THE POWER OF CASH IN NEGOTIATING

Dated: 04/28/2019

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Back in 1997 I bought my first Mercedes. I had been doing well for the previous  few
months and Gail and I were looking for a "fun" car. While I was out test driving a Porsche
Boxter, Gail wandered around the lot with the salesman.  When I returned, she and the
salesman were standing by a new Merceded 500SL. Gail had that "I know something you don't know
sort of half smile on her face."  "Honey, try 
this one." 

            I was pretty sure I could not afford a new 500SL but the salesman was more persuasive than Gail, telling me that basketball players drive them and actually fit in them (I am six feet four inches tall). Well, Gail and I took it for a spin and I fell in love with the car.  When I returned to the lot, the salesman was ready for me. It turns out the car had 7000 miles on it and was built in 1990. It just looked and smelled brand new. The convertible top on it had never been opened. The tool bag was still in its plastic seal, as were the books. I was being offered a seven year, old almost showroom car at $42,000. The only difference between this car and a brand new one was the price, the wheel design and a slightly altered vent. We bought it.

            But this story is not about how good of a deal I got when I bought it. It turns out that I pampered that car almost as much as the guy did that I bought it from. I never took it out in the rain, I washed it lovingly once and sometimes twice a week; in about a year I decided to sell it.

            I did my research and determined that I could sell the car for $45,000.  I put an ad in the paper. A young man called me first thing Saturday morning the first day the ad ran and he asked about the car. He asked if I was firm on the price. I told him in no uncertain terms that the price was very firm and if he was not interested at $45,000, please don't bother coming over to see the car.  He showed up 45 minutes later. He test drove the car. He put the hard top on. He looked under the hood, he looked at the records.  He then turned to me and said I will give you $40,000. I didn't say anything right off, I just started packing up the car and putting it away.

Sir, "I responded. I really don't want to waste my time; I told you I was firm on the price." "But I have cash," he replied boldly, sure that would sway the argument. "Don't you want to see $40,000 in cash?

             "I know what $40,000 in cash looks like," or at least I thought I did. I once had $10,000 in cash and this was just four times that wasn't it? 

 "The price is $45,000. I tell you what, go look around for a car in this condition and see what they are selling for and if you change your mind, call me."

He called me two hours later and told me he was ready to deal at $45,000. We arranged to meet at my office to sign the title and exchange the money. I got to my office with the car and he showed up in a few minutes. We went to my desk and he pulled out a briefcase with five bank envelopes  - the kind that are made from indestructible light yellow plastic with tamper evident seals. He stacked the five envelopes on my desk and slowly opened each one and stacked the cash on my desk. After he opened and finished stacking the fourth envelope making neat stacks that totaled $40,000, he took the fifth envelope and counted out $5000.  It was a very impressive sight. No, I had never seen cash like that. I will tell you something, if he had that cash out in front of him when he made the offer of $40,000, I would have folded. Cash is indeed king.

By now you are thinking, cute story Gregg, but how is this relevant to Real Estate? My point is that talk is cheap. I have heard many agents or buyers send out trial balloons and try to trial close trying to determine the lowest price, this is all fine, but you will never get your answer until you actually SHOW THEM THE MONEY. Now in real estate you don't have to have cash, but a well prepared contract will work just fine as long as it is accompanied by VERIFIABLE proof of funds. If done correctly, written contracts are as cheap as talk, but so much more powerful.

I can't tell you how many deals are lost because a buyer never bothered to put in a written offer. Have you ever heard something like this?: "He took $460,000 for his house? Why, I would have paid him that, but he told me his bottom was $500,000!"

 Sure you have.

Heck, the lot at the end of our street was on the market for $1,700,000. When we heard that it sold for $1,400,000 a few of us in the neighborhood were kicking ourselves for not making that offer.

Don't ever be afraid of offending someone with a lower offer than that of the asking price. The real offence is talking about lower prices and never backing it up with anything.  Do it formally, in writing, and make it a legal contract with some muscle ( he proof of funding).

Here is another tip. Give a decent amount of refundable money with the contract. But offer it 72 hours after execution by both sides and have it put in escrow. This will eliminate the hassle of getting releases from escrow companies if the deal never gets signed in the first few days.

A good agent should handle these things for you. Indeed, sometimes he or she can get information that you will not be able to get.

 

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Gregg Fous

Real estate has been my passion since I took my first Al Lowery class on real estate investing in the 1970’s. I vowed during that class that I would buy one property a year. Over the next five ye....

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