Unlike stocks and bonds, real estate tends to be a very emotional asset class. Because owners invest their time, energy and money into making their real estate investment shine, they feel an added connection to their building or home. While a stockholder can easily blame the CEO for the stock price decline, real estate investors can only look to themselves. Rarely do real estate investors accurately assess their value-adds or lack thereof to their investment; instead, they price their investments as they see them through rose colored glasses.
Identify Real Estate Emotions
The biggest value a realtor can bring to a transaction is an outside, unbiased opinion of the property’s value. While it is up to the seller to decide whether or not to trust that opinion, realtors don’t have the same emotional tie to the property.
Emotions cloud a multitude of transactions. In real estate short sales, the seller is obviously disappointed that the value they must sell their home for is less than they paid and even in fact less than their current mortgage. Furthermore, every lowball offer further reinforces their poor investment decision. These sellers will be much tougher to negotiate with because they feel a sense of personal failure.
Conversely, an older couple or family selling the home they built for their family will feel a huge amount of sentimental value for their home. Each memory and investment adds a bit of character to their home that another purchaser could never quantify. Again, a lowball offer personally offends these sellers because they feel as if their memories are being cheapened in the process. First time rehabbers and long time landlords often have these same emotions.
Negotiating with Emotional Real Estate Sellers
When buying real estate, investors need to understand the other sides’ perspective. Getting to know the seller and their motivations for selling can help a buyer tailor their investment pitch. While it still may be necessary to place a lowball offer on a property, potential buyers should do their best to accompany these offers with factual analysis. It might be helpful to submit comparable properties prices or a list of items that the buyer intends to replace or repair. The goal is to submit an offer that will appear fair to an emotional seller.
From an investor's perspective, buying and selling real estate should be a transaction devoid of emotion; however, real estate transactions always involve two people and are rarely without emotion. Providing a fact-based bid and showing a seller that a the buyer intends to better the property can go a long way in making a transaction happen.
Michael Cook - Michael Cook is currently a Real Estate Investment Banker for Wachovia. He and his partnerstarted their own real estate investment ...
