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Negotiating Your Next Investment Property Purchase


Negotiation is a discussion between two or more parties, intended to reach an understanding, agreement or to gain an overall advantage in outcome.

Each party will try and gain the advantage for themselves by the end of the negotiating process. This article can give you some negotiating tips to help you purchase your next property at the best possible price.

So as a buyer, your primary goal is securing an investment property at the lowest possible price. The vendor, conversely, wants to get the best price for the property for sale. Negotiation is largely about choice. What do you choose to offer or concede and what do you choose to accept or reject? 

The ability to negotiate well is an important part of the property purchasing process if you're looking to get a good deal. Here are some negotiating hints and tips to get you started.

1) Remember who pays the agent

The agent's priority is to achieve the very best price for the seller and will use all their powers to persuade you to buy the property you are looking at.
 
They will enhance the positives, gloss over the negatives and do their best to get you to commit to the property and at the best possible price.
 

2) Don't be in a rush 

Even if you are looking for a quick purchase keep this to yourself. If you tell the agent you are in a rush, it will enhance the vendor's negotiating position.
 
Instead, ensure the agent knows that
 
  • You are finance ready
  • You would be happy for a quick settlement
  • But getting value and being on or under your purchase budget is your most important consideration

3) Be information rich

Information is also a great arsenal to have up your sleeve when negotiating a real estate deal. Have you spent some time collecting relevant information about the property? For example:
 
  • The quality of the location
  • Problems and defects with the property
  • Any issues in the surrounding area that may affect your property
  • Ups and downs of the local economic environment
What better way to convince a seller to lower their price than to remind them of the little things you have noticed that is wrong with their property? Use the power of positive and negative information to assist you during the negotiation process.

4) Ask lots of questions

If you walk in the door of your next investment property and it ticks all the right boxes, keep this to yourself. Don't let the agent know that your intention is to buy, at this early stage. Instead of this, you need to ask questions that will prepare the ground for future negotiations. For example;
  • Why is the property being sold?
  • How many people have been through it?
  • How long has it been on the market?
  • Has it been to auction and been passed in?
  • Has the price been reduced since it was listed for sale?
  • Are there any known defects about the property that the agent or vendor is aware of?

5) Conduct thorough research and due diligence

When you think you are ready to make an offer, stop and consider your position. At the very least, you need to know:
  • How long the property has been on the market
  • Its on-the-market history; any changes in advertised price since it was placed on the market
  • Its sales history i.e how much the previous owners bought it for
  • The median sale price and historical capital growth rates of the location
  • How much comparable properties are selling for (and renting for if you plan to let it as an investment property)
  • If you are planning on renovating the property then on-selling, how many similar properties in the area are for sale that have the features you intend to add
  • An estimated market value based on all the above
 
Real Estate Investar members can use My Valuer and My Research to conduct unlimited property valuation estimates and research property and suburb trends. 

6) Making an initial offer

By the time you have reached this stage, you should be equipped with a powerful array of trends, facts and figures and in the best possible position to make a good offer.
 
Using a combination of this research, arrive at the highest amount that you feel you would be happy to pay.
 
Then contact the agent and make the offer with confidence. 

7) Haggling

There is every chance that the agent will come back with a counter offer. Throughout the negotiations, stick to your guns and consider using these tactics to help with your investment property purchase.

Learn to flinch

This is a noticeable visible reaction to a price or counter-offer. The objective of this is to make the other party feel uncomfortable about the offer they presented.

The person with the most information usually does better

The more information you have about the vendor's position and the property, the better off you will be in your property investing negotiation.

Remember to ask questions and thoroughly research the property and its suburb.

Practice makes perfect

Many investors will hesitate or be wary of negotiating because of a lack of confidence or due to fears such as:

  • Drying up – forgetting what to say. 
  • Missing out on the deal that you have worked so hard researching.
  • Not capturing the vendor's or agent's interest. 
  • Facing difficult questions you cannot answer.

You can also develop your confidence by negotiating frequently on less high value items – e.g ask for a discount at your local retail store.

Then when the time comes for probably your most important negotiation on your next property investment purchase, you will remain calm and confident.

Remember, you can always walk away

It is always better to walk away from a deal rather than make too large a concession and jeopardise your property investment career. 

One poorly judged purchase, for example, could seriously affect your cash flow and ability to grow your portfolio over time. There is nothing to be gained by striking a deal at all costs; it has to be beneficial for you. So if you feel the price is not right, walk away.  

There will always be other opportunities and of course the vendor may react to your rebuttal by accepting a lower offer.

Don't be intimidated

Remember, as the vendor you ultimately have the option to walk away and so have the upper hand.  So as long as you have completed research that you are confident in, you have nothing to lose and everything to gain. 

So what if the agent laughs at your offer.  As long as you have an arsenal of research you can counter this laugh with a barrage of accurate property and suburb data that can strengthen your position.

Control your emotions

Your emotions will play a part in the negotiation process one way or another. It is up to you to ensure it is a positive role.

Which of us has not acted in a regrettable manner because of negatively heightened emotion?

If you start to feel negative emotions such as frustration or annoyance towards the real estate agent or vendor, it can lead to irrational behaviour or cause the negotiations to break down or worse still, you agree to a deal that you will regret with the benefit of hindsight.


Whereas, if you enter the discussions in a positive mood, you will enjoy them more, stay calm and keep your overall objectives at front of mind, rather than having your logic and decision making process clouded by negativity.

Each individual will have his or her own way to enter the negotiations in a positive mood.  One simple tip is to remember securing the deal at the right price could mean thousands of dollars in instant equity. Worth remaining upbeat about!

The nibble

This works on the premises that:

  • You don't have to ask for everything up front. 
  • The mind tries to reinforce a decision once it has been made and may be more open to additional suggestions.
So when you feel the negotiations are reaching their conclusion, you can try asking for further small concessions. 

Your major goal will most probably be the best possible price, but there are other considerations, for example a settlement period that best suits your needs, that you can request towards the end of the discussion. 

If the other party is expecting or wanting to close the negotiations, they may be more likely to accede.  

And of course this can work both ways, so be wary of the other party using this technique on you.  

One way you can counter this is by responding with a smile and stating that the deal is done and both parties seem happy, so let's not over complicate things unnecessarily and risk it falling through.

Body language

To reach your goal, you will have to effectively communicate your point of view throughout the negotiations.

This applies to verbal communication and body language too.  Body language is non-verbal communication consisting of posture, gestures, expressions and eye contact.  Most of us tend to give and receive this form of communication sub-consciously, but if you take a step back, you can: 

  • become more aware of it and
  • learn to use it more effectively. 
This links back to remaining positive - you want this to come across in your actions as well as your words.  Some things to consider are keeping eye contact, giving a firm handshake and remaining assertive. 

The other party will know you are someone to reckon with due to the amount of research and information you can produce about the deal. 

Back this up by delivering it positively and also showing receptivity to information coming your way.  Appear relaxed and in control, and you probably will be.

Don't celebrate until the contracts are signed

The negotiation process can have many twists and turns, particularly when it comes to purchasing an investment property. Don't tempt fate! Keep your feet on the ground and only celebrate when the deal is completed.

The post mortem

After every negotiation, you can conduct some analysis on the proceedings while they are fresh in your mind. Consider:
  • What went well? Why? 
  • What didn't go well? Why?
  • Were you sufficiently well prepared?
  • Did you question to gain information effectively?
  • Did you use that information to guide your proposal?
  • Were you happy with the outcome?
  • What will you do differently next time? 

Having strong negotiating skills can save you thousands of dollars on your next purchase, which will save you money upfront and also on your ongoing loan repayments as well.  Remember:

  • Be clear about your objectives. 
  • Prepare thoroughly.
  • Practice your offer making use of all your research. 
  • Face your fears.  It won't be all that bad! 
  • Think creatively. 
  • Listen and take in information – you are strengthening your position. 
  • Don't be constrained by what you have done before. 
So consider these crucial tips before putting in the offer on your next investment property and you could be thousands of dollars better off.

Good luck with your negotiations, we hope these tips go some way to helping you with your next purchase.


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