The Wholesaler's Dilemma: Managing the Seller's Mindset

Wholesaling is a two-step process: first, the wholesaler finds the property, and second, the wholesaler negotiates a purchase price that allows him or her to make a profit on a resale. You can find any amount of advice on finding properties, but very little knowledge on how to convince a seller to accept a price that is, in every case, below market rates. 

Most wholesalers simply fall back on arguments that the house needs a lot of work and that a sale at retail through a broker will net the seller far less money than he or she expects to receive. A better strategy would be to get into the seller's brain to present a legitimate reason for agreeing to sell at a low price. I stumbled on this strategy through a recent experience I had with a gift I received at Christmas.

Two people bought me a lightweight down-filled jacket from an outdoor clothing retailer. It was a nice jacket, but over the past four years, the same people bought me a fleece jacket, a pullover hoodie, and a zip-up fleece jacket/sweatshirt. Maybe they think I get cold, or maybe they just have no idea what to get me and they default to some kind of outerwear. In any case, I didn't want the down-filled jacket so I took it back to the retail store. 

The jacket's full retail price was $99, but it was on sale for $59 after Christmas. The people who gave it to me did not give me a gift receipt and I couldn't ask them for the original receipt, so the most I could get for the jacket was $59. Further, because I did not have a receipt, I could only get that amount on a gift card that could only be used at that retailer. Since the people who bought me the jacket never pay full retail for anything they buy, I figured that $59 was a fair price, so I accepted the gift card. Unfortunately, nothing else at the store appealed to me.

I went on line and found a company that buys gift cards, but the most I could get from them for this card was $32. So, my dilemma was whether to accept $32 now that I could use for something I wanted, or to let the gift card sit in my wallet for an undetermined amount of time in the hope that at some point in the future, I could get something closer to its real value. It was then that I realized that $32 right now is far more valuable than a speculative dollar value that might never materialize in the future.   

This was my "eureka" moment in how to negotiate with a seller when I'm a wholesaler buying a house that I will resell to another party. I have the ability and resources to get somebody immediate cash for a house. A successful negotiation with the seller involves getting into their mind and impressing on them that the immediate cash deal is more valuable than the speculative deal that might get them a few dollars more sometime int he future. Real immediate cash is a much stronger argument, for example, than pointing out the extra costs that that the seller will incur by holding the house, and by paying to stage it and then paying commissions to a realtor. The message is simpler, and it's far more powerful than trying to negotiate with cost comparisons.

Economic analysis aside, $1.00 today is always worth more than something more than a dollar tomorrow. This is the key to managing a seller's mindset and to successfully closing the front half of a wholesale deal.