JF1209: The Interview On Negotiating Real Estate #SkillSetSunday with J Scott
J Scott earned over $1 million on his first 50 flips. He literally wrote The Book On Flipping Houses. His most recent book, The Book On Negotiating Real Estate gives us expert tips to negotiate like the professionals. If you want to learn how to get better deals on properties and get an edge on your competition, bring pencil and paper when you listen to this one! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
J Scott Real Estate Background:
- Investor specializing in residential rehabbing/flipping
- Completed 200 deals since 2008, has bought and sold over $25M in property
- Earned more than $1,075,291 on his first 50 flips
- He is the author of the best-selling book, “The Book on Flipping Houses“
- J also runs the website 123Flip.com, which provides insight into every aspect of his real estate business
- Releasing new book on negotiating for real estate investors in May 2017
- Based in Washington D.C.
- Say hi to him at www.123Flip.com
- Listen to his Best Ever Advice Here:
Made Possible Because of Our Best Ever Sponsors:
Are you looking for a way to increase your overall profits by reducing your loan payments to the bank?
Patch of Land offers a fix-and-flip loan program that ONLY charges interest on the funds that have been disbursed, which can result in thousands of dollars in savings.
Before securing financing for your next fix-and-flip project, Best Ever Listeners you must download your free white paper at patchofland.com/joefairless to find out how Patch of Land’s fix and flip program can positively impact your investment strategy and save you money.
Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluff. With us today we’ve got a returning Best Ever guest; you can hear his best ever advice, episode 217, titled “You Only Have One Chance To Make A Good Flippin’ Impression.” How are you doing, J. Scott?
J Scott: Hey, Joe. I’m thrilled to be here!
Joe Fairless: Nice to have you on the show, and thrilled that you’re back on the show. You add a lot of value — when we talk you add a lot of value to my life, and now it’s time for me to share the value with the Best Ever listeners as well. You did that on episode 217, and we’re gonna do it again.
Today is Sunday, and because is Sunday, this is Skillset Sunday, where we talk about a specific skill that will help the Best Ever listeners after they get done listening to our conversation. We’re gonna be talking about the skill of negotiation; you’ve just released a book on that. In addition, a little bit about J. Scott – he has completed over 200 deals. He’s bought and sold over 25 million dollars in property. He’s an investor specializing in residential rehabbing and flipping.
He earned more than a million bucks on his first 50 flips… Exactly, 1,075,291 dollars on his first 50 flips. And he runs the website 123Flip.com. Based in Washington, Dc.
Before we get into negotiations, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
J Scott: Sure. I started in real estate back in 2008, probably the worst market in history. My wife and I had been in the tech industry before then, and living in California… So we did the corporate thing for a long time, decided to start a family, moved back East, and we were looking for something to do back in the summer of 2008, just before we got married. Somehow we fell into real estate. The story I tell – so I guess it was true, because it was 10 years ago and I barely remember – is we were watching an HDTV flipping show, and my wife said “Hey, let’s try flipping a house.”
We had just purchased our first house, I could barely change a light bulb, she didn’t know anything about real estate, but we decided “Hey, we’re looking for something to do. Let’s give it a try.”
We bought our first house two days before we got married, and then we bought three more within the next two months, and it just kind of took off from there. I attribute a lot of our success to the fact that it really was the worst real estate market probably in 100 years, so it forced us to really learn the foundational concepts of real estate. We couldn’t just come in and rely on appreciation and a crazy market to kind of fix all of our mistakes. We really had to learn the basics, and we really had to do things right, because if we made any mistakes back in 2008, we weren’t getting things sold.
So that’s kind of how we got started, and we flipped houses for about six years, then we started doing some new construction, we started buying some rentals, so we’ve expanded a little bit, and we’re doing a whole bunch of different stuff these days, but fix and flip is still our core business and our bread and butter.
Joe Fairless: And now we’ve got the benefit of hearing how you’ve honed your negotiation skills, so how should we approach this conversation so that we get the best information to the Best Ever listeners about negotiation?
J Scott: Like I said, back in 2008 – the worst market in recent history; I like to say that in any given real estate market, one of two things is true – it’s either really tough to buy houses, or it’s really tough to sell houses. If not one of those things were true at any given time, everybody would be making tons of money. So back in 2008 it was really tough to sell houses. I could go out and throw a dart at MLS listings and find great deals, but getting them sold was tough back then, because there were so many easy deals out there that you could buy stuff at literally 20, 30 cents on the dollar where I was, in Atlanta. Negotiating wasn’t really that important of a skill.
Like I said, I could just go online and find MLS listings and REO’s and buy properties all day. But what I found is – and what a lot of real estate investors have found – over the last 3, 4, 5 years, the selling parts become really easy. Tons of buyers out there, crazy hot market, but where a lot of investors are running into trouble is buying properties. That’s where negotiation really comes in handy. Being able to work directly with sellers, being able to work with institutions like banks, and HUD and other government agencies, and even being able to work through real estate agents, knowing how to negotiate gives you that edge that really allows you to get better deals on properties.
So it takes a deal that either may not work or is really thin and turns it into a deal that’s good or great, and it also gives you that edge over other investors who are coming in, trying to buy the same deals. So especially in a market like the one we have today, where things are hot and there are plenty of buyers and not a lot of sellers, negotiation really makes a difference between getting the deals and not getting the deals.
Joe Fairless: So you’re taking us into the territory of “it’s not just about negotiation, but it’s about the rapport building”, it sounds like. Is that correct?
J Scott: Absolutely. I think a lot of people, when they think about negotiation they think about that part of the process where you’re haggling over price, you’re haggling over terms, one person’s saying “Hey, I’ll give you this”, and the other one is saying “Well, how about that?”, but what a lot of people don’t think about is there’s a whole lot more that goes into negotiation before you get to that stage, that determines who’s gonna come out successful. And that’s all the preparation, that’s building rapport, that’s really building trust.
When we talk about building rapport, what we’re really talking about is building trust. Basically, building a relationship with another party so that they will trust you and like you, and frankly, they want to see you succeed. People want to see other people that they like succeed. Even if they’re on the other side of the negotiating table from you, if somebody likes you, they’re gonna want to help you. So that’s what building rapport does – it builds that level of trust, and it builds that level of likability so that the person that you’re competing against is actually also on your side.
Joe Fairless: Okay, and I think everyone will agree with you on that – we want to be liked by the other party. So let’s talk through the process that you recommend a Best Ever listener go through, or certain things they should do to accomplish the goal of building rapport and trust.
J Scott: Certainly. There are a lot of things, and anybody that’s delved in psychology and persuasion techniques knows that there are a whole bunch of techniques. I’m not actually gonna go into each of them, but they all basically revolve around the fact that other people want to be liked, they want to be accepted, they want to feel important. I like to say – and this is true whether you’re negotiating or whether you’re going out on a date or whether you’re going into a job interview – the best way to build rapport with somebody is to let them talk about themselves. People love to talk about themselves.
I like to say, if you go to a dinner party and you want to be the center of attention, all you have to do is ask a question and then say “That’s really interesting. Tell me more!” If you keep saying that over and over, you’re gonna find people just circling around you. Everybody likes to talk about themselves, and if you give people the opportunity to talk about themselves, they’re gonna feel like you are doing them a favor, and they’re gonna naturally congregate towards you and they’re gonna like you.
So whether it’s negotiating, whether it’s going on a date, whether it’s going on a job interview, ask the other person questions, let them talk about themselves, because they’re gonna interpret that as something likable about you, if that makes sense.
Joe Fairless: Okay. Is this part of the preparation work that happens prior to going back and forth on the purchase price and the terms?
J Scott: Well, there’s a lot of preparation that goes into it. There’s the preparation even before you meet the other person. If you get a phone call from a potential seller who says “Hey, I wanna sell my property at 123 Main Street”, and you ask some basic questions and you get some information and it sounds like it could potentially be a good deal, you say “Great, I’ll meet you there tomorrow at noon and I’ll take a look and we can talk.” What should you be doing between that moment and the next day when you actually meet the seller – there’s a whole bunch of preparation that goes on there, and it starts at the highest level, which is “What’s the market like? Is it a buyer’s market, is it a seller’s market?” That will give you some indication of how much leverage you have in that negotiation. What’s the inventory like? That tells you how much competition you have. Is that seller likely calling 30 other investors, or are you the only phone call they’ve made?
Then investigating the neighborhood – everything from “Where is the house located?” Is it on a busy street? Is it near an airport? Are there train tracks running behind it? Then even down to the house level – drive by the house before you meet the seller. Does the neighbor have chickens living in the yard? Does the neighbor have loud barking dogs? Go in the middle of the night; is there a lot of activity in the middle of the night? Are people out and about? Is there drug activity on the street? Stuff like that. That will give you the information you need so that when you go and start talking to the seller about actually buying the property, you know what you’re buying, you know how much it’s worth, and you’ll soon know what type of leverage you have over the seller.
For example, we once bought a property where there was a train running through the backyard. We were looking at Google Maps and we saw the train tracks. We did some investigation and we found out that the train only runs basically in the middle of night. 3 AM, every night, it passes the back of that house. If we wouldn’t have done that investigation, we’d have no idea that there was a train that ran behind the house.
Then when we went to talk to the seller, we were able to say “Hey, we know there’s a train that runs behind the house every night at 3 AM. That’s gonna make it more difficult for us to sell the property after we fix it up, so how are you gonna compensate us for that negative aspect of your house?”
So doing that type of research gave us some leverage to go to the seller and say “Hey, we know there’s something negative about the house. You’re gonna have to compensate us for that. You’re gonna have to give us some concession for that negative.” That’s type of research that allows you to have a discussion with the seller, that puts all the information on the table and allows you to get concessions and allows you to get compensation for the negatives.
Joe Fairless: Getting a little granular on that particular example, how do you put a price point on a train at 3 AM behind the house?
J Scott: Well, the nice thing is if there’s a train running behind that house at 3 AM, it’s probably running behind all the houses in that neighborhood, and it’s probably running behind a lot of the houses in the adjoining neighborhoods. So you can look at comps and you can see, are these houses selling for 5% less than other houses in the area that are further from the train tracks? Or maybe there’s no price difference at all, but even if there’s no price difference at all, the seller doesn’t necessarily know that you can still use that as leverage, you can still use that to get concessions. But typically, looking at comparable sales in that neighborhood or other neighborhoods that have the same proximity to the train tracks (or whatever the negative is) will give you an idea of what that particular thing, what’s the discount you’re looking at based on that particular thing.
Joe Fairless: In my mind we’ve got two categories, and perhaps this shouldn’t be this way, but we’ve got two categories. You’ve just described how to prepare for a meeting so that you know what you’re buying and you do have leverage – or you identify if you don’t have any leverage based on your findings… So that’s one category. But then the other category is what you’ve mentioned earlier, and that is people want to be liked, accepted and feel important, so really it’s about the person, not necessarily the opportunity… And this is just how I have it broken out in my mind, and in my notes, as I’m listening to you.
So you just talked about the actual opportunity, but then what about the person? How do you prepare for being liked, accepted, or having them like you, them feeling accepted and important, so that you do build that rapport and they want you to succeed?
J Scott: There’s a whole bunch of ways. A lot of people look at negotiation as “It’s all about business.” What I like to say is that it’s not about business, it really is personal. Business in itself is personal. The biggest reason somebody is going to do something nice for somebody else is because they have a personal relationship with that person, and whether that relationship is “We’ve been friends since high school”, or “We’re worked together for the last 10 years”, or “They came into my house yesterday and we had a great conversation and they were really nice.” If you have that relationship, people are going to want to do something in reciprocation.
It doesn’t necessarily mean you have to be best friends for the last 20 years. Just sitting down at a kitchen table, having a cup of coffee, talking about kids, talking about where you went to school and where you worked, and finding things that you have in common can go a long way towards building a basis for a relationship that will make the entire negotiation process a lot easier.
In terms of specific tips, a few things that I like to say. One, there are a lot of investors who like to negotiate over the phone or over text message, because it’s easier; you don’t have to have a hard conversation with the seller or with the buyer, face to face, but in actuality it’s just as difficult for the other party. If you’re gonna throw out a low-ball offer, it’s really hard to do that face-to-face, but by the same token, if the seller gets a low-ball offer face-to-face, it’s hard for them to look you in the eye and say “Absolutely not.” It’s easy for them to say “That’s ridiculous” over text or over e-mail or even over the phone, but when you’re face-to-face it’s hard for you to throw out a low offer, but it’s also hard for the other person to reject that offer. So getting face-to-face is really an important part of the process. It gives you some leverage, but again, it allows you to build that rapport.
If you’re talking to somebody over the phone and you never see them, you’re less likely to feel attached to them in some personal way than if you’re sitting at the kitchen table or the coffee table, drinking a cup of coffee and talking about family. So I talked a little bit about asking questions, talking about them. People like to talk about themselves. Doing little things for people.
You mentioned the book that we’ve just released on negotiating, and I talk a lot about what I call concessions. Concessions are a whole pot filled with things that make up the deal, and you give some and you take some, and you divvy up the concessions. One thing you can do that really can help a negotiation is you make a concession upfront; you give something. People have this innate need to reciprocate something that’s been given to them.
Here’s a good example. Have you ever received in the mail a request for a donation from some company, and they include a little sheet of return address labels for even a nickel? I’ve started seeing [unintelligible [00:17:48].20] of literally a nickel. There’s a reason they do that – they do that because they know you’ve now received something, and you have this innate need to now reciprocate, and what they’ve found is they can literally hand you money and it’s gonna be beneficial for them, because they know that they’re gonna get something much bigger in return.
That little idea of “I gave you a gift, now I expect something in return” is huge. So if you wanna build what’s called “capital” with a buyer or a seller, one great thing you can do is you can give a little concession. Buy them a cup of coffee; meet them at a restaurant, pick up the check. Go to their house with a little gift. All of these things will basically not just ingratiate them to you, but also provide the sense of obligation back to you. That’s not something I invented, that’s actually a well-known psychological product of persuasion, but it’s very useful when working with buyers and sellers in the real estate world. These little things, these little tips can add up and really tip the scales of leverage in your favor in the negotiation.
Joe Fairless: I practice those tips as well, and thank you for mentioning the law of reciprocity. That’s a big one, when we give them something proactively, because… I think it’s The Power of Influence; I think that’s the book that I read it in, by Robert Cialdini. He talks about it in there. This is just scientifically proven; this isn’t us just waxing poetic. Study after study proves this, that when you do give something initially, they do feel compelled to give something back, but here’s the kicker – as you said, when you give back, after receiving something, you tend to give back more than what you received, and there’s a disproportionate return there. So in a deal, when you give them something upfront, then you can almost expect to receive something disproportionately bigger coming back your way.
I wanna ask you a question about — after you set up the meeting but before you meet them, you do the preparation on the market inventory, the neighborhood, the house… Do you do any preparation on the person?
J Scott: Absolutely. That’s one of the nice things with social media these days – it’s really not too tough to do prep and reconnaissance on people. Everything, starting with a simple Google search, you can find out things like – let’s say it’s a seller – where does the seller work, maybe even how much money does the seller make; you can find out how long they’ve owned the property, you can find out probably how much they owe on the property or at least how much their mortgage originally was, and you can do the amortization schedule yourself.
You’ll probably find family pictures. You can find out if they have kids, how old they are, you might find out their sports affiliation; you can find out, “Hey, he’s a Boston Red Socks fan.” You’re a Boston Red Socks fan? Great, now you have something to talk about. You can find out where they grew up and where they went to school. Hey, you know somebody who went to that school? Again, you have something to talk about.
LinkedIn is a great resource. Perhaps you know somebody that works in the industry they work in. How many mutual first connections do you have on LinkedIn? Realtor.com – go on Realtor.com and you can find out when they bought the house, what was the condition of the house when they bought it, you can see pictures of the house when they bought it… So you walk in and you realize, “Wow, the house has been trashed in the last three years since they’ve owned it. Probably something’s going on there.”
You can do things like Facebook, Instagram, Twitter; you can find blogs. I tell a story in our book about how we literally had a deal where a seller came to look at one of our properties, and they made an offer – it was a low offer – and we were thinking about accepting the offer, because the house had been on the market for a month or two and we were getting ready to drop the price… But before we did that, my wife, who is probably the best I’ve ever met at Google-stalking people, she starts looking around. She finds this person’s Facebook page – this was a couple years ago, before people started making everything private…
She literally found a Facebook post by this woman that had looked at the house, and it basically said something to the point of “Was on a house hunting trip…”, we found out that her fiancée lived in Wisconsin and was getting to move to Maryland, where the house was. And the Facebook post was something like “We’re getting ready to give up on finding a house on this trip, but we think we’ve found the perfect house. We’ve made an offer, we’re just waiting to hear back from the sellers. The house is really close to”, and they mentioned the name of some person. “We could be neighbors!”
So we see that Facebook post, and the first thing my wife thinks is “This person really wants this house.” It was obvious that they were getting ready to give up on finding a house on this trip; they found this house, it’s near a friend of theirs, so instead of basically going back and giving them a big discount on the house and making a counteroffer that was close to their offer price, we actually went back and made a counteroffer close to list price, and we got it. They accepted the deal… Simply because they went and they posted on Facebook how much they liked this house and how excited they were, and we found that post, we could use that as leverage. And people do that all the time. If anything, we’ve found that we’ve been on the receiving end of that a few times.
We have a blog, 123Flip, and for the first several years we posted all the pictures of our properties and all the numbers, and we actually found that there were a couple buyers who came and looked at our properties and actually found our properties on our blog, knew exactly how much we bought the property for, knew exactly how much we rehabbed it for… So that time of personal reconnaissance using social media, using Google, can go a long way towards helping you build a profile of your buyer or your seller, and then figuring out where the pressure points are, figuring out the motivations, figuring out the points of leverage you have over those people when you’re negotiating with them.
Joe Fairless: J, this has been an educational conversation, that’s for sure. I’ve written down a lot of notes. Where can the Best Ever listeners get in touch with you?
J Scott: I am on Facebook and Twitter, @123Flip, my website, 123Flip.com, and my e-mail, J@123Flip.com. For anybody that might be interested in the book we’ve just released, it’s called The Book On Negotiating Real Estate – feel free to check out NegotiatingBook.com. You can download a free chapter there, and it’s also available on Amazon.
Joe Fairless: Outstanding. I will be getting that book. J, thanks for being on the show, talking about how preparation is so important. That’s really the focus of our conversation today – being prepared, not only to speak to the individual, and the search that you need to do prior, and you gave the story about the social media stalking that your wife is so good at doing, and how it resulted in more dollars in your pockets, as well as the preparation to do on the property itself, what’s the market (is it a seller or a buyer’s market?), what’s the inventory, the neighborhood, the train track example at 3 AM, and the house and the neighbors as well.
Thanks for being on the show. I hope you have a best ever weekend, and we’ll talk to you soon!
J Scott: Awesome. Thanks, Joe.Follow Me: