I strongly believe that the best deals are agreed when neither party is trying to take unfair advantage of the other and both sides come out of the negotiation feeling they have achieved something. But for this to take place, communication is key.
Whilst analysing the right price at which to kick off negotiations, I try to figure out two additional pieces of information that will not only enable me to have a stronger position in the negotiation, but which will work towards helping the vendor to achieve his/her goal too.
Number 1 – Why the vendor is selling and what they are trying to achieve.
It may be that the vendor has a problem that they hoping to rid themselves of through the sale of the property. You’ll often hear talk of distressed sellers in the context of buying properties at below market value prices (BMV), the assumption being that they need to be shot of their property quickly, perhaps because they are about to be repossessed, or divorced, or are ill, etc. Under such circumstances, a vendor may accept a lower price for a quick sale.
However, it could be that they want to sell for other reasons; reasons which do not necessarily imply a problem. For example, the vendor could be getting married and wants to move in with their partner, or perhaps they want to emigrate abroad.
Either way, finding out what the vendor is trying to achieve is helpful to assess just how motivated they are to sell, and if their desired outcome is more important than just money.
Number 2 – If the vendor is flexible
By this I don’t just mean flexible on price, but flexible on terms generally. Most investors get hung up on price but often more than just the price is negotiable, if they were to ask.
The most likely way of achieving a mutually satisfactory outcome is to kick off the negotiations from a position of mutual trust and respect. And often, this is most likely the result of having developed a relationship with those you are negotiating with.
Interestingly, building trust starts at the first viewing when a relationship is borne between the two of you, and so tempting as it may be, don’t criticise the property in an attempt to soften them up. Being complimentary will ironically be better in the long run for negotiating a lower price.
You have to think, people are people. If they like you, they’re more likely to do you favours. If you put their nose out of joint, they’ll do you no favours at all.
Where possible, always try and engage the vendor in conversation at your viewing (which for us remember, is an “inspection” by another name). If the vendor is not there then try and build some rapport with the estate agent. You should have been doing this anyway because you want to be moving up the pecking order.
I have found that trust comes about through showing interest and, where appropriate, concern. With this in mind, actively listen to really understand the motives of the vendor and try and figure out the “sub-text” of what the other person is trying to tell us (whether consciously or unconsciously).
Above all, consider what they are trying to achieve from the outcome of the negotiation and sale. This will make it much easier for you to structure a deal that suits your needs and which is difficult for the other party not to accept.
Remember though, before you go into a negotiation, you too need to be clear on your own objective. This may be:
- to obtain a better price, or
- to obtain better terms, or
- to obtain a combination of the two
When I talk to other investors, especially inexperienced investors, I am often surprised at how little thought goes into what they want and how they are going to get it from their negotiation. Before I start negotiating, I know exactly what I want to achieve – whether it be the maximum price I will pay and whether it includes other terms. And I’ll try and have an idea of what the vendor is trying to achieve.
With our different needs in mind I will have a plan as to how to proceed in negotiations to achieve that. In other words, a plan of what I will offer at each stage of the negotiation. In this way, I’ll be ready to kick off and work towards achieving a mutually satisfactory outcome for both of us.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor
PS By the way, I’ve rewritten and updated my best selling ebook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to www.ThePropertyTeacher.co.uk/PSStrat