Real Estate Investing with Andrew Lieb

7/19/20: Seg 4: Tips to Negotiate Real Estate Purchases in Today's Market

July 19, 2020 Andrew Lieb / Lauren Lieb Season 1 Episode 86
Real Estate Investing with Andrew Lieb
7/19/20: Seg 4: Tips to Negotiate Real Estate Purchases in Today's Market
Chapters
Real Estate Investing with Andrew Lieb
7/19/20: Seg 4: Tips to Negotiate Real Estate Purchases in Today's Market
Jul 19, 2020 Season 1 Episode 86
Andrew Lieb / Lauren Lieb

Acquisition Negotiation Techniques in a Seller's Market. 

Show Notes Transcript

Acquisition Negotiation Techniques in a Seller's Market. 

0 (3s):
Your personal coach and trusted attorney Andrew Lieb. We'll help you get started in building your real estate empire. Grow your self confidence. Find your grit and get the skills needed to dominate the real estate world. This is real estate investing with ed brutally evenly.

Andrew Lieb (26s):
I just love having Eric Feil. Tell us what's cool in Dan tastic in the Hamptons, but I'm hoping that we're going to have, if you, if you know anyone in Georgia, I want you to send them my podcast. So we're going to change this. Brian camp's mind together together. We're going to do it and he should be cool. Like governor Tate Reavis, who understands that masks protect businesses. That's the key mass protect businesses. And before the break I was saying, I don't know if you read about this, Lauren people are getting on tick tock, 2 million, 2 million. I want to say that again.

Andrew Lieb (55s):
2 million views, 2 million views of, of themselves dressing up these kids. And they're dressing up as old grannies and they're going in there buying alcohol and they're going in. It's pretty cool. I read about this in the post, but then it's everywhere. If you check it out, they're going into stores like convenience stores and they putting the mask on. So no one could see their fake ID and don't misunderstand illegal, illegal, illegal, illegal, illegal, illegal. And I think these shopkeepers got a problem too.

Andrew Lieb (1m 27s):
And they better get a scanner for the ID cards and everything else, because you know, we do have a legal bent on the show and I'd hate for them to lose their liquor license. When a cop goes undercover as a nanny nanny wearing, I'm not a nanny and granny wearing a mask, but Brian, if you ever thought to yourself, I want it to be a transsexual. And I want it to dress up as a granny. This is your chance with a mask. No one would ever question. And what will she call Brian? What is that? Is it Bree Bree, governor Bree camp. That's what we're going to call her.

Andrew Lieb (1m 58s):
Now, peri camp. You could be granny with a mask and we think this is your chance. I want you to know. So we'll even take your picture and make it go on all the businesses in the Hamptons from this cool project, supporting a great cause. And I hope, you know, that's what Eric was telling you about. All these different art galleries. The mask thing are all to support the people that need it. And that's something we really need to do in this time. And I want you to know, I want you to know that together. We have to come together. And I mentioned that the first segment, that there's new programs that are gonna help people that can't afford the rent and together, we're going to look out for all of these different types of people.

Andrew Lieb (2m 34s):
We're going to do it. And you know why, you know why we gotta help these people. They need a place to live. They need a place to live and they can't even afford a place to live anymore. Lord, they're going to buy houses. They're trying to escape the city. They're living in these little studios or whatever it is and they're going out and they're trying to buy a house and they can't buy a house. Why can't they buy a house? Well, what was $500,000 last week is now $6,000. I'm seeing this in port Washington. I'm seeing this in Scarsdale.

Andrew Lieb (3m 6s):
I'm seeing this in Westhampton I'm seeing this upstate

Lauren Lieb (3m 11s):
Monticello like everywhere. It's just, yeah. South orange, New Jersey. I think everywhere I've been, even I've been told that people are buying homes in Florida, sight unseen.

Andrew Lieb (3m 20s):
I think part of the problem is that positional bargaining isn't working in this type of market. Positional bargaining means that one person makes an offer. Like you see a house, I'll break it down like this. You see a house that's listed at $500,000 for using mass. And you go to your friend, what should I offer? What should I offer? Have you ever heard that conversation right now? But it's not what everyone says.

Lauren Lieb (3m 40s):
What should I offer? I want to know what to offer. Sally offered for hunted last week.

Andrew Lieb (3m 44s):
Offer 500. Why if you offer four 80 and when you offer 40, do you think you're ever going to get it at 40? No. You were trying to do positional bargaining. If you offer four 80 on a $500,000 house, what happens is the person might go down to four 95 and then in position bargaining, how would you counter? You'd go up to four 85 and then they'd go down to 492, five, and then you go to four 87, five,

Lauren Lieb (4m 11s):
Maybe 87 and three quarter.

Andrew Lieb (4m 14s):
And then at some point you're going to meet a four 90. What is positional bargaining, each person entrenches into their respective position, and then they bargain back and forth. But here's the problem with positional bargaining in this market. When you're haggling over that $4,000, someone else comes in and goes to full ass cash, no inspection. Well, that's another thing. Traditionally, suburban areas would have an inspection, a home inspection from a licensed home inspector. They would have this done in between offers an acceptance and signing a contract.

Andrew Lieb (4m 48s):
Why would they do that? Because there wasn't so much demand for the property Lauren. And they would say, I want to know on this home, if there's an issue with the SAS port. So I want to know if there's an issue with the roof. I want to know on this home, if there's an electrical issue, I want to know if the pool actually works.

Lauren Lieb (5m 3s):
What's that corrosion on the boiler? What does that mean?

Andrew Lieb (5m 5s):
And they want to know all these things before they go into contract and adjust the contract, tell how this or demand the seller fixes these things in advance. But historically in the city, you know, what's interesting. The home inspection was done post contract. You know why? Because people knew in the city that while you waited for the home inspection, that's going to happen four days later because there's so much demand right now, someone else is going to say, as you just said, no inspection, and they're going to go by. And another issue is that people like today,

Lauren Lieb (5m 34s):
I want to engineer. I want the engineer.

Andrew Lieb (5m 36s):
Yeah. They don't understand that there's actually a license in our state of New York. There's a license called a licensed home inspector. And you actually can't get an engineer. You can, but it's not called an engineer's inspection. An engineer has to be a licensed home inspector and they can why they waive in under the law, but they still have to weave it in like, it's you would call a home inspection company. I guess this is the best way to say it. Someone said to me, well, should I go to engineer or should I get a home inspector? And as Lauren said, Lauren's answers. Get it after you sign the contract anyway and have what's called exculpatory clauses or ways out if things don't check out,

Lauren Lieb (6m 10s):
I just want to reiterate this when you're in a seller's market. That means that the seller has the upper hand. The buyer wants to do all this due diligence, but it's so hard to do when you're in a sellers market, because it's going to go away in a second.

Andrew Lieb (6m 24s):
Well, when I say due diligence, it's not that you can't do the due diligence. The time of the due diligence due diligence, just to break it down means you're going to inspect the property in terms of its physical condition. You're going to inspect the property in terms of its legal status. You're going to inspect the property in terms of other people's superior claims of ownership of the property. You're going to inspect that everything you assumed was right on the property is actually a right, like Lauren and I once looked at our property and our due diligence, we found out the driveway was on the neighbor's lot.

Andrew Lieb (6m 57s):
And we said, that's a predicament. We're not going to be able to get to the garage because we have to go over the neighbor's lot. And they go, well, it's not a problem. It's been like that. Well then you'd have to either make a cross easement agreement or do a lawsuit to get it in the cost benefit analysis of adding that into the equation, made the property unprofitable for us to be able to buy, well, the honor system doesn't work. The honor system doesn't work. But back to our conversation, Lauren said, you can't do the due diligence. I kind of disagree. It's about the timing. You can do the due diligence. Post-contract once you're in a binding contract, you can do it.

Andrew Lieb (7m 27s):
You just can't do so people go, well, then I'm already going to be out the money for the lawyer. So sorry, like that's just, what's going to happen.

Lauren Lieb (7m 36s):
So inconsequential in the terms with what you're paying for this one,

Andrew Lieb (7m 39s):
It's so amazing. Like lawyers charge in New York state, somewhere between 805,000 for a closing, depending on where you are. So like East Hamptons, like 5,000, South Hamptons, like 3,500. It just depends where you are. There's different fees that people charge and you're buying a house. Let's say it's $500,000. And let's assume the lawyer's fee is 1250, $1,250. What is $1,250 or 500,000. It's like meaningless. But the point is, I'm not defending lawyers here. It doesn't make any difference.

Andrew Lieb (8m 9s):
The point is that when you do a due diligence, post-contract the lawyer's job is much harder. You know why? Because he needs you to have more ways out, more representations from the seller and more obligations for the sellers to cure anything that you find as a defect. For example, if you were going to do a inspection before contract, you could say, I'll do an inspection on the pool before contract. However, if you do the inspection after contract, you have to have a provision that says, if the pool needs repair, the seller's responsible to repair up to $2,000.

Andrew Lieb (8m 39s):
Over $2,000, the buyer can get out. And I just made up $2,000 arbitrarily, which means there's increased contract provisions that allow the buyer ways that what is the point of a contract of sale? The point of a contract of sale is to have representations by a seller and rights by the buyer to either demand cures of problems or to get out of the deal and get their down payment back during what Lauren called the due diligence period, which is the period in between contract and closing. So where we were when we started this conversation is that we were talking about positional bargaining.

Andrew Lieb (9m 13s):
And we were saying that traditionally, you go to a house, let's assume it's not a buyer's market or a seller's market is just a stable market. And you see the house for 500. You go to your friend, Sally. And so Sally, what should I offer? And Sally goes, well, I guess it'll offer for 40. And like, I dunno, sometimes it's about 10%. We told you that people go under, but in a sellers market. And Lauren said they have the leverage. They have the power of Lauren. You've got to say a more forceful.

Lauren Lieb (9m 37s):
I still have the power.

Andrew Lieb (9m 41s):
And so they in a seller's market, the power or the sellers just going to be like, no, no, I'm going to find someone else. So when you

Lauren Lieb (9m 48s):
Actually what's happening is they're saying yes, and they're accepting multiple offers. And then they're screwing all the people over in the process.

Andrew Lieb (9m 56s):
You say accepting though. And I want to reiterate, there's nothing accepted based on the statute of frauds I was talking about before, until there's a signed writing by the party that's going to be charged. And what that means is the person that's going to be held to account the party, be charged the person who's getting sued for enforcement. So if a buyer signs a contract and they want to enforce it against the seller and the seller doesn't sign the contract, what do you do? But anyway, let's go back to this. The key is that when you are in a market, like we are now positional bargaining, isn't going to work instead.

Andrew Lieb (10m 26s):
What is going to work is called principled negotiation. And what that means is can you find something that the seller wants that's outside of just the numbers that puts you over the top, maybe what they want is that cash offer we'll you talked about before, maybe what they want is no appraisal, but for no appraisal after maybe what they want is no inspection. Maybe what they want is to take grandma's chandelier.

Lauren Lieb (10m 52s):
Maybe what they want is to leave immediately and to sign some sort of a prepossession agreement that you can go in early and pay them rent. Yeah. Pay them. Right?

Andrew Lieb (11m 1s):
So the point is to be creative and think outside the box and principled negotiation, find out what their motivators are. And that's what principle negotiation principle negotiating is to say to yourself, how am I going to use strategies like mirroring, repeating back what they're say, labeling giving a tag to their emotional state pausing, where you create a vacuum and allow them to talk,

Lauren Lieb (11m 26s):
Asking open ended questions. How are you gonna use these strategies to learn about what the seller really wants? Right?

Andrew Lieb (11m 33s):
And give them more than just the dollars and cents. And if you want to do that, well, you should too is you should call my man Brynn Elliott of the Bryn Elliot team of Douglas Elliman Real Estate whose underwrote this segment. This was such a fun week. We're going to be back with you next week with great real estate advice. Stay awesome. This is real estate investing with. Find us on social media at listen, to leave or visit, www.listentolieb.com