Yep, I offer a whopping $1 for people’s homes, and end up getting the contract almost every time. Ok, so how is it I am offering a dollar to a smiling seller and getting contracts signed? Let me give you a brief background on the story.
If the Seller Says Yes, You Offered too Much
How many times have you gone to a seminar or worked with a real estate coach/mentor and had the “low ball” mentality drilled into your head? I know I have heard the good ol’ “if you don’t feel sick to your stomach when you present the offer then you offered too much” or “take what you think you should offer then cut it in half” punchlines so many times that I believed it as truth. Seminar gurus teach this all the time, and while I get their point, it just fails more often than it succeeds. Then I had a real estate coach tell me to call 100 people selling their home on craigslist and offer them a third of their asking price…..
Damn Right I Was Scared
Just to go ahead and put it out there: I was absolutely terrified of the responses I would get! But being a good student I trotted on out to the wonderful world of craigslist, picked up the phone, and after a couple dozen hang-ups, more than one “f&@# you” and several other vulgar remarks, I decided I was doing something wrong. So I called my coach back and this is the response I get: “if they hang up on you they’re not motivated. Call some more”.
A few things came from those calls:
- I got very comfortable talking to sellers and I would recommend everybody do that exact same exercise. I learned a lot about different types of sellers, and reactions I would receive. Was I scared? Hell yeah, but I got through it.
- That brings me to the second point: I got to do a ton of practicing with “free leads”. These calls did not come from my paid advertising, and therefore if I screwed up the call, who cares? You never want to burn up paid leads with “practice”. Use this free trial as a warm-up to get you going on the calls you are paying for.
- Lastly, I quickly found out low balling a seller is NOT the way to build rapport and get a signed contract regardless of what has been drilled into your head.
What came from this, and many seller conversations later, was that I need to offer as low as I can, but without giving my sellers a slap to the face. Hence, the reverse close was born.
Pawn Stars Style
So what am I doing so differently? How am I showing up to seller appointments when there are multiple investors bidding on a property and I offer a dollar, and I GET the contract? It’s 100% in the delivery.
Believe it or not, many sellers are nervous about talking numbers. They’re not skilled negotiators and they just want a price for their home and for it to be sold. But they watch Pawn Stars and any one of a number of other reality TV shows where some polished negotiator is working the numbers, low balling offers, haggling and everything else in between. So when the seller is talking with you, they are prepared for a long, drawn out, dramatic TV-show style negotiation where you low ball them, and then haggle for a while and so on and so on. This is what they are gearing their nerves up for and they have their game plan all drawn out.
What Do I Do Differently?
The seller is expecting me to start low, they start high, and after some serious negotiations we meet in the middle somewhere with a fair offer. Guess what I do? I offer them double their asking price. Yup. If the seller is asking 100k for their home, my opening line is “if I offer you 200k with a cash closing before the end of the week, do you think we can sign contract tonight?” Ok, I know what you’re thinking: you said offer a dollar and you get contract. Offering double their asking price and getting contract is no accomplishment. I obviously am not still in business by paying double retail value for homes. So why do I do this?
1) Break the Ice
The goal with this opening line is to break the ice and disrupt their thought process. All it does is calm some nerves and get the seller working with you. It’s incredible how the mood in the room changes when your opening line is the exact opposite of what they anticipated. It drops an atomic bomb on their preconceived negotiation strategy and switches their mind from negative to positive. The sellers generally smile really big, start dreaming about all the new stuff they can do with double the money, etc. etc. and it really creates a pretty good laugh. When working with sellers, rapport buys more houses than cash does. If you can make your sellers look at you as a friend and not a negotiation combatant then the whole process is much easier.
2) Slap Yourself
I generally follow up a few moments later with a playful slap to my forehead or something of the like and laughingly say “Oh man! I have never been good at this whole negotiation thing. Wasn’t I supposed to start low and then go up? What if I offered you a dollar in cash and we close in just a few days, do you think we could sign tonight?” Sellers generally get a chuckle out of this, and knowing I am not seriously offering a dollar for their home, they politely decline my offer.
What the sellers probably didn’t realize though, is that my offer was serious and was my starting point for negotiations. Now imagine if I offered them a dollar before I did the setup? You’re damn skippy – seller would have shut down, rapport would have bottomed out like the Titanic and I would not have received the contract. Where do we take the conversation from there? It’s quite obvious that I am not paying double and they are not accepting a dollar, but I 100% guarantee you that the sales price will fall between those two numbers 😉
3) Dead Silence
On to the quick follow up: “Well Mr./Ms. Seller, it seemed pretty obvious that if I paid 200k for your home we could move along pretty fast and get this property closed, but I am almost certain that when I got home my wife would serve me with divorce papers! Selling for 200k would make a lot of sense for you but could put me out of business. Selling your home to me for a dollar would be great business for me but wouldn’t be a good decision for you. So where is the point where my offer is high enough that we could sign tonight, and it be a good decision for both of us? If I offered 10k I am pretty certain you would still be saying no, but what if I offered 25k (said in a joking manner)?”
Then, just wait, in complete and total dead silence.
4) Contract is Now Yours
Several things can happen. About roughly 70% of the time I have had sellers come straight out and tell me their bottom dollar, their reason for needing the money, or their loan balance, giving me the opportunity to better analyze the sale. If I know their bottom dollar I can either accept, or give my explanation why their bottom dollar would still end up in my divorce. If I know their “why” about the money, such as a cruise or to pay off a truck, I might be able to find a way to structure the deal to still get them their “why” and I get the price I need. Sometimes finding out the loan balance when a seller wants a 100k and is refusing to budge even though all logic points towards the home not being worth 100k would reveal this property is best suited as a short sale or subject-to transaction.
Yup.. that’s what I do
All in all, we have accomplished our goal. Get the negotiations started at a very low price point while building rapport and creating a win-win scenario for all parties involved. If you practice this delivery on craigslist just a few times a week I am positive the next time you go to make an offer on a house it would be a light hearted and easy going experience.
I would love to hear your thoughts, or if you have found key tactics that have helped when negotiating please leave a comment below. Have a great day and just keep swimming!
Cover Photo Provided by: Steve Corey
25 Responses
This sound like an absolutely great way to broach the subject of money when you’re going into negotiations. Money is always the toughest part and using a joke is the perfect thing to get the ball rolling.
It has done wonders for me, not only in reducing the seller’s tension, but by also reducing mine. It makes the whole process far more enjoyable!
If you have any questions feel free to ask! I am an open book and if I can give ya a hand let me know 🙂
This sounds like a great way to break the ice, and ease the tensions of talking money.
It has been working for me, especially when first starting out!
I’ve been in direct sales of many different types and have to say the toughest part for me early on was being very intimidated when it came time to get down to brass tacks and talk money. I will say hands down you are exactly on point here and a couple of really important things I would like to hit a LIKE button for each on! You absolutely do need to know your product/service but you can be the expert and if you are uncomfortable, like Daniel stresses here, when it comes to asking for the money or discussing financials with a degree of confidence, your likelihood of closing the sale is pretty minimal. My closing rate improved dramatically by getting out there and finding where my own unique strength were in establishing rapport. Cookie cutter approaches don’t work anymore – but if that seller relates to you or something you can bring to make the interaction more comfortable, then you are light years ahead. I’d like to say I have seen Daniel in action, so to speak, and he is a highly effective closer. I have seen him walk the walk and not just talk the talk. You definitely have to get out of your comfort zone a few times in order to familiarize yourself with the process and this is wonderful and spot on advice.
Thanks for excellent feedback Carol!
Excell en way to get negotiating going. Thanks for sharing. I will use it in my next negotiation.
Much appreciated Daniel! IT has done an excellent job of breaking the ice with me when dealing with sellers, and I continue to use it daily! If you have any other questions let me know. I am never to busy to answer some questions.
Hi Daniel. Thanks for your reply. I do have one question that I wonder if you can provide some feedback.
I found a nice house that needs some updates that is located in an older but nice neighborhood in North Dallas but it sits next to a railroad track. The back of the house is approximately 150-200ft from the railroad tracks. Thus I am wondering how the value of the house may be affected. Both when I buy/flip it and when I sell it retail. I am planning on telling the owner that the fact that the house is next to railroad track affects its price. By the way. I met you during the Rich Dad Wholesale class in Dallas a couple of years ago.
Sorry for just now getting back to this – for some reason I am not being notified of comments! I will get that fixed.
To answer your question tho, railroad may or may not affect the value. The only true answer for that question would to be solid comps. A few questions would be: are there any natural or man made breaks between line of site? Tree lines, walls etc.. Also, are there a large number of homes built by the tracks and occupied?
I would run comps, and if you are still not certain about your results you can adjust your offer to reflect the risk, or you could wholesale and eliminate virtually all risk.
Not sure if those help or hurt, but if you would like me to explain anything in more detail no problem.
Since you are in DFW local you should come to my non profit REIA. We meet once a month in las colinas – this months topic will be owner financing. Look forward to seeing you there.
http://www.meetup.com/DFWs-Non-Profit-Real-Estate-Investment-Education-Group/
here is a link to the meetup
🙂 thanks for taking the time to read!
Talk about throwing out the old negotiating Axiom, “The First Guy to Speak Loses!” out the window. What a great way to build rapport and get the prospect talking!
I can not even begin to count the number of homes I have bought with that opening statement. Definitely helped my closing ratios and ease my erves when I first got started.
This psychological strategy is quite complex and sounds very clever. Breaking the ice before discussing money makes a lot of sense. However, I do wonder if it feels a bit odd after a while. If you use this approach again and again, doesn’t it feel artificial? I guess each seller responds differently which allows for variety. But, are there any other strategies you use?
I use several different closes, and combinations of all of them depending on the feedback I am getting from the seller. I really put sellers into two different categories – numbers or relationships. For the most part when dealing with people you will find that there are the people who care about nothing but numbers, and those who are more about the relationship. Generally this close works better with relationships VS number. With numbers just pull out the calculator and start asking for numbers from the seller, and crunch numbers with them until either they say no, or until both realities match and you can get the signature.
All in all it really just boils down to talking to the people and seeing what they need, and trying to see if you can provide that and get what you need at the same time.
Cheers!
You seem to have a great approach with people. I guess you coach coaches you good by telling you to call more people. It’s all about trial and error. everyone has to learn what works for them. Congrats on all your success with it.
Thanks man! It is definitely a case by case basis – and definitely not something I would use on the average left brain type – but the right brain type tend to like this very much.
Wow! This was a great read! I would never have thought to negotiate like this. I think it’s great that you laid out your technique point by point. You must definitely have a way with people!
I am actually probably the opposite of “good” with people lol! I have to really get out of my comfort zone to talk with people considering I am pretty much an introvert all other times, but this technique definitely helped me a lot. Thanks!!!!!
I’ve got to admit that this seems to get the mood of the conversation moving in the right direction pretty well. I’ve heard the comment a lot about “pressing into the pain” but that always made me feel like I am looking to exploit a weakness that turns the tables into my favor, even though I am not trying to be mean about it.
I’ll definitely give this idea a try.
I would also press into the pain – I will often bring up their pain points quite often to remind them they are in a bad situation and the consequences of ignoring it. I would then present my services as a solution to those problems. Essentially bringing their pain/problem to the surface so that it can be addressed and then providing them with the solution to remove the pain.
Cool post Daniel! I’m about to start my journey as an entrepreneur and this info is magical and so meaty! Lovin it! Stay blessed Daniel . Much love from Sacramento, CA
look forward to your success man!