When I was younger, one of my favorite shows was “The Joy of Painting” by Bob Ross. Some of you might remember this show as Bob Ross, a mild mannered painter with a gentle voice, would always start the show with a blank canvas in front of him. Then, little-by-little he would put his paint brush to the canvas and comment, “We are going to put a fluffy little cloud here” or a “kind little tree there.” Eventually, by the end of the 30 minutes, he always had an amazing landscape painting that covered the entire canvas.
What Bob Ross did was a lot similar to what we do as investors. Now, I know what you are thinking: “This Buddy character is nuts! So far he has compared investing to comic books, high school football lights, rides at Disneyland, scrapple, farm hands, and wrestling movies from the 80’s. However, to compare it to a PBS program about painting is ridiculous!!!”
I hear you, and you might be right 😉 so let me explain. The morning that I began writing this blog, I was in the home of a seller. During this meeting, I asked a lot of questions. Anyone who knows me knows that I love to ask a lot of questions of anyone that I meet. I do this because I enjoy learning about other people and their experiences. While I did enjoy talking with this seller and learning about his life, I also wanted to “paint a picture” of his situation.
When I say “paint a picture”, what I mean is that I wanted to learn about the seller and the seller’s situation. The more I learn about the situation, the more I can see if I can help and what would be the best way to help. When I first met this person, I had a blank canvas as I knew virtually nothing about him. To be able to fill in the canvas I needed to ask questions.
When I meet a seller there are a number of questions that I ask, but there are three in particular that I think are the most important. Surprisingly enough, my top three does NOT include the question that many people think is the most important, which is “What is the price?” This question is far down on the priority list as it typically tells me little about the seller’s situation, and the goal of my questions is to understand the seller's situation as best I can to see how best I can help.
So, without further ado, here are my three most important questions:
- Motivation: “Why do you want to sell?” / “What are you looking to do with the money?”
I included these two questions together as the answer to the 2nd question often happens when the seller answers the first. This question(s), which I first learned the importance of from the amazing Peter Fortunato & Jimmy Napier, is probably the most important of them all. As investors, we are here to fix a problem, but we have to figure out what the problem is before we can fix it. Once we know what the problem is, then we can figure out which “tool” best fixes the problem (e.g., all cash, seller finance, subject-to, lease-option, master lease, etc.). Most people never figure out what the problem is and instead go straight into their "tool" of choice (usually an "all cash" offer), without regard of whether it actually helps the seller. Ultimately, choosing the tool before knowing the problem is like picking a hammer to be the tool of choice before learning that the problem is a punctured water pipe, which leads to a lot of frustration.
When I speak directly with sellers and ask them this question, the response really helps to shed light on the situation which allows me to help create a solution. However, when I have been pitched properties by agents and I ask them this question, sometimes I will get an answer, but often I get: “I don’t know” or “They just want to sell” or “It does not matter.” The truth is that this question matters more than anything as NOBODY JUST WANT TO SELL. Rather people sell because they think that selling will be the conduit that will move them from their current position to a better one. So, we have to know where they want to go if we are going to be able to take them there.
For example, the person who is looking to sell that has owned the property for 2 years and needs cash immediately to pay a huge debt which is due this week has a completely different need for selling than the person who is looking to sell because they have owned the property for 40 years and are tired of property management and are planning to reinvest the money which they want to leave for their kids’ inheritance. These two people are selling for completely different reasons and require completely different solutions to meet their needs. If you simply give both of them the “all cash” offer it might benefit the former, but it would likely hurt the latter. Because of that, it is imperative to know the true motivation/need of the seller to know how you can help them best.
- Time: “When would you like this to happen?”
If you are a regular on my blog, you know that time is a major theme. Typically, I discuss time and its importance with regards to money and cash flow. However, time is also essential with regards to negotiating. The seller who does not want to close until 1 year from now is completely different from the seller who wants to close tomorrow. More time means less urgency which means less likely that a deal will be reached now because urgency is an essential element to deals closing.
I have been on deals that have taken 2+ years to close and deals that have taken less than 2 weeks, and the funny thing is that all of the deals entail about the same amount of serious negotiation. The deals that took 2+ years had friendly conversation for the majority of the time and little talk of details until the deadline approached. Once the deadline started to loom, that is when things became much more serious, details were ironed out and deals were closed. So, always figure out what is the time frame from the seller as that will let you know how serious the seller is about closing and how to talk with the seller.
- Rapport Building: “Where are you from?”
This third type of question is for rapport building. I think it is imperative in any type of negotiation to build rapport with the seller because people are more likely do business with someone that they like and with whom they share a common experience. The question of “Where are you from?” is something that I ask nearly everyone that I meet, regardless of whether that person is selling a property or not. The reason I like to ask it is I believe it is a great way to learn about the person and their life and a great way to find common ground with the person.
Sometimes this question leads to a great common ground that I have with the seller, but sometimes it does not. Mind you, if you have a preferred rapport building question over this one, use it and keep in mind that if one question does not lead to good common ground, ask another question as the more common ground that you can find the better because people want to do business with people that they like. Also, asking some of these questions will help you see the full situation and offer the best solutions available to the seller.
In the end, we investors are here to help sellers. To do that we need to know their situation. To truly know the situation we need to ask questions. The more questions that we ask, the more likely that we will be able to strike a deal that helps all parties, which is the goal for everyone.
To circle back around to Bob Ross, asking questions ultimately helps you to determine whether you need to be a “fluffy little cloud” or “friendly little tree” to finish the seller’s painting.
Very good questions, thanks Buddy.
Thanks, John! Glad that you liked them and thanks for the feedback!