The subtle art of negotiation

The subtle art of negotiation
The subtle art of negotiation

GUEST OBSERVATION

As a property investor there’s one key skill you will need for every transaction you make – the art of negotiation.

Nailing this skill is almost compulsory in your success at making a profit on every property that you buy, and ensuring that the purchases you make are never pointless ones.

Introductory tips on negotiating like a pro

First and foremost you need to determine the market you’re buying in. Try and purchase at the end/or during a spell of bad consumer sentiment, when the optimists are no longer running wild.

Remember, no one has become wealthy doing what everyone else does, so your challenge is to think for yourself and ask: “why will this time be any different from the last?”

Once you’ve found a property: Let the games begin

You must start your negotiation from a position of strength, so you need to do your research.

Learn the market and assess the value of the property, remembering that the profitability comes from the land component. Before you pick up the phone to the agent, come to grips fully with the price. Seeing over 2000 transactions in my office over the past decade has given me a radar that can get within 1-2% of a property’s value, but you can get this with your own with various tools - including databases, auction attendances and seeing properties first hand.

Walking Away

If the property seems way too expensive it probably is, so walk away.  As few properties as there currently are on the market there will always be another and, most importantly, it will be for the right price.

Don’t attend auctions

For investors, if the property is going up for auction then don’t attend. There isn’t a deal to be done in an auction environment that doesn’t have the vendor popping champagne! The definition of buying a property at auction is ‘paying what the vendor wants on the day’. 

I have attended and bought significantly reduced price property at auctions, but these times are few and far between and certainly not while we live in a world of record low interest rates. So take my advice and keep clear!

Negotiation starts when you pick up the phone

Once you’ve found a property in a good location that is not overpriced and not up for auction, it’s time to pick up the phone! When you first reach out to a sales agent always tell them you’re an investor, not a home buyer.

The reason for this is simple – by telling them you’re an investor they’re more likely to sell you the property because you might use them for rental management, providing more business.

It also shows that you are only interested in buying it for a price and they don’t have to entice you into falling in love with the home!

Act nonchalant

Always act nonchalant. You want them to think you’re not that bothered if you get the property – then ask them for a discount upfront.

You want them to know you’re only interested in the property at a certain price - after all, you are an investor! Why waste time you could be spending doing more research if you can’t even afford it?

Low-balling is a terrible tactic in bull markets

When negotiating avoid the logic ‘always offer 15% under the asking price’. Don’t follow this as a rule. If it was that simple, agents would just ask for 20% higher and still be 5% in front!

Keep in mind agents are experts at selling property not experts in investing – but you are an expert in investing.

Ask for the contract

Ask the agent for the contract up front before the viewing. Firstly, it won’t pique the interest of other potential buyers if you ask for it in front of them, and secondly, it can allow you to compare better sales data and analysis on the value of the home - including easements, potential for pools, and the all important neighbouring properties.

Once you’ve completed the viewing and are happy with what you see, the real negotiating can begin…

Make the offer

One of the best tactics I’ve learnt for negotiating like a pro is to simply put an offer on the table straight away.

You have the contract already, so then and there write down your offer and hand it to the agent. You’re in a position of power now, the agent knows that this is the only price you’re going to pay and has to go to their vendor to ask them to consider it.

Timing is very important in this. In general, earlier is better and I have won many properties by forcing the hand of an agent on a Saturday after inspection.   

Just remember, practice makes perfect – so test it out on some dud properties you’re not interested in first and then try it for real. Just keep thinking the line the entire time, ‘I am happy to walk away from this property’. It is a great position to be in.

Gavin McPherson is the CEO of Oasis Property and author of  Value Investing in Property: What would Warren Buffet do if he was investing in property in Australia? 

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