Naturally, all investors want to “buy low and sell high”. However, knowing how to negotiate the lowest possible price for a property doesn’t come naturally to most.
For many investors, property negotiations are a source of anxiety. Negotiating a property is high-stakes. There’s a lot riding on the outcome, and it’s easy to be either too heavy-handed (which risks insulting the seller and sabotaging the entire deal) or be too much of a pushover (which results in you overpaying for a property).
In this article I explore a series of strategies and tactics you can use when negotiating the purchase of a property.
Step 1: Preparing To Negotiate
Like everything, preparation is critical. Entering a negotiation fully prepared and with a suite of facts, data, and other relevant information will strengthen your approach and boost your confidence.
Organise The Basics First
Things to prepare beforehand are:
- Your budget, and finance pre-approval. This is one of the ways we provide value to our clients — chat with us if you would like to organise this.
- Your deposit.
- Your team of experts (property manager, conveyancer, etc.). See this article for more information about the experts you’ll need to succeed as a property investor.
Do Your Research Beforehand
The goal of this step is to gather information for two purposes:
- To create an attractive offer… and
- To look for defects and problems that may work in your favour.
There are two areas to focus on…
(1) Research the ins-and-outs of the property you’re buying, and its surrounding area.
Things to research are:
- The overall quality of the property
- Previous sale amounts (how much the property has sold for in the past)
- Comparative sale amounts (how much other similar properties in the area have sold for recently)
- Data for the property’s suburb (inventory levels, month’s supply metrics, median sale price, capital growth rates, DSR score, average rental income for the area)
- Pros and cons of services in the surrounding area (public transport, schools, medical services, shopping, airports, flight paths, etc.)
- How long the property has been on the market
- If it is tenanted, and if so, tenant information (long term, short term, are they intending on staying, etc.)
(2) Research as much as you can about the seller.
Questions to ask are…
- Why are they selling?
- How long have they held the property for?
- Have they made any improvements to the home?
- What offer conditions will they prefer? Fast settlement, or longer?
- Have they had any other offers?
Use Empathy To Determine The Seller’s Situation
The seller may have placed their home on the market for personal reasons, or simply to liquidate their asset.
Having an understanding of why the home is for sale may help you craft an attractive offer. Plus, some sellers may act ‘emotionally’ towards your offer (for example, some sellers will want their “loved family home” to go to a “nice owner”).
Consider Your Own Emotions
Lastly, if you sense you’ll struggle to curb your emotions during the negotiation process, consider engaging a buyer’s agent (or trusted professional, family member or friend) to negotiate for you.
Step 2: Your Initial Offer
It’s important that you have a carefully considered “first offer” backed by credible reasons and information.
It is critical that you land your first offer in within the seller’s ‘sweet spot’. If you offer too low, the seller will discredit you and move on (and you risk insulting them). Offer too high and you risk paying too much.
A strong first offer will explain *why* it is what it is. Use your research to justify the amount. Compare the offer to other recent purchases. And consider, if the situation calls for it, respectfully explaining the defects or issues you’ve identified.
Step 3: Ongoing Property Negotiations
If your initial offer is not accepted, you will usually enter a negotiation process.
Property negotiation strategies include…
- Communicating proactively. Keep an open communications channel with the seller’s agent (or the seller directly, if you are dealing with them). This may help you uncover valuable intelligence that aids your negotiations.
- Thinking carefully about your counter-offers. Use your initial research to frame future counter-offers. Like your initial offer, try and probe for the most ideal offer conditions. Many suitable offer conditions aren’t money related—for example, some sellers may favour a shorter settlement over higher sale price.
- Being prepared to compromise, in the form of offer conditions. Try and avoid a higher price as much as you can (but don’t rule this out).
- Considering offers and counter-offers in uneven numbers eg. $901, 250 instead of $902,000 (this demonstrates you are stretching as far as possible).
- Presenting your offers in writing, every time. This will demonstrate your commitment.
- Not getting emotionally invested. Be prepared to walk away if your budget is exceeded.
- Keeping your emotions closely guarded, and being careful what you say. Don’t reveal any information the seller may be able to leverage. And present yourself as an interested buyer, but never a desperate one.
Lastly, remember that you’re dealing with another human (or humans). The sellers have emotions too. Use your logical and emotional empathy to detect any valuable insights that may help you craft the winning offer.
Get Started By Requesting Your 30-Minute Finance Strategy Session
The quickest and easiest way to prepare finance for your next property is to request a Free 30-Minute Finance Strategy Session during which you will…
- Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure loans for cashflow positive investors
- Gain greater clarity over where you want to be in terms of owning investment properties (and how to structure your loans to get there the fastest, safest way)
- Discover how to unlock the equity in your current properties, so you can build your portfolio – and your wealth – faster (and enjoy a better lifestyle now and in retirement)
- Discover clever, no-cost ways to save money on interest, fees, and charges — immediately
- Learn about our process to find you a better loan that will save you thousands.
This no-obligation session will be held with one of our experienced mortgage brokers.
Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.
Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.
Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)