How do you Negotiate?

[Gentle_Chief]

Hi Guys,

You have found the place, suits your investment profile, done your calculations and are now ready to take the plunge. Where do you start when you are ready to negotiate the price with the Agent. My question is what will be the opening offer that you would consider throwing at the agent. The discounts being:

0 - 3%
3 - 6%
6 - 10%
10+%

I know a lot of it depends on the place, cycle of the market in that state, current economic news, days in the market, your screaming desire to own it etc etc. Also, if its an IP or a PPoR, it does make a difference when it comes to our desire to own it, as one is made with the calculator and the other with the heart.

But we all have a signature, a pattern in how we negotiate the price down as its not an exact science. I know that the first offer will ALWAYS be rejected by the Agent. And that one should not dont counter-offer twice without any movement from the other party (atleast resist doing so!).

I know a lot of guys who dazzle with their ability to negotiate, and some of us try too hard and see the place slip through our fingers, and yet others who are embarrassed to negotiate as a fear of being ticked off!!

So what are you?

 

[pursefattener]

I have found that when I have done lots of thorough home work in relation to what I,m looking at then my negotiated outcomes are much more sucessful . When i havn't then the result has been less than satisfactory . i suppose that is obvious really .

If i can , i will always try and talk to the vendor direct to sutlely learn their story . The more information I have the better prepared I am .

There are a couple of good books around .

I always try to have a BATNA ( best alternative to negotiated agreement)

So GC , I guess I fit somwhere in the middle of your range .

 

[boods99]

I personally dont believe that the amount of discount off the asking price is that important, however, arriving at the max price you will pay for that property as a result of due dilligence is probably the key. I think you should also justify why your offer is lower, ie; house needs work, one down the road sold for less than yours etc...also you may want to be armed with a valuation on the property (if it comes in lower than asking price, of course)
On the other hand I know people who always offer 15% less than asking to start with and go from there...somtimes it get them bargains, other times it backfires!!

 

[Gentle_Chief]

Thanks Pursefattener for your reply,

Specifically speaking I bought my PPoR this year where the qouted price was 600K and it was the first week of listing. A lot of interested buyers, and I immdtly put in an offer of 570K. After 2 counter offers we hit on the 585K mark where the deal was struck 2 days later. In between I had sleepless nights, that I am going to miss this one 'too'. Well, only a month earler I lost a property that I was so stuck to a figure. The agent kept telling me I had to increase my offer by 5K to clinch it as there were other buyers at that range, I kept calling his bluff, and Lo! it was Gone for 2K over my offer. Sadly that was my first lesson.

 

[VYBerlinaV8]

My approach is to take it as a series of steps:

1) Work out the maximum price I'm prepared to pay - this is an investment after all, so it's not like I'm going to be living there.
2) Have a chat to the agent to work out what sort of price range the vendor wants. I usually try to be fairly honest and simply say "look, as an investor there's a price above which the numbers simply don't work - but if we can get to that point I'll happily buy it". This shows the agent you're serious, but also that you won't be bullied because you don't have an emotional attachment.
3) Make an offer a bit below your maximum price. Tell the agent that it's a firm offer and I'm ready to buy right now.
4) Wait to hear back, but don't get too worried, knowing there are always properties for sale that make good investments.
5) If the offer is not accepted (several times it has been - yay!), make a counter offer of perhaps 2k below my maximum price. Tell the agent that's as far as I go (politely, of course), and remind him that this is just an investment for me, and that I'm not that worried if I don't get the property.
6) If that offer still not accepted (personally I'm not that interested in counter offers), ask the agent if the seller will take my maximum buy price. I tell the vendor to "feel free to tell them I'll go to X, but anything after that means the numbers don't work for me, and I'm already looking at alternatives anyway".
7) If that offer not accepted, thank the agent for their time, and let them know that if the seller changes their mind to give me a call in case I haven't purchased an alternative property yet.

This approach gives the seller several opportunities to say yes, and to increase the price a bit (so they feel they achieved something), while guaranteeing the property, if purchased, comes in at a level at which the investment works for me. Personally I'm not that hung up on trying to squeeze the last dollar out of each deal, simply because of my buy, hold, never seel approach. Of course, this means I probably don't get quite as good a deal as I sometimes might, but frankly I'm not that concerned. To me, the numbers either work or they don't.

Now, I have dealt with many agents who are unprincipled a**holes, but I've also dealt with some that show considerable integrity. The last guy I dealt with behaved really well, so I gave his company the property management of the place I'd bought through them. So far they've been great.

It's worth remembering that purchasing IP is a business decision, and that the intermediate players really don't matter much at the end of the day. Also, I never pay more than my maximum buy price, just to prove a point. Personally I think walking away from a deal that doesn't work shows more integrity that trying to win at all costs.

 

[Modal Harmony]

Well said VY!! Totally agree with this approach; it shows intergrity on our part as investors and this can only be a good thing so that agents and vendors don't place IP investors in the same bucket as (gee, what sort of characters in life are the most unsavoury to deal with ?!?).

Otherwise, what goes around comes around.......

 

[Dazz]

For the last three years we've been targeting properties that are only listed as EOI or Offers to Purchase.

It'd be nice to sometimes have an asking price attached...but so far we've never been given that luxury. The real answer to that question if we ever asked would be "as much as you can possibly afford and then some more".

Most of the time you don't even get to argy-bargy with the Agent. They simply ask you to submit your very best offer in writing, encouraging you to make it a clean and condition free offer.

Many we've had a crack at, and been in the middle of the pack of say eight or nine bidders. You don't get a second bite at the cherry. The power in negotiation resides totally with the Vendor.

We typically put only a finance clause - which has worked heavily against us, and we've lost 2 cracking properties because of it to bidders who offered less than us but had unconditional cash on the table.

So, our negotiation technique has been to have a wild stab in the dark, with little or no info from the vendor or agent, bid as high as possible, and bid with as little conditions as possible.

In short - completely clueless and completely powerless. Real techo hey !!

 

[Gentle_Chief]

Well said VYBerlinaV8 and thanks for the comments Daz.

Technically speaking, by law an Agent has to inform a buyer's offer to the vendor. But this is never done. The Agent 'negotiates' on behalf of the vendor, which makes the process harder as a buyer, as it's always presented as a "take it or leave it type" scenario. It does not seem like the agents are under any pressure to sell (or are they?)!

Agents common ploys:
1) The seller has no reasons to sell (the truth is the seller is in such a dire situation he cant meet his next mortgage payment & is already months in the red!)
2) The seller has rejected the offer (the truth is seller was not even informed of the offer)
3) It has just been listed (it had been listed for the past 3 months and was taken out 2 weeks back due to poor response and is listed again)

I have seen car salesmen try it so hard and give it all for that deal, but not property agents!!

Guess we (the investors) are to blame...

Cheers,GC

____________________________________________________
P.S: No offence to any agents on this forum

 

[Gentle_Chief]

Well said VYBerlinaV8 and thanks for the comments Daz.

Technically speaking, by law an Agent has to inform a buyer's offer to the vendor. But this is never done. The Agent 'negotiates' on behalf of the vendor, which makes the process harder as a buyer, as it's always presented as a "take it or leave it type" scenario. It does not seem like the agents are under any pressure to sell (or are they?)!

Agents common ploys:
1) The seller has no reasons to sell (the truth is the seller is in such a dire situation he cant meet his next mortgage payment & is already months in the red!)
2) The seller has rejected the offer (the truth is seller was not even informed of the offer)
3) It has just been listed (it had been listed for the past 3 months and was taken out 2 weeks back due to poor response and is listed again)

I have seen car salesmen try it so hard and give it all for that deal, but not property agents!!

Guess we (the investors) are to blame...

Cheers,GC

____________________________________________________
P.S: No offence to any agents on this forum

 

[VYBerlinaV8]

There's no doubt that agents don't always do the right thing. I guess that's why I try to give the impression that if the price is right I'll buy without arguments, conditions or hassles. This sometimes pushes agents who have had a property for a while to just say 'bugger it - let's sell the damn thing and get paid'.

 

[BayView]

A few things affect the offer;

1. how long the property has been on the market.
2. is it subject to finance
3. how long the settlement will be.
4. the state of the market

1. If the property has been on the market for a short time, a low ball probably won't work; especially if the market is moving quickly.
If the market is flat, and the property has been on the market for a while, a low-ball can work.

2. Vendors like to get their money quickly. If you offer unconditional, they may be more receptive to a lower offer, but with shorter settlement.

3. A long settlement is not as attractive as a short settlement. You may get a low-ball offer over the line if you offer a quick, unconditional settlement. Be prepared to offer higher if you want a longer settlement.

4. As above, the state of the market will determine the offer. Flat - you can go lower. Boom - maybe have to offer asking price.

It requires you to know the state of the market. As a general guide, 10% below asking woud be normal, and not outrageous. Try 20%; the worst that will happen is the r/e will laugh at you and say no.
Vendors will always start with a higher price anyway, knowing they will get a lower offer (unless it's a boom).
Our first IP was a new townhouse in Mentone advertised for $425k. It was the last of a block of 4 to sell, and it sat there for 3 months. I offered $382k (10%) unconditional. The agent said the vendor (who was also the builder of the complex) wouldn't accept it. I said ok and left the r/e's office. Two days later I got a phone call. Offer accepted. I was inexperienced, and should have said: "well, that offer is no longer on the table; I'll give you $370k" but I didn't, and paid $382k.

My purchases are all investment, so there is no emotion at all. The numbers work, or they don't. I put in one offer, unconditional and it is accepted or not, then move on.

 

[Lizard King]

Negotiations on Daughter's PPOR

Well, here is my story from a recent negotiation.

Acting 'on behalf' of my daughter who has relocated from the ACT (given the apartment we bought for her there in Feb this year to a PM to manage) we have just purchased a 1BR apartment down the Terrace in East Perth for her.

The Storyline:

Went in with offer of 5% below asking, including an almost brand new Fisher & Paykel refrigerator and microwave in the kitchen; 45 day settlement.

Vendor cam back with a 'Final Offer' 10K below original asking and taking back the fridge.

We went back accepting the offer, but with a 90 day settlement. Accepted.

Now, I do not like pre-emptive bidding (being a Contract Bridge player, know how it can shut out the opposition's bidding, but only if you have a really good hand!) - but daughter was keen on it as we have been hunding down places every weekend.

The REA's at the moment use a line that goes like this: " The one down the road recently sold for $XYZ" - and use that as the benchmark, with out considering other soft factors as location, size, aspect, fittings, condition, etc.

I think this is to psyche out the buyer - I argue on this point.

The 90 Day Settlement Period gives my daughter time to save up the difference in our offer.

So now everyone's a winner.

BTW, got a MB in yesterday to assist with the finance and now find that her borrowing capacity is considerably diminished because of her HECS Debt!

I will keep that story for another time.

Cheers,

Lizard King