The successful negotiation of price is key to obtaining a favourable return on investment for the property. Each extra dollar paid, reduces the return and can add up to significant amounts during the lifetime of the investment. Conversely, the more successful the negotiation, the higher is the return over the lifetime of the property investment. There are several rules for successful negotiation:

  • Establish clearly the fair purchase price based on a valuation and property inspection checklist,
  • Plan the negotiation.

In particular, include what must be achieved in relation to:

Set a ‘best price and conditions’ as the starting point of negotiations. It is always possible to increase the offer, but difficult to reduce the offer (at least during the current negotiation round).

Research the vendor’s reason for selling. Check/search copies of the title for mortgage details, as several mortgages may indicate difficulties in servicing the loan or other financial difficulties. To establish this, question the agent, neighbours and the vendor directly (if possible and discreetly).

Avoid giving the agent any buying signals, particularly by the asking price.

Identify any possible weak aspects of the property and be prepared to focus on these rather than the strengths. Any indication to the agent by the purchaser that they are attracted to features of the property will be immediately taken as buying signals.

Identify and focus on any negative reports in external data relevant to the property including:

  • Indicate interest in several other properties without identifying them (identifying other properties will allow the agent to argue the advantages of the negotiated property over the others).
  • Test the motivation of the vendor to sell by submitting an initial low offer to the vendor on price and conditions of sale.
  • Be prepared to walk away from negotiations if the initial ‘best price and conditions’ are not met. There will always be other properties available and if the purchaser has selected several properties that meet the purchase checklist criteria, negotiations can start on the next preferred property on the list. This may also force the vendor to indicate the bottom price they are prepared to accept, particularly if it is a buyer’s rather than a seller’s market.

 

Activity

 

Case study – Negotiation

Following inspections of several two-bedroom apartments in Happy Valley, a preferred property has been identified and you are now prepared to submit an offer for the property. The following information has been compiled in relation to the property:

  • Asking price: $255 000.
  • Estimated market value: $235 000 (based on valuation report).
  • Capital value: $230 000.
  • Days on market: 65.
  • Previous offers: $240 000, 30 days ago (subject to sale of property). $245 000 cash offer, 10 days after listing (55 days ago).
  • Estimated rental: $1000 per month.
  • Reason for selling: owners are subject to contract on a house in the next street that expires in 10 days.
  • Potential repairs required: to appear structurally sound, although repairs are needed on gutters, drainage, hot-water service and air-conditioner totalling $9500.
  • Current economic environment: increase in official interest rates of 0.5 per cent announced by Reserve Bank of Australia last week.
  • Strata Corporation: $1000 contributions required for external painting and repair of gutters.

Develop a negotiation plan based on the information above and any other considerations that can be used to achieve a satisfactory outcome.