Negotiating tips when buying an investment property

July 5, 2012 - PRLog -- Remember who pays the agent

It's not you.  It's the seller.  The agent's priority is to achieve the very best price for the seller and will use all their powers to persuade you to buy the property you are looking at.

They will enhance the positives, gloss over the negatives and do their best to get you to commit to the property and at the best possible price.  No disrespect to agents, this is the job they are paid to do, but it is important that you begin negotiations on the right foot.

Begin with your best possible result in mind

For arguments sake, assume you have a budget of $425,000.  You can then inform the agent that you actually have a budget of $375,000.  The agent will probably still want to show you properties that are listed at more than that, but sowing this seed at an early stage will often help your negotiations when it comes to making an offer.

Don't be in a hurry (even if you are)

Even if you are in the market for a property and want to do a deal quickly, keep this to yourself.  If you tell the agent you are in a rush, he will feed this back to the seller, which will enhance their negotiating position.

Instead, make sure the agent knows that;

> You are finance ready
> You would be happy for a quick settlement
> But getting value and being on or under budget is your most important consideration

Be information rich

Information is also a great arsenal to have up your sleeve when negotiating a real estate deal.

Have you spent some time collecting relevant information about the property, things like:

> Its area of location
> Problems and defects
> Issues in surrounding areas
> Ups and downs of the local economic environment

When considering defects on the property itself that you can query the seller about while trying to lower the purchase price can include noticeable issue such as:

> Maintenance issues that have caused rust, leaks, collapses etc
> Title issues such as issues with title name, ownership and boundary fence issues
> Cosmetic issue such as peeling paint, drab furnishings and window coverings, old and tired flooring, indicators of mould or leaks, cracks in brickwork, unclean or poorly maintained areas.
> Structural issues - these can be noticed if the floor or ceiling is sagging or appears damp, if larger-than-superficial cracks are noted in walls or brickwork both inside or outside.

While it is unwise to go to the seller or agent armed with a list of things you hate about the property, you can approach your "discount spiel" up in a more professional way.

Explain to the seller or agent all of the things you like about the property, and why it suits your buying profile, but explain that these issues or defects (listed above) mean you cannot offer full price for the property and would consider purchasing at a discount.

This information can mean the difference between a good buy and a fair buy.

Arming yourself with all types of factual, relevant information is a great tactic when bargaining with sellers and agents about price.

What better way to convince a seller to lower their price than to remind them of the little things you have noticed is wrong with their property?  Use the power of positive and negative information to assist you during the negotiation process.

The viewing

Get your best poker face on.  If you walk in the door of your next investment property and it ticks all the right boxes, keep this to yourself.  Above all don't let the agent know that your intention is to buy, at this early stage.  Instead of this, you need to offer questions that will prepare the ground for future negotiations.  

Things like

> Why is the property being sold?
> How many people have been round it?
> How many have come back for a second viewing?
> State how many other properties you have looked at

Research research research

When you think you are ready to make an offer, stop and consider your position.  At the very least, you need to know

> How long the property has been on the market for
> Its on the market history - any changes in advertised price since it was placed on the market
>Its sales history i.e how much the previous owners bought it for
> The median sales price for similar properties in the area and historical capital growth rates of the location
> How much comparable properties are selling for (and renting for if you plan to let it as an investment property)
> If you are planning on renovating the property then selling it on quickly, how much similar properties are selling for that already have the features you intend to add
> An estimated market value
> Making an initial offer

By the time you have reached this stage, you will hopefully be equipped with a powerful arsenal of trends, facts and figures and in the best possible position to make a good offer.

Using a combination of this research, arrive at the highest amount that you feel you would be happy to pay.

Then contact the agent and make the offer with confidence.  You can say something along the lines of;

"Whilst I like the property and slightly prefer it to the other two that I am interested in, the others are $30,000 cheaper.  Therefor I am prepared to offer the vendor $400,000." (which would be below your top price).

Haggling

For as long as mankind has traded and then sold goods, there has been negotiations over the price, and it is up to you to maintain this long standing and rich tradition.

There is every chance that the agent will come back with a new price.  Throughout the negotiations, stick to your guns.  Remind the agent why you are making the offer you are (i.e bring out your arsenal of research and prepared to fire it off when needed)

As long as you can justify why you are making the offer you are, you will be in a strong position.  

Also, don't be afraid to use time-frames.  Place a limit of, for example, 24 hours on your offer.  If the seller has not received many offers and are in a hurry to sell, this may tempt them to cash in while they can.

Good luck! For more property investment articles, hints, tips and strategies, go to blog.realelstateinvestar.com.au