In Part I of this blog post, we looked at how to improve our real estate offers by using something called context shifting.  However, we also discussed that context shifting alone is rarely enough to motivate our potential sellers into taking action.

To make our offers more compelling, we must go one step further and improve the presentation process itself; because sometimes it’s not the actual offers we make, but how we present them.

So let’s look at the next step of the process, and discover how we can use our own made-up criteria to leverage the art of presentation to our best advantage.

Step #2- Establish Some Comparative Relativity

Sounds like a mouthful, I know… but don’t let that shut you down.  Comparative relativity is a common marketing tactic in many industries, but it’s rarely used in real estate negotiations.  So what exactly is it, and how can it be so effective at manipulating consumer perspective?

Comparative relativity is when you authenticate the value of your product or service by placing it into a direct side-by-side comparison with a similar product or service.  This is an important process to understand, because consumers don’t measure the value of a product or service in absolute terms.  They need something relatively similar to which they can compare it.

For instance, if someone is looking to buy, say, a fully-loaded 2005 Lincoln Aviator with 52,000 miles on it, they won’t try to figure out what it’s worth by calculating the value of its individual parts.  Instead, they’ll consult the Kelley Blue Book, or the NADA Price Guide, or even eBay’s Completed Listings section, etc., to see what relatively comparable 2005 Aviators have been selling for.

Now at first, this need for comparison might seem like a problem for all of us—you, me, and Starbucks.  After all, Starbucks doesn’t want customers comparing their $4.00 Grande Frappuccinos to other coffee choices, such as cheap gas station java or free break room brew.  By the same token, you and I don’t want our sellers comparing our low wholesale offers to recent MLS sales of similar properties.

So, what can we do when there isn’t anything advantageous to which we can compare our offers?  It’s simple… we just sit down and dream up some brand new relativities from scratch that can make us look good.

Starbucks did this by offering three different sizes of Frappuccinos; with prices that were relative to one another, but which had no relationship at all to the cheap market prices of the ingredients themselves. Did you get that? This little Texas Two-Step worked because it kept their customers busy comparing sizes—so busy, in fact, that they didn’t even bother to stop and ask themselves why in the world they’re even thinking about paying $4 to $5 for something that’s basically just coffee and ice.

Can you say, “Duh”?

Fortunately, the success that Starbucks had with this technique did more than just generate millions of dollars in revenue for them. It also provided us—as real estate entrepreneurs—with two valuable and proven insights.  The first is that we have the power to control what our offers will be compared to, which is very liberating indeed.  The second is that the comparisons we choose don’t actually have to be relevant to anything—not even the recent values within our current marketplace.

How cool is that?

So can we literally just duplicate what Starbucks did in our own industry of real estate?  Sure. And it’s as simple as just giving our sellers three different offers to choose from, and making these offers relative to one another, as opposed to the marketplace at large.

Here’s an example of what this could look like:

Let’s say that you want to make a low all-cash offer to a seller on a house in rough shape.  Let’s also say that he’s asking $80,000 for it, but after finishing your calculations it appears that you can only offer a maximum of $60,000.  What do you do?

Well, most investors will start the process by shooting the seller an offer about $10K to $15K below their maximum price to get the ball rolling, and to give themselves some room to negotiate up.  But starting so far below the seller’s asking price will always lead to an instant and unpleasant atmosphere of confrontation (can you relate to this?).

So maybe it’s time to try a different approach. Maybe you could sit down and scratch out the following three different offers for the seller, and then present them all at once:

Offer #1: $45,000 all cash, close in 10 days.

Offer #2: $60,000 cash, payable $6,000 down, balance in 180 days.

Offer #3: $80,000, payable at $500 per month until paid.

If you have no clue as to how you would actually structure or profit from deals #2 or #3, then you need to click here and get my book.  But don’t be too concerned, because these two offers will rarely get accepted anyway.  The only reason they even exist is to introduce some comparative relativity that will make it easier (and friendlier) to negotiate the price in Offer #1.

Now… here’s what’s really interesting about this approach: the people on both sides of the transaction will see what they want on the table right up front.  You see the $60,000 price tag you want in Offer #2, the seller sees the $80,000 figure he wants in Offer #3, as well as the “all cash” terms he wants in Offer #1.

This means that it won’t be necessary for either of you to step outside the confines of these three offers at any point during the negotiation process.  Instead, it will position the two of you to banter back and forth within this manufactured bubble—swapping, trading, giving and taking—using only what’s in front of you; rather than seeking validation from the marketplace around you.

The end result is usually a fast negotiation, which can often end in one of three possible scenarios, depending on how motivated your seller is:  a) the seller could be so desperate that they’re afraid to try negotiating you above $54,000 or $55,000, saving you the extra $5K or $6K you were willing to pay; or  b) the seller could be a decent negotiator who successfully “convinces” you to pay all cash as in Offer #1, but at the higher price of $60,000 from Offer #2—which is exactly what you wanted all along;  or  c] the seller could just get pissed and punch your lights out.

Of course, if the seller decks you, it simply means you need to get a lot better at pre-qualifying your prospects, or else perhaps just improve your skills of shifting context and creating comparative relativity.  If none of that works, you can always look for an elderly Asian man to teach you some self-defense in his spare time.

Repeat after me:  “Wax on… wax off.”

#realestate  #investing