Negotiating For Wholesale Pricing

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Topics: Buying & Selling, Negotiating

Failure to reach agreement as to value can break a deal wide open, so it pays to negotiate around this obstacle. This pretty well sums up the way that negotiation techniques earn their keep when buying or selling, and can secure quality homes at wholesale pricing.

Negotiation is not only one of the highest paid of all the arts, but in a tight market, it is the oil that can make opposing sides reach agreement. One of the tools that negotiators can use to break a deadlock is called the “Discount Buy-Back”. Here’s how it works:

Suppose that you and I are trying to make a deal, but you think that your $300,000 house is worth $50,000 more in the current market than I do. After several offers and counter offers, we are deadlocked. You refuse to accept my $250,000 offer, and I refuse to pay any more. If we can’t find a way out of this, there will be no deal; and in many instances, no commission for the Broker. What to do?

Let’s face it, the reason that we can’t come to an agreement is because you think you can get more money if you leave the house on the market. The downside risk is that I might be the last person to ever offer as much as I have.

On the other hand, the reason I won’t pay more is because I don’t really know whether or not I can make a profit at that price if the market continues to fall. I don’t disagree that the house might well be worth $300,000, but I can’t take chances on the future of the market, so I have to hedge my bet.

With these factors in mind, I make you a final offer. I’ll pay you $250,000 for the house now, but I’ll also give you the Option of buying it back for $275,000 anytime within the next year that you want to. If you can find a buyer who will pay you more than this, I’ll have made $25,000 on the deal, but you will be able to keep all the money you can make by selling the house to a different party.

In the meantime, you will have sold your house for the highest price anyone has offered you, and you’ll have the use of a quarter million dollars that you might otherwise never get. Over the next year, market is going to set the final price you get, but by making the deal now, we’ve both hedged our bets against the future.

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