In such a high-value market – when investors are often making their very biggest purchasing decisions – understanding the key factors around how to negotiate when purchasing property, in order to secure the very best deal, is critical
Getting your head around these key considerations to ensure you get the right property at the right price can mean the difference between great success and real failure as a property investor. And of course, when dealing with such large amounts of money, understanding how to negotiate on a property to help secure the right price at the right time can mean a difference of tens or even hundreds of thousands of dollars over the course of your investment.
So how to negotiate the best deal when purchasing a property? What are these key considerations?
Here are some headline points:
- Having a close understanding of the area and the property
- Knowing “the market”
- Understanding the seller’s motivations and attitude
- Ensuring your planning is up to date and knowing exactly what you can afford
- Considered communications, questioning and listening skills
Having really done your research on the property and surrounding area is critical. What are the strengths and weaknesses of the property and the area? What are the short, medium and long term economic drivers that will ensure the property performs as you expect it to? What did similar properties in the area sell for recently? What are the unique points or issues about the particular property that would affect its value?
It’s important that you compare like for like properties, and consider differences in land size, building materials and any features such as garages, pools or granny flats, and take into account the difference in value that these will make. Talk with the local real estate agents, and compare their feedback with the data you can gather online.
Having a close understanding of the property means a professional inspection has been done, and you clearly understand any issues or potential issues that could come up. Having a feel for the community and the neighbours is important too – will the feel and style of the area be attractive to the kind of tenants living and moving into the area? Ensure that you understand the property title and check for any issues that could impact the price or re-sale value. When looking at units, a thorough understanding of the owner’s corporation fees and activities around maintenance, their capital fund for improvements and their level of engagement and expectations is essential.
Knowing the market is about understanding the buying conditions in that particular area. Is it hot, cold or neutral? You can’t assume that the buying conditions are the same in this particular area as in another area or state that you purchased in a few years ago. What do local sellers expect in a contract with terms and conditions? What deposit amount is usual? These considerations can vary from city to city and from state to state.
Using an independent property agent who knows the market, knows how to negotiate, and who has your best interests at heart can really help here. They buy properties every week and know how to negotiate on a property.
Don’t get caught up with one convincing local or friend’s opinion, but gather the information necessary to ensure you have a very clear idea of the area and of the property.
What are the vendor’s motivations?
Why are they selling? Successful negotiations will include talking with the seller’s agent, and having an open and positive relationship here helps build trust. The seller’s agent may provide good insight into what the seller’s real motivations and key considerations are. If the seller wants to sell quickly for example, then offering quick terms and turnaround may be more impactful and successful than a higher bid and a slower process. Maybe they want to stay on for a few weeks as they are buying themselves, maybe they’d like a longer settlement. While I am not suggesting you bend over backwards to accommodate every whim, it can be super helpful to meet them half way and can be the difference between securing the deal and not.
Having an independent buyer’s agent / adviser in your corner will help with all of this, and especially in ensuring you have a detailed property plan in place before you purchase anything. Once your particular circumstances are professionally considered and allowed for, your risk profile is fully understood, and any other key considerations around your circumstances have been taken into account, then you will know exactly what you can afford, and have a very clear limit on what it is that you can spend. With this knowledge in mind, your comfort at the negotiating table will be clear, and put you in a powerful position and not vulnerable to emotionally over-bidding at an auction for example.
Being a good listener and questioner is perhaps the key talent of a great salesperson and negotiator. Using questions rather than statements when negotiating helps a great deal to not only provide insights but to allow the seller to express their real motives as well as feel listened to and cared about.
To test what the limits of the vendor’s agent and seller may be, a good negotiator will often use a series of thoughtful and considered questions. Asking, ‘Would the seller prefer a quick sale?’ leaves the door open for a ‘yes’ response, rather than saying ‘I could make it a fast transaction’. A series of small, ‘yes’s’ builds trust and comfort, and makes it more likely to get the big ‘yes’ at the end of the negotiations when agreeing a price.
Once a final price is almost agreed, a good negotiator may close a deal plus benefit from some small extras relevant to the particular deal – for example, they may ask, ‘If we commit to that price right now, will the owner pay for the items that need fixing?’ This means the final negotiated price suggested by the seller is potentially agreed by you right now, but with some incentive to sweeten the deal in return for an immediate commitment to the purchase. It provides the opportunity for the sellers to finalise the sale immediately, and suggests a commitment today based on something relatively small that could save you thousands of dollars and hassle at the end of the day.
Having your due diligence in place puts you in a position of strength.
Clearly being comfortable with the details of the property, the area, the seller, good negotiation tactics along with their own limitations, sets the buyer up for the best possible outcome.
The old saying, ‘If you fail to plan, you plan to fail’ rings most true when it comes to significant investments such as property – and ensuring you have your ducks in a row and are fully organised and prepared before going into negotiations is fundamental to the success of a professional property investor.