The Art Of The Deal - Case Study #1

I was talking with Israel recently. We had just finished negotiating a real estate deal - he's a real estate agent. And, to just sit and talk about negotiating a real estate deal is one thing. To actually be involved in a negotiation is another. Here's how he explained it to the group:

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"This place was a multi-unit and it was listed at $220,000. At Doug's suggestion, our initial offer was $174,000 with closing costs and 20 grand back. I'm looking at this and in my mind, its unbelievable - these people are going to laugh us out the door. But I just went along with it - whatever's gonna happen is gonna happen.

And, it was just an amazing process because it was so not typical of any other deals that I had helped negotiate. I looked it up last night and we ended up with around 9, possibly 10 contracts going back and forth with offers and counter offers before we finally got an accepted contract for substantially less than the original $220,000 asking price.

But, the whole process was not something I can easily explain - its all about locating the seller's bottom price. If that bottom price and terms are acceptable, do the deal - if not, be prepared to walk away. That takes time and patience. The way you told us to look at the numbers and what makes the investment profitable were totally different than I ever knew to look at.

It was a really good learning experience and I've been able to incorporate those principles with other people I'm working with to find investments. Now I know how to dig deeper to get the best price for my client - to make the investment work for them even better."

Israel Smith, Realtor

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For me, the worst thing that can happen to an investor is to have his first offer accepted. That happened to me once (and only once) when the Realtor I was working with at the time convinced me to increase my initial offer by $9,000. A day later the seller accepted. Ouch. Now, it was still a great deal and one of the best investments I've made, but it might have been that much better.

A lot of real estate gurus talk about the cookie cutter principle. They tell you keep on looking until you find a particular kind of deal and do that same deal over and over again. I would be passing up on a lot of potentially profitable deals if I did that.

Its all about being creative and making a deal work for both sides, especially when no one else has figured out how to make it work. That's when you've hit paydirt.

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