Rejuvenation before sale as negotiating technique

[dallee]

Hi. I wondered if anyone had tried a negotiating technique of requesting that a property be rejuvenated before sale to extract greater value from the final price.

The background is that we are bidding on a basic 3-bed property in Mermaid Waters (GC) which has been on the market for $450k for four weeks and is currently untenanted. Rent estimate = $375/wk. It needs paint and carpet before it can be let (NB it also has some structural problems which will need to be dealt with later). We think $420k is a fair price (our first offer was $410k) but the owner isn't prepared to go down that far.

How would a seller, an experienced property investor, be likely to react if we asked that the place have new carpet and paint in return for us adding that cost to our purchase price? Is this a win-win all round tax-wise?

Appreciate your help,

Dallee

 

[beech]

Get a building inspection done and after he finds some faults you should be able to negotiate a better price.

Ask why hes selling as he may be more motivated than you think.

 

[duncan_m]

How would a seller, an experienced property investor, be likely to react if we asked that the place have new carpet and paint in return for us adding that cost to our purchase price? Is this a win-win all round tax-wise?

I'm not clear on what it is you're trying to achieve.. You appear to trying to swing some kind of tax advantage out of this? That'd be pointless..

If the "repairs" are done by the current owner and you pay him by increasing the purchase price then you can, with a Quantity Surveyors report depreciate these items.

If you buy the property as-is and do the improvements then you can depreciate them with the receipts you end up having.

Its the same either way really.. is there something I'm missing about what you're trying to achieve?

 

[Dazz]

How would a seller, an experienced property investor, be likely to react if we .....

I reckon the experienced investor, after having told you NO at 410....and then sitting down and analysing whether they'd accept say an offer from you of 418 if they spent 8K on fluffing the place up for you.....I reckon my reaction would be

"NO, and don't bother me again. This is my place and I want absolute maximum dollars. If you're not prepared to pay that, then go away."


In terms of trying to beat a savvy Vendor around the head with a building inspection report, I reckon you'd be pushing the proverbial uphill with a stick of wet spaghetti.

The wording in the clause for building inspection is usually a "walk" clause. If you aren't happy with the result you have the opportunity to walk. I'd love the opportunity for some negotiating purchaser to try and get me down on price after some dodgy building report. I reckon it'd go something like this ;

Buyer : "We've just received the building inspection report back, and it's going to take about 15K to bring this thing back up to scratch."

Vendor : "Yes we know that, that's why we accepted 450K. If it was all done we would have been asking 465K. Now, are you going to tear up the contract and walk away, or delete the building clause and proceed to unconditional....wazit gonna be ??"

A devastating building report does not give the buyer the right to negotiate with the Vendor on price at all.....IMO.


I suppose it all depends on which hat you prefer to wear, and how strong you are at negotiating. Having the ability and carefree will to walk from the deal after all of the foregone effort and study in reaching this final point of the contract is extremely hard to do for some people, especially if they have incurred thousands of dollars and weeks researching to get to this final point before going unconditional.

My limited experience is that most people try to haggle, get kicked back by the Vendor, and then proceed anyway. If you come up against a numpty Vendor, well then good luck to you.

 

[GoAnna!]

Hi Dallee

We have done what you are proposing but it was part of a negotiation after the property passed in at auction. Neither party would budge from their price so we asked them to include repairs of equal value to an increase in purchase price. In our circumstance it was $5K. We also negotated the right to show tenants through during the settlement period.

They did agree, we presume motivated by pride or ego. Perhaps they wanted to tell their neighbours that they had sold for a higher price---I dunno. But anyway they said yes at no fianical gain to themselves and it meant that the propery was prepared on our behalf and and we were able to minimise the vacancy period.

If you do put such clauses in the contract you will need to ensure that your condions are detailed so that you are not shocked by the quality of the work done.

Best of luck!

 

[GoAnna!]

Ah I forgot to mention that you will need to take into account the increase in stamp duty and the seller will have increased capital gain.

 

[dallee]

Negotiating techniques

Your views are all really helpful. According to the agent, the owner knows the flaws of his own property (as do I from the building report) and has priced accordingly. Therefore my 'negotiating technique' is probably just going to annoy him and anyway wouldn't avoid my having paint and carpet as a capital improvement; these things need doing asap to attract a tenant. The issue really is a crisis of confidence in the first IP purchase - the cashflow nos don't look great; however, I'm pretty confident the capital gain is there, except when I'm not confident about the whole exercise, if you know what I mean. Perhaps I'll edge up a bit and then ask for access to the property before settlement to rejuvenate it, minimising the period in which it will be vacant.

Cheers,

Dallee

 

[GoAnna!]

Hi Dallee

Don't be concerned about how the vendor or agent are valuing the property. Just work out what numbers make sense to you. If they don't like your price then walk....there are heaps and heaps more properties! The vendor has only one property to sell but you have heaps to choose from )

 

[skater]

In terms of trying to beat a savvy Vendor around the head with a building inspection report, I reckon you'd be pushing the proverbial uphill with a stick of wet spaghetti.

The wording in the clause for building inspection is usually a "walk" clause. If you aren't happy with the result you have the opportunity to walk. I'd love the opportunity for some negotiating purchaser to try and get me down on price after some dodgy building report. I reckon it'd go something like this ;

Buyer : "We've just received the building inspection report back, and it's going to take about 15K to bring this thing back up to scratch."

Vendor : "Yes we know that, that's why we accepted 450K. If it was all done we would have been asking 465K. Now, are you going to tear up the contract and walk away, or delete the building clause and proceed to unconditional....wazit gonna be ??"

Hmm.....it doesn't always go that way. We had a block of units that had a bad report done. Got quoted $10k to fix the plumbing. Gave a copy of the quote to the vendor & they dropped their price by $10k. Then got a local plumber to do the work & it came in at under $1k.

 

[dallee]

Numbers

I like the idea of getting in a plumber to assess some of the issues with damp - at least then I'd have a better idea of what I'm up for.

Does anyone have any comment about the numbers? The estimate from API's property calculator is -$104/wk at the current offer. The property is below the lower quartile average for the area, with average growth of 9% last 12 months, and has lots of potential for improvement. Basically its the cheapest in that market at the moment. To go up 5k only adds $4 a week and a couple of thousand over ten years - I was really surprised at how little this was.

Our property strategy, newly articulated, is to buy and hold two blue-chip properties - one GC and one the inner west of Sydney (a task for next year). We can handle the negative cashflow from the two properties but if we've got it wrong over potential capital growth, it'll be an expensive mistake.

I'd love comments on any of the above.

 

[dallee]

Numbers

Sorry - realised the contradiction in my last post - the strategy is as blue chip in the location as possible not blue chip in the property. Dallee

 

[JIT]

Negotiating on building inspection report...

Vendor : "Yes we know that, that's why we accepted 450K. If it was all done we would have been asking 465K. Now, are you going to tear up the contract and walk away, or delete the building clause and proceed to unconditional....wazit gonna be ??"

A devastating building report does not give the buyer the right to negotiate with the Vendor on price at all.....IMO.

But, for the average vendor, as opposed to a more experienced one, if they have not done a building inspection themselves recently, particlulary for older properties, they may not be aware themselves of the extent/costs/urgency of the maintenance work required on the property.

For an old unrenovated/semi-renovated property, if you are the buyer, you can use comparable sales to get an approximate value, but if there have been cosmetic enhancements to the property, these may hide the underlying maintenance issues that have been deferred by the vendors, or to the untrained eye they are just not obvious (eg. if you don´t get up on the roof, you don´t know what condition the roof is in, or that the chimney flashings and cowls are non-existant), so without doing a building inspection it will be harder to put a more precise value on the property, unless you are experienced enough to see past the superficial cover ups.

I would attempt to negotiate a decrease in price after a devastating building report.

GSJ

 

[doreilly]

I would attempt to negotiate a decrease in price after a devastating building report.

I would always try to negotiate based on building inspection.

If the building report was devastating I would probably walk away. Time is money.

 

[stockt12]

Was going to add more to this.. but the above replies have all been terrific. Here's my reply.. MOVE ON. You have seen a light and it's drawing you in on emotion and importantly monetary gain. There'll be another place available for you to attempt the same thing with in the coming weeks.

 

[JIT]

Dazzling,

See my case in point in this thread,

http://www.somersoft.com/forums/showthread.php?t=28440

GSJ