One part of the investment process many investors find quite daunting is negotiating on sales price and terms – here’s how you can come out on top.
Investing in real estate does mean taking on several tasks if you intend to purchase on your own behalf.
Many investors are understandably intimidated by the negotiation process – even experienced investors will tell you they still find negotiating nerve-racking because it is so crucial to the return on their investment: the better they buy, the more they will profit.
Entire books and courses have been written on negotiating, because it is a skill you can learn and improve. However, some people are naturally more adept at it than others.
When you negotiate for a property, you pit your skills against those of a professional who does it all the time.
For this reason, many investors will enlist the help of a buyer’s agent (another professional) to negotiate on their behalf.
If you decide to undertake the negotiations yourself, then you will find the following five tips useful.
1. Know your budget
Before entering a property negotiation, calculate your budget so you know exactly how much you can realistically spend. You might do this with your broker or financier, who could even get pre-approval of finance for you.
This will give you extra confidence going into the negotiation process. The important figure to be 100 per cent sure about is your final offer.
On no account should you let your ego get involved. If the vendor has unrealistic expectations of the value of his property, then you should be prepared to walk away.
2. Know the property
Thorough due diligence on the property is vital to your negotiating success. The internet provides a multitude of up-to-date information sources and talking to other agents and property managers in the area will help you get some local knowledge.
Being a well-informed negotiator will make you a more confident buyer. Here are some starting points for your research:
• Investigate how the property came to be up for sale and how long it has been on the market
• Source any relevant data about previous sales of similar properties in the area
• Make sure you understand the geographic location of the property and its surrounding suburbs in regards to the availability of schools, medical practitioners, shopping centres, transport, etc
• Assess the most valuable attributes of the property and whether you are willing to negotiate on certain aspects
• Find out the exact selling price and whether this is negotiable
• As it will be an investment property, find out about rents in the area and vacancy rates
• Never start negotiating until you know what the property is really worth and what value it has in your portfolio
3. Listen and compromise
Often negotiating can feel a little “push-and-pull”. In order to keep the conversation constructive and positive, ensure you understand the wishes and concerns of the other party as well as your own.
It is likely you’ll have to compromise on some aspect of the negotiation, so have a general idea of what that will be before you begin.
Compromise may come through the settlement period, shortcomings that will need to be fixed as a condition of sale, or price – just be aware that price isn’t always the only thing up for negotiation.
4. Be Organised
Prepare for a negotiation meeting before the actual meeting or phone call. To impress the vendor’s agent you need to appear as a compliant, confident buyer, willing to make it an easy process.
Have your finances in order. If possible, have your building and pest reports completed (or lined up to take place within the cooling-off period), know your settlement period and have the name and address of the solicitor who will handle your purchase.
5. Leave the best till last
Your first offer will not be your last. Therefore, when making the initial offer, leave yourself room to increase it.
If you start too low you may offend the vendor, who may reject it without making a counter-offer. Your first offer should be close enough to elicit a counter-offer.
Timing of the negotiation is vital. You need to have time to consider the counter-offer without being seen to be stalling.
Similarly, if the vendor is taking too much time and you don’t seem to be getting anywhere fast, move on. There are plenty of other properties on the market.