go give them a call.” By automating all of these other things, we’re able to just be out and about more talking with more people and exploring more options for more opportunity.
[0:06:36.0] MF: Yeah. That’s so true in my business as well. I still do a lot of the flipping work, but I haven’t repaired or fixed anything on a house in 10 years. One of the biggest mistakes I made in my entire career was trying to repair an entire flip myself. It was so stressful. It was such a horrible experience, and it made me no more money, because it took me so long and I did crappy work to be honest. I was making $2 an hour.
[0:06:58.7] JS: No offense to you, but the quality was probably lower than if you would have hired somebody that does it for a living.
[0:07:05.7] MF: Exactly, because I did — It’s not what I do.
[0:07:06.5] CS: Hire someone to redo it.
[0:07:09.1] MF: Yup, so true. Now, like you said, networking with people, talking with people, really paying attention to the time I spend is so much more important, and you have to be careful too. I know you guys, with your flipping book and being kind of a public figure, I’m sure you get a lot of people talking to you a lot of request for your time. You have to be very careful with that as well, so you’re not stuck in meetings and talking on the phone all day.
[0:07:29.6] JS: Exactly.
[0:07:31.4] MF: I’m curious too, before we get started into the book. Carol and Scott, what was kind of your roles when you first started flipping? Was one person the design, one person the deal person? Did you do kind of everything together? How did that work?
[0:07:42.2] CS: When we first started, we were both in charge of everything, because of course we’re a husband and wife and each of us is always right as far as we’re concerned. Although neither of us had ever done anything real estate related, whatsoever. We just kind of jumped in head first and we’re like, “Let’s just do this.” J was kind of doing everything, and I was kind of doing everything all at the same thing.
Obviously, after the first one or two deals, we realized that we really needed to look at where our strengths were and kind of take ownership of certain parts of the business. J is really extremely detailed oriented. He’s very data-driven. He’s the type of guy who I can printout a spreadsheet from listings on the MLS. He can dig through that data with a fine-tooth comb, and 20 minutes later tell you on any street in any neighborhood what the ARV is going to be on any given deal with just looking at that data, looking at those numbers, looking at that history.
He was doing an amazing job being able to analyze deals and then go out there and find funding for them, do the negotiating work with the contractors, those types of things. Do you want to add anything there, honey?
[0:08:49.9] JS: No. That was pretty much what I was good at. That was all I was good at, but that was pretty much what I was good at.
[0:08:56.1] CS: Way too kind. Way, way, way too kind. Then, I, on the flipside of that, my whole background prior to real estate has been in marketing, communications, PR, art design, marketing, branding, all of those types of facet businesses in general. It really lends itself really well into our real estate business, because I was the one, for example, who was able to understand what the demographics were of that neighborhoods, and the types of homes and finishes, and floor plans, and that type of thing that would appeal to those people.
J really had the biggest handle on the whole businessy aspect, if you will, of the business. I think I really took the lead on the whole — The marketing, art, the design, the branding, all those things we talked about just a minute ago, because although those things are really crucial in real estate, the nice thing was working in corporate America for 20 years doing those things prior, it was really just massaging the things I learned over all those years and just applying it into this new field of real estate that we jumped into.
[0:09:57.8] MF: That’s awesome. I promise I’m going to talk about some more soon, but one thing that just popped into my head, how nice is it to be working on your own as supposed to the corporate world?
[0:10:09.0] CS: There are no words. No words.
[0:10:10.4] JS: Yeah. It’s definitely nice. We left our corporate jobs in 2008 and I don’t think there’s been a day since that we’ve regretted. I’ll be honest, we’re working in the industry and we’re making a good bit of money when we left, and so a lot of people say they like working for themselves. The money is better, and they have full control.
For us, for the first several years, we were making a lot less money than we’re making in the corporate world. For us, the benefits really weren’t necessarily the income, but just the control and having the time to do what we wanted and really just control of our own destiny was the important thing for us. Regardless of the income, certainly the right decision for us.
[0:10:55.0] JS: It was phenomenal. A year after we — Not even a year, but, yeah, about a year after we started the business, we had our first little boy, and there’s this infamous picture that all of our friends and family — It’s ridiculous. Of me being in the hospital, he was like six hours old or something. I’ve got a phone at my ear, I’ve got two laptops in front me, I’ve got the baby right on my shoulder, whatever. That’s the nice thing about doing this business. We’ve been able to work for ourselves and really truly take control of our time. It’s awesome, because we still make a living, and I still can go to the PTA meetings during the day and take my kids to lunch during the day, and neither of us has ever missed a baseball game, or a swim lesson, or a violin lesson, or any of that stuff. We never have to be gone, traveling for work.
In retrospect, I don’t know how — I truly don’t know how I could have just been doing the whole corporate America thing while having my children, because I was literally working 80, 90, 100 hours a week, flying around on jets, literally, all over the world. That’s just not sustainable when you have kids if you want to raise them yourself instead of putting a nanny in charge. It’s been the best decision we ever made without a question.
[0:12:02.5] MF: That’s great. I hear that so much from other people as well. They don’t really realize how much they’re missing and how much they’re controlled until they leave that world and go out on their own.
[0:12:12.3] CS: Absolutely.
[0:12:13.5] MF: Great. You guys have obviously had a ton of experience in the investing world, flipping houses, doing rentals, new construction now, lending money even. You had experienced before in your corporate world all with negotiating. That’s kind of what you brought to me this idea to write this book together on negotiating real estate, which I thought was a great idea, because I don’t think it had really been covered in-depthly. Tell me, how did you get that idea and where did it come from?
[0:12:39.9] JS: The idea — Actually, it originally came from — I was doing — Carol and I were doing a real estate meet up in New York a couple of years ago, and whenever we do a presentation, we’d like to do a new presentation. We don’t like to do the same one over and over, because we have the same people. They come and see is in a lot of places and so we want always to have fresh material.
I couldn’t come up with an idea for a presentation, and it was the day before, and I asked the host of the meet up; Darren Zagger, “Hey, can you just send an email out to the people that are in your group, in your meet up group, and see if they have any ideas for presentation topics that they might be interested in hearing about?”
The first one that came back to me was, “Hey, you should do a presentation on negotiating.” It kind of hit me that, “Wow! This topic is so important in real estate, and yet I never read about it. I never hear about it. People don’t talk about it.” I think the problem with real estate and negotiation is there are a lot of investors who think there are good deals out there and there are bad deals out there. They look for the good deals. They try and move past the bad deals.
I think what a lot of people don’t realize is the influence they have over whether a deal is a good deal or a bad deal. There are a lot of deals out there that are on the surface are bad deals, but if you know how to negotiate, you can turn that into a good deal. There are a lot of deals out there that are standing that you might make a little bit of money, but if you know how to negotiate, you can turn a thin deal into a great deal.
That’s really what negotiating is about real estate. It’s taking a bad deal and turning it into one that works or taking a deal that works and making it a deal that really works. It’s something that’s — Really, it’s not talked about very much in the real estate world and I hadn’t read anything about. When we got the feedback from the meet up participant who said, “Hey, do a presentation on negotiating.” I looked at Carol and I said, “This is a great topic. We should do this stuff.”
On the train ride up to New York, we put together a presentation. We did the presentation, and then the feedback we got was fantastic, including several people who said, “This was great. You need to write a book on this topic.” I kind of a laughed it off at first, and a couple of months later, Carol and I were talking. We said, “Hey, let’s write a book from this topic.” The rest is kind of history. I’ve been following you, Mark, on BiggerPockets and your blog; InvestFourMore for a couple of years now, and I said, “Hey, I want to write the book with him.” Carol and I kind of contacted you and the rest is history.
[0:15:07.9] MF: Yeah. I’m glad you contacted me too. When I first read part of the book you’d written, I learned how much I didn’t know about negotiating. I think your background has made a huge difference in that, but there’s just so many tips and tricks out there. What you’ve said about finding deals that may not look like deals is so big. I get questions all the time from people, or comments from people about, “Oh, I’d love to flip. I’d love to buy rentals, but there are no deals in my market. It’s impossible here.”
That’s really not true. You can get a deal anywhere if you know how to negotiate, if you know how to find them through different routes, of direct marketing, even the MLS, short sales, hud home, there are so many ways to find deals if you know how to do it. If these were easy, if anyone could go out there and find a deal the same day they learned about real estate, there wouldn’t be any deals out there. It’s a great point.
[0:15:59.1] JS: The other thing, and just to mention this real quickly. The reason why real estate is a little bit different than other types of transactions, if you go to a car dealership and you buy a car, there’s a price and you’re paying X-number of dollars, and that’s either a good deal on the car, or not a good deal on the car. You walk away and the transaction is done. You’ve either gotten a good deal or a bad deal based on how you negotiated that transaction.
In the real estate world, deals don’t work like that. If I’m doing a flip, I’m buying the house, so there’s one part of the transaction. There’s a dollar amount associated with that, but then as soon as I buy the house, or as I’m buying the house, I’m also dealing with closing cost, and transfer fees, and getting appraisals, and inspections, and each of those tasks involves paying a fee.
If I can negotiate a little bit off the inspection, I can get a good price on an appraisal, I can get my lender to shave a half point off the origination fee. I’m saving money there. Then, once I get into the rehab, I’m dealing with maybe 10, 20, 30 different contractors. If I can negotiate good deals with each of those, I’m saving money on another 10, 20, 30 different parts of the transaction. Then, if I can negotiate a good deal with the buyer when we go to sell, we make more money there. If I can negotiate a good deal with the title company or the closing attorney, we save money on closing costs on the backend. We might save money on title insurance if we do the right things with keeping title insurance open between buy and sell.
Any real estate transaction, there are literally hundreds of smaller transactions that determines how much money you’re going to make or not make. If you do a good job of negotiating each of these hundred, or 200, or 300 pieces of the deal, that can make the different between a breakeven deal and a deal that you’re making 10, or 20, or 30,000 on, or you could take a deal that you’re not making money, turn it into a deal where you’re making money, or take a deal that you’re making money and you can make a lot of money.
That’s really why real estate is different than a lot of other transactions, is because there are so many opportunities to negotiate during a real estate transaction that really can take a one deal in turn it into a much, much better deal.
[0:18:14.4] MF: Yeah, so true. Every piece of real estate is different. It’s all on a different location. It’s not easy to value like a car, or vacation. It’s all different, which leads a lot more room for negotiating as well.
[0:18:27.2] JS: Exactly.
[0:18:28.0] CS: That’s right. Also, in addition to everything J said. I think another big differentiator with real estate negotiating is in addition to so many touch points throughout the process. There are so many different people and so many different emotions tied up in every part of the process. It’s not like you’re selling pallets of pickles for example, it’s a commodity, whatever. It’s something obviously where it’s a home. It’s where people once lived, or somewhere where people are going to live. It’s all of the things that are tied up with that all throughout the process.
I think just with having the emotion being such a huge part of every part of the transaction that really affords more opportunity to really play upon those emotions in lack of a better term. Just really, not only take advantage of them necessarily, but really if you wear those emotions, leave different people in their decision making process, and that can really, really enhance your negotiation all the way through.
[0:19:21.9] MF: Yes, for sure. That’s a great point, because different points are important to different people, and you see that all the time when you’re dealing with sellers, or buyers. Then, if you can figure out what’s most important to them, you have such a better chance of making them happy and making yourself happy too with good negotiations.
[0:19:38.1] CS: That’s right.
[0:19:39.1] MF: All right. Like I said, I was really impressed with a lot of the information you guys put together on the mindset of negotiation, not just in regards to real estate, but just negotiating anything. I know your history before real estate helped you with that. Can you give us some background on where you gained so much knowledge on negotiating?
[0:19:59.1] CS: Like I had mentioned earlier, my history is incorporate PR, marketing, branding, all that type of thing. A lot of employer relations type of things as well. You’ll probably notice, as we talked a lot through these, I talked a lot about the whole people aspect of everything. It’s all about the people. It’s all about the relationships, the relationship building, the ongoing trust that you have to build with people in general. That’s a really big part of the book, and that came, I think from my work history in general.
Think about anytime you see — Let’s talk about maybe a magazine ad, or an ad on television, or something on social media. There’s such a huge drive behind that to make sure you are really touching the things that motivate people so that you can inspire them to ask or behave or take action in a certain way. That is something — Like I said, through every job, every step of my career, it’s always been focused on the people aspect. Whether it’s marketing to them, whether it’s creating a PR campaign around that, whether it is doing a whole corporate company-wide initiative to get people in tune with the new product launch, or something like that, really key part of success to any of efforts is making sure that you’re really touching the heart and soul of the people that you’re counting on to execute those things, or to take action or to do what you want them to do.
When you really think about it, that is — Even though it might not be dollars and cents negotiation, that is almost just a buy-in type of negotiation, just a personal relationship that has to happen to get people to act in the way that you want them to do, to do what you want them to do, so you can really reach that end result.
My big contribution to the book is really all the people aspects of it. It’s about building relationships. It’s taking things slow and not being a big bully. So many people think, Mark, that negotiators and — Frankly, you can’t blame people for thinking this. People think that negotiation is, “I’m going to go in there. I’m going to put my fist down on the table and want to be the big, strong, tough negotiator, and we’re going to show them who’s boss. I’m going to give him the silence treatment, and I’m just going to put my foot down and that’s the way I’m going to own this negotiation.”
Of course, people think that, because of course, that’s how the media sensationalizes it. That’s how reality TV sensationalizes negotiating. I truly believe that negotiation is quite the opposite of that whole approach. I very much believe you just start talking to people and you be real, and you learn more about them. You hear more about their family, about their jobs, and next thing you know you’ve got a little bit of trust going on. You’re building this ongoing relationship.
Then, when it comes time to get into a negotiation process, you really understand what makes that person tick. Then, you can go ahead and start working through negotiation, and you learn that that person is more apt to come to some type of agreement with you, because they like you, because they trust you, and because they also want to see you succeed. Unlike somebody who just comes in, strong arms, and is just like, “Okay. We’re going to do this and we’re going to make this work.” Who wants to be attached to a situation like that?
Getting back to the original question, I’ve definitely learned over the years, through all the marketing, branding, PR, communications, employer relationships, it’s all about making sure you get people and that you really nurture those relationships with people to achieve the results you want to.
[0:23:35.9] MF: That’s awesome advice. Some of the things that I read in the book, I realized I was doing without doing it, but the way you put them into words, it makes so much sense. Like you said, if someone is a hardcore negotiator and is just trying to win the negotiation themselves, that’s not a long term strategy that works well, because one person feels like they lost. If you can make so that both feel like they won, then you’re going to have a better relationship with that person. If they happen to be an agent, or a seller with a lot of houses, maybe you get repeat business from them. You didn’t piss them off and chase them away forever.
As investors, also, there’s a lot of — You’re dealing with houses, which is the most expensive thing that most people will ever own. If you really make someone mad, if you really negotiate hard with them, there is a chance you could get sued or they could come back and think you did something wrong, which is not a good decision to be in. Yeah, happy, happy negotiations is a way to go.
[0:24:28.5] CS: Agreed. Talking about in the beginning of the podcast, we talked about putting our business on autopilot and optimizing as many of our systems and processes that’s possible, the full strategy if you will, is part of exactly what you’re talking about by working so closely with the agents, and the title companies, and people out in the community. We have absolutely gained their trust.
We’ve come to a point when we do flip a house, we frequently have it on under contract before it’s even finished, because we’ve got agents out there who are like, “What have you got next? I love the products you put out, and I love working with you guys. It’s easy, and my buyers are always happy afterwards.” It’s definitely the right approach for a long term solution rather than just one-off deals and not caring what happens after that.
[0:25:15.7] MF: For sure, and yeah, I’ll have agents bring me deals now, even though I am agent, that they know it will be tough to sell and hard to get rid of, because they know I’m going to work the right way. I’m not going to try and nickel and dime them or steal any clients away from them or do anything like that. They know I’m going to do what I’m going to say and they rather work with me than deal with other people who may not be quite as on the up and up.
J, can you talk a little bit about your background and how that helped with the book as well?
[0:25:42.9] JS: Sure. It’s funny. Before I get into my background, we talked early on in the book about how negotiation is really a blend of both art and science, and I think Carol’s skillset, and I think what Carol just touched on, is the art of negotiation. It’s really figuring out how to deal with people, build rapport, build trust, build relationships, figuring out what makes people tick. That’s really the art of it, and that takes a lot of practice.
The flipside is kind of the science of negotiating, and I think that’s where Mark, you and I, kind of came in with our contributions to the book. That’s talking about things like; what is the process and what are the more quantitative aspects of the negotiation that can be controlled? That’s things like assessing the leverage that each side has. When I use the word leverage, I kind of mean the pressure points, the problems that each side have or the constraints that each side have, or the issues that each side has that gives the other side power, or takes power away from the other side.
These things, while maybe not measurable, they’re certainly more quantitative than the relationship aspects. These are more sciency type stuff when we talk about things like balance of power in a negotiation. Any point in a negotiation, one side is going to have a certain amount of power, the other side is going to have a certain amount of power, you definitely strive to have each part having kind of equal power, because when there’s an imbalance in power, that causes problems in the negotiation. We talked about that in the book.
There’s kind of a science behind how do you keep the power balance within a range so that either side feels like they’re being taken advantage of, either side feels like they’re being steamrolled. These are kind of the more sciency things that go into a negotiation. Additionally, things like actually figuring out which should you offer. You have the hows, and the seller thinks it’s worth X, and you think it’s worth Y, and you’re willing to pay Z. Where do you make your opening offer? Where do you make your counteroffer? What’s an optimal price to pay, or other concessions to make, or other terms, or other conditions, or stipulations in the agreement that will allow you ultimately at the end of the negotiation to settle somewhere that works for both thoughts?
Again, there’s a lot of art to it, but there’s also some science to it. I think what Carol talked about earlier was kind of the art of negotiation and building relationships and dealing with people, but I think what you and I, Mark, you and I kind of focused on, our contribution to the book was more of the sciency type stuff and the actual getting down into the quantitative aspects and negotiation and figuring out what’s the right offer and how to put that offer together.
With that in mind, my background was more on the corporate negotiation side of things. I did some mergers and acquisitions for a couple of big companies from the technology side. A lot of what I did in the corporate world was I worked for a company, and we’d be negotiating with another company either to buy them, they by us, or negotiating like the licensing or sale of patents, or large pieces of technology.
These negotiations — I’m not going to say they didn’t involve building relationships and building trust, all the stuff Carol talked about, but at the end of the day, a lot of it was more quantitative. It was around the numbers. It was around the terms of the deal, or the stipulations within the deal. It was really trying to find — Come to an agreement that work for both sides purely from a quantitative standpoint.
My experience, unlike Carol, who is more around dealing with people, mine was more around dealing with numbers and dealing with contracts and more what I think people would consider the product typical negotiation sitting in a boardroom and just hammering out details, qualitative details.
[0:29:47.0] MF: That’s. I didn’t realize you had such a great in-depth background in that, but obviously it worked out fantastic from this book. What you said too on the numbers and details, that’s really what I like to get into myself, whether it’s about foreclosures. We talked a lot about that. Hud homes. They have a very set systems on how hud homes are sold. If you can figure that out, you can get some great deals if you know what offers to make, when to make them, lot of opportunity there.
In houses on MLS in general, there’s a lot of off market opportunities, but there’s still opportunities on the MLS if you can look for the properties that maybe are aged, or have quick price changes, or different working in the MLS, and then you figure out what you offers wants to be based off those signs, and then you can kind of figure out how motivated the seller is based on their counteroffer or how the respond to your offer. There are so many different things you can look at. Yeah, I think it’s a great mix of kind of people and negotiation overview, which then is moved into the details and exactly how to use it in real life.
[0:30:45.6] CS: In addition to that, in the book, we were talking about how to use those details and do it in real life. One of the things we really loved about the book is that as you go through it, there’s very specific dialup. Literally, if this situation comes up, you could say this. If the person replies with this, then you should maybe think about replying with this.
There are very, very step-by-step types of dialogues that really help you apply those situations in a real life setting. In addition to — With along interest first within all of the narrative of all these different parts of the book, there are these great little nuggets that are called quick tips and action tips so that as you’re going through all the paragraphs in the chapters, there are really all these great little callouts that are awesome little reminds of things you can be doing on a daily basis in any of your negotiation. There’s really all these great little examples that you can use every single day.
[0:31:44.6] MF: I really liked that part of it as well, and same stories and real life examples, not just kind of theoretical. It’s so nice to see.
All right. Moving on, Carol, J, whoever wants to answer this one. What are some of the biggest mistakes you see people make when they’re negotiating?
[0:32:04.4] CS: The one obvious one and it’s obvious once you realize that you’re doing it, but I’d say the biggest mistake that I see, the most obvious mistake I see is people going to a negotiation unprepared. There’s a common saying among negotiators that the side that goes in with the most information just typically the side that’s going to come out with the best deal. That really goes back to preparations, and we talked a lot in the book about doing due diligence before you actually get to the table, whether that’s a boardroom table or a kitchen table, in the seller’s house, or whatever the negotiating table is, before you get there, there’s a lot of preparation that needs to be done. That ranges from due diligence on the market in general, due diligence on the neighborhood, due diligence on the street. Due diligence on the house, due diligence on the buyer or seller that you’re going to be dealing with. You can really think about it from a whole different number of levels, from the highest level, what the national real estate market look like down to what are the motivations of the buyer or seller that you’re dealing with.
There are lots of ways to do this due diligence. Everything from public records, to social media, to driving around neighborhoods, talking to neighbors, talking to the buyers and the sellers themselves obviously. The person that goes in to the negotiation most prepared really is going to have the best chance of getting the best deal.
I see a lot of investors who will go into a negotiation or go into a situation completely unprepared. They’ll get a phone call from a seller and the seller will say, “Hey, I want to sell my house. How much will you offer me?” They say, “Let’s arrange a time for me to come to your house.” They show up at the house and they haven’t done their due diligence before they show up, and they get there and the seller says, “Okay. How much are you going to offer me for my house?” The buyer doesn’t know what to say. At that point, if you get to the point where the negotiation has started and the seller, or the other party says, “Okay. Give me a number.” If you’re not prepared, you’re losing your opportunity.
We talked a lot in the book about how to prepare yourself for that moment when it’s time to throw out an offer of present an offer. Really, I’d have to say the biggest mistake people make is just not being prepared and not doing their due diligence.
[0:34:29.0] MF: Yeah, that’s great. I want to jump in here just for a second, but completely unrelated to what most of the book about is you see that with real estate agents as well too, where if you’re going on a listing appointment, they show up without any information. They’re just looking at the house. Whereas if you show up with a listing contract, you have a CMA to show them on this work. You can give them all these information. You’ll probably get a listing contract signed that same day, where if you wait and come back three days later, they might go use another agent. The same kind of goes for sellers who are working with investors. Yeah, the more preparation you can have, the better off you’ll be.
[0:34:59.8] JS: Yeah. A lot of times you’ll only get one chance. If the way you respond to that chance is, “I don’t know. I’ll come back in a couple of days.” You may have lost your opportunity. You really want to be prepared when that opportunity to start the negotiation presents itself.
[0:35:17.1] MF: Yup, exactly. Any other —
[0:35:19.8] JS: I apologize. I didn’t mean to interrupt. I’ll like Carol talk about this, but the other big mistake I see people making, and Carol touched on it earlier, is really going into a negotiation without having built rapport and trust before starting the process. Do you want to talk about that, Carol?
[0:35:34.6] CS: Absolutely. In any real life situation, it’s important to really get people to trust you. I could go on forever about this, but I want to give really a great example of the situation that’s talking about rapport and trust and that type of thing.
Several years back, we did a bunch of direct sellers around shot sales, and I got a phone call, and then I looked at the address, talked to the woman who is selling the house, a bit, and arranged to meet at her house the next day. In the 24-hour period between that first phone call when I went to see her, I did so crazy much research on the neighborhood, on the house, but very specifically on her.
It touches a lot about this in the book, and J just touched on it a bit. Dug into her social media. Just dug into some stuff online and I was actually able, rather quickly, to find out that she was going through a pretty messy divorce situation. There are some other things I’ll wrap up, some emotional stuff going on with that.
I go over to her house the next day and I had already known these things, and we’re talking about why do you want to sell your house. She’s like, “Oh, I just have some personal things going on.” I’m like, “Oh, I’m sorry to hear that.” We just sat there and I could really just tell she just wanted somebody to talk to. She, more than anything — There’s so much of me that really think she made that initial phone call just because the business cards I sent out were pink, and they were very girly and feminine. I swear to God, that girl just wanted another girl to be able to talk to, and talk with, and just vent to and not having to pay for a therapist.
We just sat in her kitchen table and I’m infamous for doing this, it’s terrible. She had a pot of coffee on the stove. I’m like, “Do you mind if I grab myself a cup of coffee?” The next thing you know we’re sitting at the table and we’re not chatting about her house at all. We’re talking about nothing related to why she needs to sell the house, or just sitting there, two girls drinking coffee. Next thing you know, she tells me her life story about the guy she met in high school and they’ve been together forever and now this, that, and the other thing and they’re getting divorced, and blah-blah-blah-blah-blah-blah, all this stuff.
Then, by the end of that conversation, it finally led back, “Okay. Are you really ready to start moving on?” Fast forward, I don’t even know, maybe a week? Two weeks, or something, and we just the whole thing worked out, and it was honestly quite simple, because all I did was sit there and listen and listen and listen, and it built up a lot of trust and rapport, and I was this clear choice of the person she wanted to work with, because she knew that — She felt that she could trust me and that I would be able to get the job done and really make her life a bit easier.
I think that’s what we’re talking about, is just the importance of really making sure that you take the time to listen to people and just make sure that you engage them in a way that really strikes at their heart so that they are motivated to work with you.
[0:38:41.4] MF: Great information. I have a question — I don’t know. This is a tough one to answer, but how do you know when you can move from building rapport and trust to actually trying to close a deal or make an offer? Is it different with every situation? Does that just come with experience?
[0:38:56.7] JS: A lot of times, it’s going to come naturally. Carol kind of touched on it. We’ve had situations where we’ve gone and we’ve met with the seller, and you could tell that the seller is kind of the let’s get things done type. They don’t want to talk. They don’t really want to — They don’t want small talk. You show up and they say, “Okay. How much are you going to give me for my house?” You might ask a couple of questions, but they keep coming back to, “Give me a number. Give me a number. Give me a number.”
With people like that, you really do. You want to treat them the way they want to be treated. If they’re a get down to business type and they just want to talk numbers, you start talking numbers quickly. On the flipside, if you’re talking to somebody and they seem thrilled to talk about their family and their history and how their kids are in middle school and they want to talk about the sports their kids play. Then, you let the conversation naturally go where they want it to go, because what you’ll find is that everything they’re telling you is information that can later be used in the negotiation.
We tell a story in the book about how years ago — This was like 2010, our closing attorney who we’re friends with, was doing — Was walking through his neighborhood and there’s a garage sale going on and the parent — The women that owned the house had passed away and the daughter was selling off a bunch of stuff in the house. He called us and he said, “They may be interested in selling the house. Do you want to come by?”
We drove over there, and Carol started talking to the daughter of the woman who had passed away. They talked probably for two hours and Carol was just asking about her mom and just — I wasn’t there, but I’ve seen this so many times with Carol that I imagine that they are just probably talking about everything under the sun.
We go to leave and I said to Carol, “So what happened? Did you make them an offer?” She said, “No. No. No. She’s not ready to start thinking about selling the house. She’s still in emotional wreck and the time is just not the time. It’s just not right.” Okay. Fine.
A couple of months later, Carol comes to me and says, “Hey, do you remember that house that we looked at a couple months ago.” I said, “Yeah, of course.” She said, “It’s ours if we want it.”
Apparently, in that intervening couple of months, Carol kept in touch with the woman. Basically, sent her Christmas cards, sent her sympathy card for her mom passing, and at some point the woman was ready to start talking about the house. Because Carol has made such an impact on her, because they had built this relationship and built this trust, when she was ready to sell her house, the first thing she did, she called a real estate agent. She didn’t start talking to friends, or neighbors. The first thing she did was she picked up the phone and called Carol and said, “Hey, I’m ready to sell my mom’s house. Are you interested in buying it?”
This is an example of a negotiation that took place over several months, and it wasn’t until three months after we had met this woman that we actually started talking about numbers. Long story short, long way to answer your question is you kind of let the other person determine what the timeline is. If they’re not ready to start negotiating, if they’re not ready to start talking numbers, then talk about whatever they want to talk about. Build that relationship, because the stronger the relationship is, the more likely you are to get a good deal when you do start talking about numbers.
I think a lot of investors — That’s another mistake a lot of investors make, is they go into a negotiation and the seller — There’s an emotional attachment to a house. It could be a house that the seller grew up in. They may have owned it since they were kids or they may be selling a house of a relative who’d passed away. They’re not necessarily ready to just jump in to the numbers. They just want to talk. They just may want to figure out, “Can I trust this person who’s going to be buying this piece of property is more than just a piece of property to me. This is my home. This my childhood home, and my father’s home, my parents’ home, my grandparents’ home.”
For them, it’s not so much a business transaction, it’s a personal transaction. Instead of just going jumping in to the numbers 10 seconds after you get there, that may not be helping you. Take queues from the other party and see when they’re ready for an offer, in what form they want the offer. Do they want a formal relationship, or would they be happy if you just talked about the numbers? Do they want attorneys involved, or do they just kind of want you guys to take care of it between you?
The other part is going to give you the queues you need to determine how to do things and when to do things. A good negotiator is going to take those queues and really give the other party what they want, when they want it, in the format that they want it, if that makes sense.
[0:43:33.0] MF: Great information. I think — Basically, what you’re saying is listen to the people. Don’t just —
[0:43:38.4] JS: Yes. It really is. It’s that simple. Listen, listen, listen, listen.
[0:43:41.6] MF: Yeah, I see that a lot. I do it too. It’s tough to have your own comfort zone and what you’re comfortable of talking about and making sure you listen to what’s important to the other people and focusing on that. Just like, if they want to talk to you on the phone, don’t email them. If they want to text you, don’t call them on the phone. Listen to what they want to do, how they want to communicate. How they want to meet. It will make it much better. Great.
We’ve got a few more minutes here, but I want to end — What are some quick tips you can give us for not just negotiating on houses, but negotiating in general to make people better negotiators?
[0:44:14.3] CS: One of my favorite ones is simple as this; negotiate everything, everything. Not just in real estate. I can’t tell you the last time I’ve paid full price for anything in a store ever. I will literally always, always, always ask, “Hey, I saw there’s a 25% off coupon, but I forgot to bring it with me. Any chance you can make that happen?” Of course, there was never any 25% coupon. Next thing you know, they’re like, “Well, I don’t have 25% thing, but I can give you 20%. Would that be okay?” “Sure.”
That is number one; negotiate absolutely everything, because it’s just — I guess it helps you kind of flex your negotiating muscle if you will. Doing all those little negotiations on a daily basis prepare for you the bigger, more lengthy, more involved negotiations that you get into your real estate business.
[0:45:01.9] JS: Yup. Another one I’ll throw out there, and we talked a lot about this in the book. Negotiate things other than price. A lot of people, especially non-seasoned negotiators, all they focus on is the price. They think all the other side cares about is money and they feel like they’re just — One thing that can be negotiated in a transaction, that’s price.
Especially in real estate, that’s not true. There are so many other things that can be negotiated. Again, we talked about a lot of these in the book, but everything from seller financing. I tell a story in the book about an investor I used to work with named Jeff, and Jeff kind of taught me this idea about 10 years ago. We were talking one day at a rehab meeting and he told me he was looking at a bunch of houses all from the same seller of a rental portfolio. He was telling, “Yeah, I want to pay about 300,000 for these houses.” I was like, “Ooh! That’s actually a really good deal,” and whatever.
A couple of days later, I see Jeff at a lunch and I was like, “Did you get those houses?” He said, “Yeah.” I said, “Did you get that price?” He said, “No. Instead of 300, I paid 480,000.” I was like, “Oh! That doesn’t sound like a very good deal.” He was like, “No. It’s a better deal.”
We talked for a while and he explained to me that 480,000, but that was seller financed. Ultimately, he was planning to get a bank loan for the portfolio of properties, and had he gotten a bank loan at the $300,000 price, it would have put $30,000 down and he would have paid something like $2,000 a month. Instead, what he had negotiated this $480,000 price was the same $30,000 down, but it came out to something like $1,900, because it was an interest only loan over 20 years.
Ultimately, the total amount he paid was about 180,000 more, but he got down into the seller financing terms that he negotiated. He’s actually paying less money per month over 20 years with, I think, either the same or a little bit less down payment. On the surface, it looked like he was paying $200,000 too much for this property, but he was actually getting a better deal, because he negotiated the seller financing. He negotiated some great terms on seller financing. That was an eye-opener for me, because it made me realize that the price, the number of whether it was 300,000 or 480,000 didn’t really matter. It was the terms that mattered.
In real estate, there are so many different terms that can be negotiated. Again, everything from seller financing, personal property that you can throw into the deal, negotiating a quick closing, a lot of sellers will take a much lower price if you can close the deal in five days, because they may have an expense they really need paid off, or they may need to move very quickly for some reasons. If you can close quickly, you might be able to get a much better deal.
I was reading — I don’t remember where I was reading this, but I was reading a story a couple of days ago about a guy who was negotiating a deal. He was like $10,000 apart with the other party and he shows up to the negotiation a bit. This is a listed property and he actually shows up to the listing agent’s office. He said, “Okay. Here is my final offer.” He dropped a $50,000 Mint coat on the table and said, “My previous offer stands, but I’ll throw in this Mint coat.” Apparently, it was a coat he had bought for his wife and it was non-returnable, and they got divorced, and it was just sitting in his closet.
Basically, he said, “Here’s a $50,000 Mint coat to make up the $10,000 difference that the seller wanted an offer price.” Apparently, the seller jumped at it and said, “Absolutely. I’ll take the coat and we have a deal.” This was something that’s just sitting in the guy’s closet. The value to the seller was a lot greater — This great, the value to the seller was a lot greater than the value to the buyer. It’s a win-win.
Both sides kind of got what they wanted, because there’s this thing that had a differential value. There’s different value to one party than there was to another. It allowed them to bridge that gap of $10,000 that was between them. These are the types of things that creative negotiators do. They figure out other aspects of the deal other than price that can be negotiated and that can really be used to overcome any price gaps.
One of my best piece of advice is figure out what those non-priced terms are and then use those in your negotiation. We talked a lot about that in the book of course, but that’s just something that I think that all real estate investors should be thinking about. What are those things other than price that we could be talking about here.
[0:49:27.1] MF: Great information. One tip I’ll add that I’m bad at, and I know I need to work on, is trying to get the other side to name a price first. I think if you can do it, that makes negotiations go very well, especially with off-market properties. It’s tough to do, and it doesn’t always work in every situation, but it definitely gives you a better idea of where you’re at, where things can go if the other side will give you a price first.
[0:49:51.8] JS: Yes. I’m a big fan of always getting the other side to throw out a price first. There’s also a value, and if you have to throw out a price first, there are some benefits. The biggest is — Again, something we talked about in the book, a thing called anchoring.
Anchoring is this idea that when neither side has really considered a price, the first price gets thrown out. Both parties can become “anchored to that price”. That price becomes something that both sides now considered a fair value for the transaction even if it’s not.
I told a story in the book about how back in 2009, 2010, 2011, we would deal with a lot of sellers who we’d walk up and we’d say, “How much do you want for your property?” They’d say, “Well, we know it’s worth $300,000, so we’re not going to take a penny less.” They thought it was worth $300,000, because that’s what it worth before the 2008 financial crash, housing crash, and they had bought the house for $300,000, or they had refinanced for $300,000, but this was Atlanta in 2010, and things were down about 60%, 70%, so their house might have been worth 120,000, but they were anchored to this $300,000 price point because that was the last price they knew their house was actually worth.
The whole idea of anchoring is really important, and if you have to throw out a price first, you can actually use that as an opportunity to create an anchor point with the price you throw out. There are some interesting strategies around if you have to throw out the first price, how you do that in a way to make the whole negotiation tipped in your favor.
[0:51:25.7] MF: Great information. Great tips. I think we’re out of time now. I know we’ve got this book available on Kindle, it’s a paperback on Amazon. It reached number one bestseller status pretty quickly, and we’re also giving away a free chapter. J, you want to go over how people can get that free chapter?
[0:51:43.4] JS: Absolutely. If you visit our website, negotiatingbook.com, gives you more information about the authors; Carol, you, Mark, and myself, gives more information about the book. You can also download a free chapter of the book, see if you like it. If so, it has instructions on how you can purchase the book from Amazon.
[0:52:06.0] MF: Awesome. Great. J, Carol, thank you so much for being on the show. I learned a ton writing this book with you guys and going over the whole process. I know you’ve provided a lot of information in this podcast as well. We have so much more information in the book. It really is an awesome product and I’m really proud of it.
Thank you guys for being on the show, and I’m sure we’ll keep in touch. Yeah, anything else you want to add before we get out of here?
[0:52:27.7] JS: I think that’s it, Mark. Thank you so much. It was a pleasure writing this book with you and I look forward to the next one. We appreciate you having us on.
[0:52:34.7] CS: Thanks so much, Mark. You have a really great week.
[0:52:37.0] MF: All right, you too as well. Yeah, we’ll talk soon.
[0:52:40.3] JS: Sounds good.