They'll be experiencing a range of emotions-anger, anxiety, denial, fear, panic, stress, etc. And that means you'll be dealing with people who are not objective about their situation. Moreover, embarrassment may make them hesitant about discussing their financials with a stranger-you. In fact, they may be reluctant to talk about their financial situation because they don't really understand it in the first place. In some cases, they may be looking for someone to blame.

What I'm saying is that you have to be prepared to deal with emotional people. The best way to do this is to adopt the attitude of being a problem-solver as I mentioned earlier. Also, adopt the attitude of empathy; i.e., put yourself in their shoes to understand what they're going through so you can build a personal connection with them on some level.

Keep in mind that many people in foreclosure are good people who've often suffered problems beyond their control-an unexpected illness and enormous medical bills, loss of a job, divorce, etc. Others have simply made bad decisions in the financial area and gotten themselves trapped in an ever downward spiral of debt.

Some have gotten themselves addicted to alcohol, drugs, or gambling-or a combination of all three! Obviously, you don't want to deal with them-or with people in the middle of nasty divorces where legal entanglements make sale of the property an iffy proposition at best.

So, you want to do what all good salespeople do-"qualify" your prospects. That is, determine quickly if the homeowners are good prospects for your services or if they're not worth your time and investment because of personal problems or addictions. However qualified homeowners got into their messes, it's important for you-and them-to realize that you're offering a way out.

It's also important to remember that most property owners facing foreclosure don't really want to sell their properties! After all, people invest themselves and their emotions in their home. It's the American dream, and no one likes their dreams shattered. So, they're looking for any path out of the situation to prevent the foreclosure from occurring. Again, you can offer escape from a bad situation.

Part of being a problem-solver is understanding the options available to homeowners during the pre-foreclosure period. I covered these in an earlier chapter but here's a quick review:

• Loan forbearance or modification

• Refinancing

• Chapter 13 bankruptcy

• Open market sale

• Sale of home to investors

• Public auction

The reason I mention these options again is that they provide what I call secrets to "CA$H" profits. That is, you can help out homeowners in two ways.

First of all, let's assume they want to save their home, not sell it. In that case, you can offer several services to help them.

>> You can charge to help them get forbearance on their mortgage ($300-$1,000 range.)

>> You can charge to help them postpone the sale ($300-$1,000).

>> You can charge a referral fee if they qualify for a refinance with a private or hard money lender ($500-$1,000). Every lender is different so you might want to check with your local hard money lenders.

Compared to losing a home, these fees are inexpensive, and you can relieve a lot of tension and stress for the homeowners in the process.

Now, let's assume you're working with homeowners who want to sell their home. In this case, you can offer them the following options:

>> If the home owners don't have enough equity, you can "short-sale" the loan. In a short sale, a lender allows the property to be sold for less than the existing loan balance. (For more information on short sales, see the chapter "A Word on Short Sales" later in the book.)

>> You can put on option on the property and then do a 5-day auction on the house by using a "round-robin" bidding technique. That is, you take the current high bid and then call interested parties in turn to see if they're willing to beat that price. You don't need an auctioneer's license for this sale. Think of it as being similar to an eBay auction! For more information on this technique, check out Bill Effros' How To Sell Your Home in 5 Days.

>> You can buy the home subject to existing financing, and then reinstate the loan.

>> You can pay off the loan completely, fix up the property and retail it.

Now let's cover some common-sense guidelines that can help smooth negotiations with homeowners and allow you to make a good deal.

Be honest and straightforward in all your transactions. It's not only the right thing to do, but it can help keep you out of lawsuits filed by dishonest and disgruntled homeowners who may claim they were fooled into selling their homes for less than they were worth. To protect yourself, document every step of the transaction so you have a "paper trail" that's transparent and proof that you acted ethically. Also, remember that honesty is an investment in your future as a real estate investor.

It's an investment for two reasons. One, when you treat people well, your reputation spreads by word-of-mouth-the best advertising possible. It brings in more business. Two, reputation is everything in the community of real estate investors. So, if you decide to expand your efforts beyond pre-foreclosures into other property investments (multi-unit dwellings, commercial, etc.), you'd better have a spotless reputation. Banks, lenders, and other investors-they're not going to grant money to someone they view as an unacceptable risk.

As I mentioned previously in the book, part of professionalism is your dress. That is, you should dress in a manner acceptable to home owners. If you show up at home in a modest neighborhood driving a Lexus and wearing an Armani suit, I guarantee you'll have lost the deal before it even begins. People facing foreclosure are not happy to see investors showing up at their doors flaunting their wealth when they're headed in the opposite direction! So, show up in appropriate clothes! If it's a working class neighborhood, wear jeans and an open shirt (if you're a man) or conservative, businesslike clothing and a minimum of makeup (if you're a woman). If it's middle-class neighborhood, you may want to wear a sport coat and casual slacks (if you're a man) or appropriate business clothing (if you're a woman. Use your judgment in this area.

I covered this subject earlier in the book so I'd just like to reinforce one simple principle in this section: Remember, homeowners will deal with people they like. At some point in your life, I'm sure you've dealt with someone who turned you off immediately because you simply didn't like their style. Perhaps, he or she was aggressive, brash and loud, and you're a person who likes to conduct business in a calm, rational manner. Their "pushiness" turned you off immediately to any further dealings. Naturally, you want to avoid this kind of negative situation. So, pay close attention to the homeowners' personal style when you first meet them and adapt to that style in a subtle fashion.

Remember that homeowners are often "illiterate" in terms of financial dealings, so don't assume knowledge on their part. And because they know they're not financial "experts," they may be uneasy in dealing with you because they'll be afraid they'll be cheated somehow. The best way to handle this attitude is to keep everything clear and simple. This will build trust. So, explain the foreclosure process, the options available to them, and the services you can offer in simple straightforward manner.

I've stressed this point several times, but want to re-emphasize it here. You're not there to intimidate homeowners into selling their properties. That's a good way to lose a deal and your reputation. You're there to offer homeowners solutions to their problems. That means you should have the ability to quickly size up their financial condition and offer the appropriate solution.

I covered this skill earlier in the book, but it's so important I'll repeat it here. The investors who get the best deals are often the quiet listeners. They encourage homeowners to talk first and listen patiently to what they have to say. Good listening has two benefits. One, it builds rapport and trust with homeowners. Two, it gives you good information that can be very useful when it comes time to negotiate.

There's always the possibility you could end up dealing with someone posing as the homeowner-an identify thief, for example. To prevent this situation from occurring, it's wise to politely ask for a form of identification like a driver's license with a photo ID. Of course, you'll have to present your own ID first. Then, explain that identify theft is a big problem these days, and you'd simply like to make sure that everything is honest and above-board. Most people are aware of the identify theft problem due to wide news coverage so the majority of homeowners will be happy to comply. However, if a homeowner refuses to show you identification, then simply thank them for their time and leave.

Okay, those are the general guidelines for negotiating. Below are some specific skills for selling homeowners on your deals. I recommend that you learn them as a starting point and then, as you gain experience, adapt them to your own style.

After you've listened carefully to a homeowner, you'll want to make a presentation to convince them that you're the right person to help them out. A presentation has three parts:

• Summarize the homeowners' needs

• Provide benefits

• Ask for commitment

The second part is often the most important; homeowners have to know what you can do for them. A presentation doesn't have to be anything fancy. It just has to be clear and emphasize benefits. A presentation might go something like this:

"George, I want to create a win-win situation for us both. You're facing foreclosure and want to avoid that unpleasant possibility. It's created a lot of stress for you and your family, and I can help you get rid of it and make your life a lot easier. In order to do that, here's what we need to do. First, we'll inspect your property together. That will help me see its potential. Second, I'll do a financial analysis with the loan information you provided me to see if the deal is a profitable one for me. Third, if I feel the potential is there, I'll make you a written offer. Understand that the offer is contingent upon the status of the property title. Any undisclosed liens or judgments against the property will affect the deal negatively. But if the property is clear of liens or judgments and it's in good shape and you agree to my offer, then we can close on the property within a week from today. This will lift the load of debt off your shoulders, and you'll be free to move on with your life. If that all sounds good to you, shall we get on with the inspection?"

Notice in the above opening statement that benefits are stressed throughout; i.e., avoid the possibility of foreclosure...get rid of stress...get rid of debt...the freedom to move on, etc. Also, in the final sentence, our investor asks for a commitment to do an inspection.

The deal you offer will vary with the property's physical condition and the homeowner's situation. As such, you'll have to be creative and use your judgment as to what to you offer. My rule is to use the following formula to determine the price I want to pay:

Sales Price = ARV x Margin - Repairs

Here's an example:

Assume a property has an ARV of $100,000.

The margin is .70.

The estimated repairs are $10,000.

So, the calculation looks like this:

ARV $100,000 Margin x.70 = $ 70, 000 Minus Repairs $ 10,000 Sale Price = $ 60,000

There's an old saying: If you don't ask, you don't get. So, if you've done a good job of offering benefits and know the deal meets the owner's needs, you have a right to ask for commitment to that deal. In fact, here's a simple, but effective way to ask for commitment:

•Summarize the homeowner's needs

•Summarize the benefits that meet those needs.

•Ask for commitment

Here's an example:

"George, you've said that you don't your property to go on the foreclosure auction block and you definitely want to get all this stress out of your life. With the deal I'm offering you, you'll get rid of that stress, have the possibility of foreclosure off your back, and be free to get on with your life. To my mind, this is a win-win situation for both us. Shall we close the deal?"

In the above example, the investor summarized needs (need to get rid of stress and foreclosure possibility), then summarized the benefits that meet those needs (elimination of stress, avoidance of foreclosure, freedom to get on with life). Then, the speaker asked for a commitment to close the deal.

It'd be a great world if every homeowner immediately said "Yes" and signed the deal. Of course, that's not reality. You'll run into resistance from some owners who may feel that what you offer them is not a good deal. This is a natural part of the selling process so it pays to be prepared to handle objections. An objection is something a homeowner doesn't like about your offer; usually, it's the amount of money being offered. The model for handling objections is this:

•Acknowledge the objection, but don't agree with it.

•Offer counterbalancing benefits.

•Ask for acceptance

Here's an example of how to handle an objection. Assume a homeowner objects to your offer and says, "That's not enough. I need more money." You might reply with a statement similar to the following:

"I understand how you might feel that way. However, remember with my deal, you'll not only be free of foreclosure headaches, but I'll be paying your closing costs* and keeping foreclosure off your credit record as well as offering you debt relief. Plus, I'll be giving you a relocation allowance.When you look at all those benefits, doesn't my deal look pretty good to you now?

*If appropriate to the deal

In the above statement, you acknowledged the objection without agreeing with it. Then, you offered counterbalancing benefits (payment of closing costs, debt relief, relocation allowance) and finally asked for acceptance of those benefits.

Of course, people being people, you'll find that this technique doesn't work every time, but it does work on a consistent basis! It works especially well if you practice it on a regular basis and adapt it to your own unique style.

All in all, negotiations are a combination of hard-headed financial sense and artful handling of people. As you gain experience, you'll find it becomes easier. And once you've completed a successful negotiation, then it's time to move onto to that all-important purchase agreement-the subject of the next chapter.

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