When it comes to negotiating most investors fall into one of two camps; the “softly softly” approach or the “decimate the vendor” camp. In reality, neither will win the day.
So, I’ve put my hand up and declared we are in a buyer’s market for property. Right now we have our critics but in the long run we’ll be proved correct.
So what to do next?
When it comes to negotiating most investors fall into one of two camps; the “softly softly” approach or the “decimate the vendor” camp. In reality, neither will win the day.
As our property markets gear up for the traditional spring and summer selling season, investors will need to approach negotiations with a clear understanding of the cyclical forces that will influence vendors’ attitudes and expectations. Conditions will be virtually the reverse of those we’ve had for the past seven to 10 years, when it has been prudent to buy first in order to cap the purchase price and sell second in order to maximise the sale price in a rising market. For the coming season at least, selling prior to buying will be the investor’s maxim.
With big lifts in stock levels for sale (up 38% in Sydney, 50% in Melbourne, 75% in Brisbane) the real bargains will be there for investors who are cashed-up and can offer vendors unconditional contracts. Even though the market may spike unexpectedly once an interest rate cut is announced (bookies are offering $1.25 on a 0.25% cut in September) I believe there is greater downside in committing to major purchases without cash reserves at the ready.
Regardless of the nature of the transaction, never assume you’re the only interested buyer. Greater supply and lower demand at this point in the property cycle suggests property is more likely to sell at the lower end of the technical price range. Here’s a strategic and practical guide to marking the most of your negotiating power.
With auctions, location and architectural style are usually the primary qualifiers because price tends to be removed from the equation, at least early on in the buyer’s research phase. Use this to your advantage, and try to negotiate a lump sum, fixed deposit under the standard 10%, if at all possible.
If you wish to negotiate any non-standard terms or conditions, ensure you do so before auction day.
While we all like to buy competitively, let go of the “bargain” mindset. A top-notch investment is never a bargain on the day you buy it. It only becomes so in the ensuing months and years as the growth potential begins to kick in.
If you’re not cashed-up and need time to raise funds, aim to negotiate as long a settlement as possible; 120 to 180 days will give you breathing space. This is a little cheeky, but still acceptable and not insulting. Remember, you want both the vendor and the agent on-side!
Participate actively in the auction. Bid openly and if the property is to be passed in, make sure it’s passed in to you. This will afford you some control over the ensuing negotiations.
Once the property is declared “on the market”, don’t be afraid to vary the bidding increments either up or down. However, avoid wasting your money by jumping the bidding unnecessarily. It would, for example, be ludicrous to jump the bidding by $10,000 when bids are at $1000 or $500 increments!
Lots of clients ask me about buying before auction, especially in this market. The answer is don’t do it. You’d have to pay a significant premium that would probably not be required in a public forum. It’s far better to test the market in an openly competitive environment.
Private sales can take many forms; they can consist of an invitation to submit your highest and best offer by a closing date, a set asking price that is usually above market value from which you negotiate down, or an invitation to submit offers in excess of a price or price range. Once an auction property has been passed in, it too becomes a form of private sale.
The first task is to determine the rules of engagement, and establish what kind of private sale you’ll be party to.
In a private sale, price is the primary qualifier rather than location and architecture, because there is a greater tendency towards a set asking price.
Private sales are a “dark” way of negotiating because there is little if any transparency. There is also an over-reliance on the honour of the selling agent because you will never come face-to-face with your competition. This is why it’s imperative to have reliable and credible information on recent, comparable transactions in the immediate area at your fingertips.
If possible, try to establish the reason for the sale. It may be that the vendor has pressing commitments and these circumstances may work in your favour. Similarly, there is also scope to negotiate the terms and conditions in a private sale if the vendor does not have an immutable commitment to fulfil at the other end of the process. Getting a bit of inside information, if you can, will help you evolve the most appropriate strategy.
Once you have determined the technical range for the value of the property, through either a formal valuation or your own direct comparison research, make an offer that is conservative but not insulting.
If your offer is not acceptable, encourage the agent to produce a counter-offer from the vendor to get the vendor off the original asking price. This will even out your power position at this stage of the negotiations.
Determine whether adjustments to the terms and conditions of your offer would make your initial or any subsequent offers acceptable.
Read the pace of the negotiations. Don’t turn offers around too quickly or too slowly.
Once you have an agreement in principle, make a rational, educated judgement about how the agent and vendor would respond to a “sunset” on your offer.
In doing so, read the tone of the negotiations. If the dialogue has been low key and amicable, a sunset on your offer may not be necessary. If the vendor and agent have been slow to respond or difficult to pin down, a sunset clause may work to your advantage by bringing the negotiations to a head.
Approach negotiation in the same way as you’d play a game of chess. Make every move in a careful, considered and unemotional way. And no matter what the type of negotiation or the vendor or agent’s demeanor, never, ever be aggressive. Winners know that quiet, firm assertiveness is the key to success.
This article first appeared in Eureka Report
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