We’ve been looking at what we need to be sure of before we agree terms on a purchase. of a property investment or buy to let property.
The first thing to remember is that the only price you are interested in paying is the price that works for you.
You will know how much you want to pay by having researched the market, estimated costs, thought about your target return and so on.
There will be a maximum price at which this property works for you. If you pay more, it will not work. You will know what that price is and you will be aiming to pay less than that maximum.
So, the price you offer should in no shape or form be influenced by the asking price.
I am sometimes asked questions like, “isn’t it standard practice to offer 5% less than the asking price?” I take the view that I do not know how any asking price has been arrived at. So in that sense I have little regard or respect for the asking price. The asking price might have been arrived at in any of the following ways:
- It might have been carefully and thoughtfully considered by an estate agent who has taken into account their knowledge of sales prices achieved in the area, and it might be reasonable and realistic.
- Or it might be an inflated figure provided by the estate agent in order to secure the vendor’s sale instruction.
- Or it might be an unrealistically high asking price set at the insistence of the vendor, and the estate agent has had no alternative but to comply for the time being. Perhaps they are working on the basis that once the vendor has tried this asking price for a while and has not sold the property, they can then talk some sense into them and get them to reduce the price to a more realistic level.
- Or it could be an unrealistically low price set by a vendor who has decided to sell privately but who is out of touch with achieved prices in the market.
The point I’m making is don’t assume the asking price is right. Until an investor has done their research they will not know how realistic the asking price is and so, when opening negotiations, they should rely on their own opinion of value when deciding on the amount of their opening offer.
I’m also sometimes asked “isn’t it rude to make a low offer?” I don’t think it is, although sometimes estate agents act like you are being rude. I’m not sure why they do unless it’s just the irritation from knowing they have to pass the offer on to their client and they think there’s no chance of it being accepted. But the reality is that if the vendor doesn’t like your offer, they only have to say no. It’s nothing personal. But from your point of view, if you don’t ask, you definitely won’t get. And, if you start too high it’s usually impossible to reduce your offer in a credible manner later in the negotiation without causing real upset.
Then there’s a question I’m often asked about buying below market value from a distressed seller “Isn’t it taking advantage to make a low offer?” Again, the vendor is under no compulsion to sell and they are perfectly entitled to take their own advice on the value. So I don’t think you need to even see it in those terms.
But price is only one of the terms you should be interested in.
Other terms could include
- Paying a smaller deposit
- Being flexible on timeframe for completion
- Allowing you to start refurbishment works between exchange of contracts and completion
- Obtaining vendor finance
- Asking the vendor to undertake repairs before completion at their cost
- Including carpets, curtains, fixtures, fitting, furniture etc
Or anything else you can think of that may be helpful or useful to you.
Sometimes I will include other terms in, along with the price, most often because I can then drop them during the negotiation. This can help take the other party’s focus off price, if that is important, and it can be help to build or maintain empathy if it looks as if you are being reasonable and not being dogmatic.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor