After 20 years of real estate investing experience, let me show you how to convince someone to buy your property when they really shouldn't. When it comes to getting the most out of your real estate transaction, learning how to negotiate well is key.
I've written several posts helping buyers try to get the best deal possible. As an equal opportunist, here's a post to help sellers get the best deal possible.
Convincing Someone To Buy Your Property When They Shouldn't
I believe every buyer needs to follow my 30/30/3 home buying rule. If you don't follow my 30/30/3 home buying rule, then you simply cannot afford to comfortably buy the property.
Therefore, when I talk about figuring out how to convince someone to buy your property when they really shouldn't, it's really about not following my home buying rule.
Given human nature of greed and desire, it's not too hard to violate my 30/30/3 home buying rule. Here's an example.
Buyer Taking On Major Debt
After 30 days of showing my house in 2017, I only had one offer, which was unusual for the San Francisco housing market back then. But I had expected this type of outcome because five years earlier in 2012, I tried to sell my house for 40% less and got zero offers.
My house was on a busy street. Few families felt comfortable living close to so much traffic and road noise. As a result, the only tenants I was able to secure during its rental period were 4-5 dudes.
The person who ended up buying my house was a 47-year-old venture capitalist. He had a daughter and a girlfriend. They were the perfect buyer I had in mind. Although being a venture capitalist sounds impressive, there are many different tiers of VCs. He worked at the VC arm of a food conglomerate.
I'm not exactly sure what his income was, but there was a long delay with his financing because he revealed he was leaving his job to start his own company. The bank didn't like the uncertainty of his future income, and I had my doubts his bank would come through.
Only Putting 10% Down
But after going two weeks past his financing contingency, his bank did come through and lent him a whopping $2 million as his primary loan plus another $400,000 secondary loan. In other words, he was only putting down about 10%.
If I was his financial advisor, I would not recommend he leverage up so much to buy my house, especially during a job transition. Better to wait a couple years and see how the new gig goes. Besides, he already owned a nice three bedroom condo not much smaller than my house. I'd tell him to be happy with what he had.
But what's done is done. I sold the house. I suspect he'll be fine, especially if he was able to sell his condo, deleverage, and own his new house for at least a decade. Sometimes you got to take bigger risks to live your desired life.
However, buying a $2,740,000 home with $2,400,000 in debt is aggressive. It violates my 30/30/3 home buying rule for sure. Today, the home is worth more. However, the SF housing market did take a dip in 2018.
How To Get Someone To Buy Your House When They Shouldn't
If a buyer is spending more than 3X their annual gross income after putting down 20%, they probably shouldn't be buying a property at this stage in the real estate cycle.
A buyer either needs to strongly believe their income will continue to rapidly increase or have a lot more than a 20% down payment in other assets if their income is less than 1/3rd the property price.
With that said, homebuyers sometime have a great way of justifying their decisions no matter their financial situation. As a seller, you owe it to yourself and to your family to get the best deal possible. Let us discuss how.
1) You must create real estate FOMO through a bidding war.
Although I only had one offer, we made it seem like we had other highly interested parties. It was the truth, just nothing concrete. We created real estate FOMO by declining a couple private showing requests by telling my buyer we were already showing the place to other interested buyers.
We also set expectations that I wasn't a motivated seller because I know people tend to want more what they can't have. Once we got into contract, we continued to let them know we would be showing the place until their contingencies were lifted.
All it takes is one other interested party to create a bidding war. Their initial offer was $2,600,000, a respectable amount. I countered at $2,800,000, my reach price because I really didn't want to sell.
During their time to respond to their counter, we informed them of a couple other seriously interested families who were dying to buy a single family home in the area for under $3 million, which was true. In the end, they agreed to go up by another $150,000.
Rea estate FOMO is the hardest type of FOMO to overcome.
2) Provide a detailed spreadsheet and pictures of all the work done.
To get someone to buy your property, you must create as much tangible value as possible. Some people simply can't recognize all that you've done to make your home amazing.
It's one thing to say what you did over the years to improve your property. It's another thing to have a nice spreadsheet that lists all the work done with date, description, cost, and vendor.
When you have a detailed spreadsheet, you crystallize your effort and time spent improving your house. Your records also show how much you care. From a buyer's perspective, the more you can demonstrate how much you care, the more confidence they will have in buying your house.
Think about when you're buying a secondhand car and the seller gives you a binder with every single maintenance record since ownership. You are going to trust the buyer way more than if he provides you with zero receipts. It's the exact some thing with a house.
What's even more impressive to buyers are before and after pictures of any remodeling work done. It's very difficult for buyers to imagine what your property looked like before. If you can create a picture album of your work, your buyer will really appreciate the information.
Here's an example.
It's the same reason why it's best to remodel a home with permits. This way, you get all the official progress updates online and in your home's 3R report (home's report card).
3) Describe the lifestyle the home provides.
Your house brochure or online listing will describe the amenities e.g. lush garden, nine foot ceilings, etc. But you should take it a step further and describe what it's like to live in your house. An easy way to do so is to create a “Why You'll Love This House” section. Here are some examples:
- Every Saturday morning we'd ride our bikes along the water until we hit the Golden Gate Bridge. There, we'd stop to marvel at the tranquil water and have a quick stretch before heading back.
- On Sunday afternoons, we'd pick figs in the back yard to make jam and give little jars to our colleagues.
- After a hard day's work, there's nothing better than soaking in the extra deep tub we chose in the newly remodeled second full bathroom.
- Hungry for a quick bite to eat or drink? Walk out the door and be minutes away from a couple dozen of the finest bars and restaurants in all of San Francisco.
The more lovely things you can describe for your buyers, the more they will want your house. They'll obviously have their own ideas, but you'll surely wet their appetite. Create an emotional attachment!
4) Focus on happiness, not money.
Buying a house is an extremely emotional process. Numbers often go out the window once a buyer is emotionally attached. Your goal is to convince the buyer about all the happiness they will experience once they purchase, and not all the headaches of maintaining a property.
Although I wouldn't have advised my buyer to spend so much money on my house, I felt they would truly enjoy the house as a family. As a result, I talked about how we planned to raise a family in the house as well, but our son didn't come until we had moved. I told them how lucky they were to find our house because we did everything we could to make the house family friendly.
I told them how happy we were to live in the house for almost 10 years. If we weren't happy, we would have sold long ago. Like workplace longevity, the longer you are at one place, the generally easier it is to find a new job because employers like commitment.
Since family is so much more important than money, you'll always be able to build greater desire by focusing on non-monetary related things and experiences the house may bring.
5) Highlight the upcoming economic wins.
Whether we're in a bull market or a bear market, there's always something positive you can highlight on the horizon. Highlighting economic wins is the cherry on top of the emotional cake if you will, because it allows buyers to come back to their senses with fundamentals.
In our case, I discussed how the IPOs of Airbnb, Uber, and Lyft would flood the San Francisco Bay Area with thousands of new millionaires looking to buy homes. As a VC, I knew he was widely aware of these types of exits. I also discussed how as an international city, San Francisco was cheap in comparison to cities such as Hong Kong, Singapore, London and Paris.
I made such a convincing argument that I almost convinced myself out of selling. But I eventually came to my senses when I reminded myself the importance of minimizing distraction in order to be a good first-time dad.
Be Responsible In Your Real Estate Transaction
The good thing about a property transaction is that there are laws, documents, and steps in place to protect buyers and sellers from a misrepresented deal. You can't just strong arm someone to buy your property against their will!
Disclosure packages must be thorough and read thoroughly. Inspections should be made. Financing contingencies should be put in place. Escrow and title companies should be used. Real estate agents should be consulted. And sometimes lawyers should be brought in.
Further, if you have a loan, the banks will do their own due diligence as well. They're supposedly not going to lend money to an uncreditworthy buyer in a toppling market. But we all know what happened during the financial crisis.
Both sides are trying to get the best deal possible. As a seller, if you can present a compelling property in great condition at a competitive price, while also following my five steps above, I have confidence you'll get a better deal than if you do not. You will be able to convince someone to buy your property. And chances are, they will likely make a profit if they hold for a long enough period of time.
As a buyer, you must always crunch the numbers and plan for bad times. If you end up having buyer's remorse after all the time and steps it took for you to buy the property, you really have nobody to blame but yourself.
Recommendations For Investors
1) Explore real estate crowdfunding:
If you're looking to buy property as an investment or reinvest your house sale proceeds, take a look at Fundrise, one of the largest real estate crowdfunding platforms today. Fundrise enables everyone to invest in mid-market commercial real estate deals across the country that were once only available to institutions or super high net worth individuals.
Fundrise is the pioneer of diversified eREIT funds to enable investors to gain exposure in a risk-appropriate manner. Thanks to technology, it's now much easier to take advantage of lower valuation, higher net rental yield properties across America.
Fundrise is free to sign up and explore. I've personally invested $953,000 in real estate crowdfunding to take advantage of cheaper valuations in the heartland. It's also great to earn income 100% passively.
The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go.
Another large platform is CrowdStreet, which specializes in individual opportunities in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends.
However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital
2) Shop around for a mortgage.
Has it been a long time since you refinanced your mortgage, or are you looking for a new one? Take advantage of technology and check for the latest personalized mortgage rates on Credible.
Credible is a top mortgage marketplace where lenders compete for your business. Get no-obligation refinance or purchase quotes in minutes. Take advantage!
3) Buy the best personal finance book today.
Pick up a copy of Buy This, Not That: How To Spend Your Way To Wealth And Freedom. I wrote this instant Wall Street Journal Bestseller to help you build more wealth and make more optimal decisions.
As a finance expert with 25 years of experience, there is no better book out there! Pick up a copy on sale at Amazon today!
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