The Art of Negotiations

Hi guys,
I'm a new (wannabe) investor :)
I believe you guys mostly are more experienced. I really hope that you guys would mind to give some advice:

Yesterday I went to see a property which is advertised for $440K-$470K
I havent done many inspections, but have done my research mostly based on reports that I could find from reastate.com.au, etc, and the last 2 houses in the area which looked quite similar in structure & size to this house were sold for $400K(Aug 09) and $420K(Oct 09-this house looked very well maintained & decorated a bit like a display house).

The house that I inspected yest is 8 yrs old, currently tenanted. I havent called for any building + pest inspection yet, but it seemed ok, only the carpet might need to be replaced and the cooktop looked dirty.

So based on this, I concluded that $420K is the fair value for the house, or $430K the most.

However, I chatted with the REA yest, and he said the vendor has rejected an offer of $420K. Hmmm....:(

My questions:
1) Have I done my research wrongly? Does $420K-$430K seem right to you? Or you guys reckon that they price might've already gone up since Oct last yr?

2) Should I offer >$420K straight away? Let's say starting from $425K? Since REA said $420K was rejected before?

3) Should I do any building + pest inspection for a 8 yo property?

Please.. please help me... :)

Thank you in advance :)
 
A few thoughts, if I may.

October was only a few months ago, but in many areas of Melbourne (where I presume you're looking, yes?) the market has kept moving. Hard to know. Comparable sales only go so far though, and just because the vendor wants a particular price, doesn't mean they'll get it.

Price is also only part of the equation; what terms surrounded the previous offer of $420k? Could more favourable terms (cash unconditional, for example?) make $420k seem more attractive now, than last time?

Either way, knowing the market is crucial. Basing a valuation on just two sales, both from three months ago or more, may not be enough to form a solid opinion of value.

As for negotiating;

Is this for investment, or ppor? If the former, then it can't hurt to go in lower and practice your negotiation skills. Experience is gold and if you can do so without letting emotion get in the way (difficult if you're looking for a ppor, admittedly) then this could prove well worthwhile for future negotiations, as well.

Good luck with it :)
 
Hi Kiky,

Welcome to the Forum.

Congratulations on doing the right thing first and undertaking some due diligence.

Do you have any idea how long the property has been on the market as if it has been on for more than a couple of months then you are probably in a stronger position to negotiate and can go in with an offer of $2,000. If it is fairly new to the market and you want to secure the purchase than $5,000 would be more likely to get the sale.

When you negotiate remember what the property is worth to you, do not get tempted to keep going up just because the REA says that offers have been refused. Additional offers should get smaller say $1,000 increments.

The pest and building can wait until your offer has been accepted as there is generally a cooling off period which allows you to make these checks and finalise your finance.

Good Luck

Andrew
 
Thanks JamesGG, Bargain Hunter for your reply & advice :)

I've also been thinking that maybe I should wait until nx week if I want to go making an offer for this property, so that I can get a chance looking around for other options. And at the same time give a chance for other ppl to snatch this property too .. sigh...:(
Well, this house is only my 2nd inspection in this estate :eek: I went for about 3-4 inspections in a different estate (around the same suburb) and the pricing there is like $50-100K lower than here...And i think I prefer this estate than the other.

As for what you said James, at the moment, I'm actually willing to go for up to $430for that property (unless I see somthing better this saturday :) ). But for going unconditional...hm.. I'm quite confident w/ the finance thingy.... but building + pest? A bit worried abt that.... Can a 8 yo house have a termite probs?

Thx guys! :)
 
Ask;

what sort of $$ is vendor looking for?

go oh... (sound insulted by their stupidity and gasp some air)

reply aswell by saying; Well if the vendor is decides he wants to sell, i am ready to exchange unconditionial pay 10% deposit, just dont see any value at $X (what ever agent says to your initial question)
 
A tip I got once.

Most people 'think' in round numbers - 420, 430, 440, and then in halves 425, 435 etc.

Then add to the equation the real estate selling fee, which they will deduct from the price you offer. For instance, sell 440k agent fee, say, 5k, clear 435 k.

Perhaps on the basis of sales and quoted range, they hope to 'clear 440' (since this is where they start from in the range), but 'may' be ready to 'clear' anything over '435'..

Start the negotiation under the next lowest round number and go from there.

Example
From what you say, I'd imagine they're looking for something that will clear them about 435, so I'd theoretically start the negotiation at 428 IF its going to be worth not much more to you, and assuming you're ready to go close to their expected 435 (say to 432-433) and hope that a buyer 'near' their expectation might be enough lure.

It's all about hope and fear - yours and theirs - if their fear of losing a buyer is greater than your fear of losing the property, then you'll buy it near what you want to pay rather than near what they want to receive. That said, asking prices don't necessarily accord with market reality, nor do offers - that's the hope part of the equation lol.

Part is bluffing isn't it. The only clue you'll get from them is their asking price. Your first offer is their clue.

Just a two cents thought.
 
Oops sorry... forgot to answer these...
Andrew, the property is for my very 1st IP :)
I built my PPOR... coz at that time I was too scared of going for this kind of drama.. :eek:

The property's been on the market since early Des 09. The agent said not many offers've been made coz of the xmas-NY holiday, but he's confident more would come nx week (ppl start coming back from holiday). Well, up to this pt, I think he's telling the truth.. haha.

And thx Nathan. I'd consider what you said...Hmm.. I might need to practice in front of a mirror b4 doing that to the REA ....:D
 
i'm not a great negotiator. i like to get too chummy.

but i did learn one thing that has turned me into a reasonably confident negotiator - silence is your best weapon.

if you hear something you think is wrong, or just not meeting your terms, just stay silent. don't agree or disagree, or "mmm" or "hmmm" or "ahhh" - just stay silent. it's hard, but try it.

most people on the end of that silence get very uncomfortable. they then offer conversation to end the silence, it's almost as if they feel negotiations have stalled and they need to re-start it by making the terms easier or move across to your position to get you back into negotiations.

and they'll do it unconsciously - and then look back and think "why the hell did i do that?".

it works on about 9 out of 10 people i do this to - civil servants are biggest suckers - no offence. they're used to dialogue, when it stops, they become uncomfortable.
 
Oh with odd numbers,

i sometimes buy odd numbers like $45,673.55 as my offer!

makes the vendor think WTF did they do to come up with that offer.

Need to be stern not arrogant, and personable not personal.

Silence is the best key.

One ofthe first things i ever learnt was he whom is talking is not in control of the situation.
 
The previous offer might not exist - the agent might merely be planting the seed of an idea that it is worth more in your mind.

I agree about silence. I use it a lot in all situations - people feel the need to fil lsilence and the stuff they can tell you can be amazing.

Just make your offer and go from there - don't try to double think it or triple think it all. You just end up getting confused - at least I do.

Make your offer that you want to make. At the end of the day you will get it if your offer suits his needs, and those you can't know via an agent.

He may need more money, fast settlement etc. If someone else wants it more than you then they will get it. Is the local market hot in that price range? Are there more buyers or sellers?

So many factors can influence this, there is an element of luck involved. No set rules apply. I have heard of all sorts of things happening in real estate.

Good luck to you.

Above all don't be worried about hurting feelings or having an agent or a vendor think you are stupid etc. Just be bold as brass and go for it.

Easy advice but I must admit that I don't always follow it myself :eek:

Cheers,
 
most people on the end of that silence get very uncomfortable. they then offer conversation to end the silence, it's almost as if they feel negotiations have stalled and they need to re-start it by making the terms easier or move across to your position to get you back into negotiations.

This is most effective in all types of negotiations or fact finding missions.
However it's I'd add the method of making the most out of this is to ask the right questions at the right time, and silently wait for the reply.
Of course you can always aswers a Q with another nicely worded Q, and once again wait for the reply.
As Tom Hopkins wrote: "You have 2 ears one mouth, use them in that proportion", but he left some out so my versions is "you have 2 ears 2 eyes one mouth, use in that proportion".
There's a lot info in the body language.

The art is in not coming across as condescending smartalek (well not to much anyway), but just friendly negotiating.

As far as odd numbers, I'd just use numbers like 433000 or 433500.
And as much as I can be a a hardnose, when it gets to say 355 vs 360, I'll be the first to say 357. They have this look of relief on their face as if they got me to concede, but if the nogotiating has gotten to that stage and I'm still hanging in, that small amount generates some goodwill in most cases. Eg they will see you as "reasonable" (lol) and may call you when they newly list something else.
 
Guys, I'm so tensed now... even thinking abt this property makes my tummy hurt :D

*breath in*breath out*

Ok. This's what I'm gonna do. I will look around other properties this saturday. If no other looks better, then I'll make the offer nx wk...

*breath in*breath out*

Thx guys. Will let you know the outcome :)
 
After some research and number crunching I work out exactly how much I'm willing to spend. I provide my first offer under this amount (not lowballing so it looks like I'm taking the p*ss and not too close to what I'm willing to spend so I don't quickly reach my limit). I also throw in a wierd amount to begin - like $164,300, so it looks like I've done some thorough research to come up with a specific value for the property.

I'm definately no expert, trying to lock in IP 2 now, but I have definately become more confident negotiating with REA's since I began investing. So I'm sure experience over time will make things easier for you.

Cheers,

Jamie
 
Hey Kiki,
Just a couple of thoughs:
- them having rejected a $420k offer if that is even true doesn't meant that they will reject it now. It would also be interesting to see if you askd him if that offer was in writing and why it was that it was actually rejected, it may not have had anything to do with price - the person may have been asking for a 6mth settlement, you never know
- I would always try and organise for someone to inspect the property. We are renovation specialists and we have had anumber of relatively new homes some newer than that that we've had to fix because things in them weren't done properly in the first place.
- Depending on what they say as to why the offer is rejected don't feel like you have to make a large jump with your own offer. I have plaid hardball sometimes and even come back with offers like $421 if the circumstances are right to purchase a property successfully. One in South Melbourne not long ago we got with a $500.00 increase. You are in a stronger negotiating position if your offer is in writing but I personally have tried to stay away from unconditional offers, I always like to have room up my sleeve to confirm finance, to have another chance to look at the property and compare it to anything else I'm considering while still having a relatively easy way out.

Hope this helps!

Wishing you every success, Ana Stankovic
 
Well, this house is only my 2nd inspection in this estate :eek: I went for about 3-4 inspections in a different estate (around the same suburb) and the pricing there is like $50-100K lower than here...And i think I prefer this estate than the other.

How much better is this Estate than the cheaper one? What is the difference in rental return? Because you are buying it as an IP, I wouldn't be getting too emotional. If you can spend $100k less in the other estate and get similar rent then I know what I would be doing....

Gools
 
How much better is this Estate than the cheaper one? What is the difference in rental return? Because you are buying it as an IP, I wouldn't be getting too emotional. If you can spend $100k less in the other estate and get similar rent then I know what I would be doing....

Gools

You got to consider CG potential too.
 
just a quick comment.. on the second part of your question. I would NEVER take out the building/ pest clause in a contract. Termites can definitely do alot of damage in 8years, and the building report can also show up potential problems. I would also keep a finance clause in if at all possible.
Pen
 
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