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
2) Don't be in a rush
- 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
- 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
4) Ask lots of questions
- 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
- 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
6) Making an initial offer
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!
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.
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.
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.
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 mortemAfter 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.
Good luck with your negotiations, we hope these tips go some way to helping you with your next purchase.