Want to know how you can make thousands of dollars in just a few minutes using smart negotiating tactics? Read on...
As a buyer, you are looking for an investment property that is going to see capital growth and a rental yield that will make the property pay its way. Getting the right property for the right price has a lot to do with your research and negotiation skills, even more than what the market might have to offer.
How much should you pay?
Follow these two steps to help you work this out:
- Complete your own personal analysis to calculate the maximum you will pay for the property, considering your strategy and your circumstances
- Consider the market. Just because the agent has listed a property for $400 000 doesn’t mean that the current market will pay it, so it is important to do your research. Understand whether it’s a buyer’s or a seller’s market, and think about where you are placed in the property cycle for the area at the time you want to make a purchase.
Your negotiation technique will alter as a result. In a buyer’s market, when sales are sluggish, you can afford to start with a low offer. When advertised properties receive multiple offers within just a few days, it’s a seller’s market, and you may consider putting in an offer that’s just that little bit higher for the right property in order to seal the deal.
Information is power
You will need to consider a number of factors when deciding on a purchase price for a property. Consider the following factors before you are ready to set a price for your offer (and before you actually settle):
- The size of the block. Generally homes on larger blocks of land sell for a higher price, especially if the block has the potential to be subdivided down the track
- The size of the house. Check the number of bedrooms and bathrooms, and whether there is a separate dining room or the potential to convert space to an office or add a bedroom.
- The condition of the house. A house that is in need of repair is generally worth less than one that has been renovated or is new. If renovations are required, you will also need to consider these when deciding on the price you are willing to offer.
- The location of the property. A house located near schools, shops and transport is often worth more than one that is not. On the other hand, if the house is right next door to a major bus depot, a large school or a shopping centre, it may not be a ‘desirable’ location for residents due to noise and traffic, and, therefore, be worth less.
- The construction materials. Compare the property with others in the area. Do you have a rare brick construction among mostly weatherboard or fibro houses? Does the house contain asbestos materials in the roof or walls? Consider the cost of the removal and replacement of asbestos.
- The potential rental income. If it’s already in the rental market find out the current rent or ask real estate agents in the area what a reasonable rent would be.
The current state of the market. Understand at what point in the market cycle you are purchasing and factor this in.
- The length of time the house has been on the market. Find out why the property hasn’t sold yet if it’s been on the market for more than a month (perhaps it’s simply that the price is too high), and what the vendor’s circumstances are. Some sellers start to just tire of the whole process and will accept your conditions to get the property off their hands. Is there something you can offer that helps them out as well?
- Price adjustments since the property was placed on the market. Ask the agent what the first asking price was and any figures that have been knocked back.
- The reason the house is being sold. If you know the reason for the sale, you may be able to negotiate a better price by solving a problem for a vendor.
- How motivated the vendor is. Are they moving overseas? Have they bought elsewhere and therefore need a quick sale?
- How much the seller bought the property for, and when. This gives you an insight into what the vendor might accept as a reasonable offer.
- If other buyers are interested in the property. Judge a property’s interest value from the number of people at open for inspections and by watching and listening to them while you are there. Usually, the longer someone stays on-site, looking at the property and speaking to the agent, the more likely it is that they are going to make an offer.
Once you are armed with as much information as you can glean about the property, comparable sales and information about the vendor’s situation, together with your own strategy and analysis, you are ready to consider a purchase price. But remember, price is not the only thing to consider when setting an opening offer.
Let the negotiations begin
It is reasonable to expect negotiations over an investment property deal to be a little hard-nosed. The following are a few ways to help you get the price you want:
- Show you are a serious purchaser. Having all your finances pre-approved shows the vendor that you are seriously looking at purchasing property and that the purchase is unlikely to fail due to lack of funds. This may mean that a seller decides to choose your lower price over an offer without pre-approval. Putting your offer in writing also shows the vendor that you are serious and professional.
- Start off with your lowest offer. Your lowest offer needs to be realistic; you want to ensure that you negotiate the best price for yourself without insulting the vendor. Always communicate the reasons for your offer bid, and bring evidence, such as recent sales data for comparable properties, to the negotiating table. For example, the building inspection finds that the bathroom is leaking and needs urgent repairs totalling $5000 (which will include an amount for contingency) or perhaps it discovered a termite infestation and areas of the property that need repair. Try deducting the cost of necessary repairs from the asking price.
- Don’t rush your offer — plan, plan, plan! Most contracts involve offers and counter offers before a deal is concluded; expect this and plan for it. Come up with a plan for dealing with counter offers. Be patient — this is not the time to get emotional. Wait for the offer to be considered and responded to before you make another offer. This can be quite nerve-racking for the first-time investor so focus your energies on something else. Perhaps begin researching your next deal so that you are not so emotional about this property if the deal does not go through. When an offer is rejected and the counter offer is still off the mark for you or the vendor just won’t budge on the price, you can increase your offer, but do so in diminishing increments and, again, make the offer in writing.
- Watch for stalling techniques. If a vendor advises that he wants to wait for a better offer, let him know that your offer will expire at the close of business on a particular day. This puts a bit of pressure on the vendor, forcing him to make a decision within a time frame that suits you. Try not to give the seller a whole weekend, as they’ll be open to new offers following an open for inspection. If a vendor won’t negotiate on price, try to negotiate something else to make the deal better for you, such as asking for the window coverings or white goods to be included or increasing the settlement period.
- Who are you dealing with? Make sure you negotiate only with the person with the authority to accept the offer and bind the contract before you begin your negotiations. It is also important that you treat each party involved in the negotiation with respect to ensure that you maintain goodwill throughout the process. You never know when your paths will cross again — you may even want to purchase another property from the vendor in the future.
Never be afraid to walk away
Remember: never fall in love with an investment property. There are always more deals out there, so don’t be afraid to walk away. Fear of missing out on a property will only result in you spending more than you can afford or than makes financial sense. At times it may seem as though the vendor and the agent have the upper hand, but you need to remember that you can walk away at any time during the negotiation process if the vendor won’t accept your best offer.
Excerpted with permission of the publisher John Wiley & Sons Australia, Ltd. from Property is a Girl’s Best Friend, Copyright 2009 by www.propertywomen.com. Available from all good booksellers RRP$32.95