If you’ve been enticed back into the market by this current low interest rate environment, you would most likely have noticed by now that you’re not alone. Opportunities to obtain ‘cheaper’ debt have made the notion of accessing existing equity to grow your investment portfolio very alluring.
According to the latest CoreLogic home value index for June, capital city house prices across Australia rose by 0.5% during the month, leaving the quarterly increase at 3.8%, or 8.3% from a year earlier.
Big numbers, stemming largely from Sydney of course, where house prices in the city grew by a further 1.2% in June, taking the quarterly increase to a slightly disconcerting, 6.8%. Why disconcerting? Because when compounded, that equates to an annual growth rate of 30%.
Since January 2009, prices in the city have surged by 87.9%. And since interest rates dropped back to an all time low, auction clearance rates are ramping up across the harbour city.
All of this renewed market vigour is obviously welcome news for property investors. However, it does mean that competition is fierce.
So how do you cash in on the opportunities that are currently in the offing, without getting caught up in a cutthroat bricks and mortar battle? This hotter market can be a tricky beast to tame, but if you keep the following 9 negotiation rules in mind you’ll be one step ahead of the game.
1. Set your price and stick to it
One of the big mistakes investors make is being underprepared when it comes to establishing a fair price for the property they set their sights on. Do your homework and know what constitutes value for money before you even start parleying. Once you have determined how much you can afford for the property and what the deal is actually worth, do not be tempted to increase your offer further.
2. Negotiate based on facts and figures
This goes hand in hand with number one. Research comparable sales in the neighbourhood and if need be, consult an independent valuer for confirmation of what the property should sell for.
A local buyer’s agent who knows the area intimately can be of great assistance in this regard, as they will know whether you are at risk of over-capitalising or in the running to secure a worthwhile long term investment. Remember, buying well doesn’t necessarily mean buying below value. It’s all about what you stand to gain with the property in question as an addition to your portfolio.
3. Make sure the deal meets your needs
There is no point fighting to win a property that doesn’t align with your overall property investment strategy or objectives. Having confidence in your investment approach – because you have done your due diligence and understand your needs and financial capacity – means you are less likely to make a buying mistake that you might regret later. Anything you buy should enhance your overall position and complement your investment goals.
4. Avoid bidding wars
The vast majority of residential stock in and around our major capital cities ends up going to auction. Real estate agents encourage vendors into this form of treaty as it allows the market to determine a reasonable price for the property in question.
When you are competing with buyers who have their heart caught up in the deal though, you can easily find yourself drawn into a frenzied bidding war. Again, be prepared with the facts and figures, know your limit and don’t be tempted to outdo the competition just so you can claim a victory. There will always be another opportunity.
5. Know when to walk away
Whether it’s an auction or private treaty, at some stage you might find that things stall and the negotiation process just isn’t moving in your favour. If you find yourself in such a situation, sometimes the only option is to concede defeat and walk away. There is more regret in buying something that just doesn’t make financial sense than in having your own “one that got away” story.
This is particularly relevant when you come up against an unrealistic vendor, who sees a hot market as an opportunity to milk buyers for more than their home is actually worth.
6. Listen closely for the other party’s ‘pain’
People sell property for a reason. Whether they are upgrading, downsizing, need to release equity or wrangle their way out of an undesirable financial or personal predicament, there will be an underlying agenda. While I’m not suggesting you take advantage of someone’s potential misfortune, if you can determine how motivated they are as a vendor, you might be in a better position for negotiating a favourable deal for all involved.
7. Look for the win-win
As per the above rule; for instance, if the vendor is compelled to seek a timely transaction and wants out ASAP because of a messy divorce, then you can always negotiate a better deal by answering their needs at the same time. Perhaps they would be more open to lowering their asking price with shorter settlement terms? If you can determine what the other party’s win might be, chances are negotiations will be a lot more successful and ensure an outcome that is agreeable to all.
8. Know when to hold ‘em and know when to fold ‘em
Okay, all Kenny Rogers references aside, this rule is really all about trusting your instincts and being a little bit flexible. You may not get everything you want from a deal and that’s fine. Just have a good idea of what you are prepared to compromise on when it comes to the contract terms and what you must stand firm on. Remember, it’s always good to give yourself some wiggle room when negotiating.
9. Don’t give away the end game
One of the big rookie mistakes we see when investors enter into the negotiation game is over-confidence. Whether it’s feigned to hide uncertainty or just plain arrogance, going in all guns blazing and announcing your ‘bottom line’ to the other party from the outset can be a big mistake.
Keep your cards close to your chest and try not to be lured into revealing too much about your situation or what you’re prepared to settle for by clever real estate agents. One of the best ways to avoid this trap is to answer any questions as directly and succinctly as possible, without offering any unnecessary detail – because we all know that’s where the Devil is!
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).