Over the past couple of weeks we’ve been looking at what we need to factor in before beginning negotiations on a property, and so logically, the next step is to consider is the price. Once again, I must remind you that the only price you are interested in paying is the price that will work for you.
Having researched the market, estimated costs, your target return etc, you should now have a clear idea of the maximum price you should pay to make a property fit with your plan, and in no shape or form should this be influenced by the asking price. In fact, your ideal scenario would equate to you paying less than this maximum figure.
I’m sometimes asked questions like, “Isn’t it standard practice to offer 5% less than the asking price?” I take the view that I don’t know how any asking price has been set, and as such, I don’t let the asking price influence or sway my thought process.
The asking price may have been arrived at in a number of ways. It may have been set by an estate agent who has taken into account his/her knowledge of sales prices in the area and it may transpire that this price is actually quite reasonable and realistic. However, it’s also a possibility that the price is an inflated figure provided by the estate agent in order to secure the vendor’s sale instruction.
On the other hand, it might be an unrealistically high asking price set at the insistence of the vendor, giving the estate agent 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).
And then we have the best-case scenario, where the asking price is actually an unrealistically low price set by a vendor who has decided to sell privately but who is out of touch with figures in the current property market.
The point I’m making is don’t assume the asking price is right. Until you have done your own research you will not know how realistic the asking price is, and when making an opening offer, you should rely on your own opinion of value.
I’m also sometimes asked, “Isn’t it rude to make a low offer?” In my opinion, no it is not. Estate agents can sometimes act like you are being rude; I can only assume they become irritated knowing they have to pass the offer onto the vendor when they think there is no chance of it being accepted.
The reality is that if the vendor doesn’t like your offer, they only have to say no. It’s nothing personal. However, if you don’t ask, you certainly don’t get.
What you also need to think is that if you start off too high, it’s usually impossible to reduce your offer in a credible manner later in the negotiations without causing real upset. So do give some real time to think your pricing strategy though before you start.
Many of those new to investing may also have qualms about buying below market value from a distressed seller, and often question if they are taking advantage by making a low offer. Again, the vendor is under no obligation to sell and they are perfectly entitled to take their own advice on the value.
Having set your starting price, it’s a good idea to stop and also consider if price is the only factor you should be interested in. Because you could also negotiate on other terms and condition. For example:-
- Paying a smaller deposit
- Being flexible on the timeframe for completion
- Starting 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.
Essentially, consider anything that may be helpful or useful to make your property investment project work better for you.
One negotiation technique I use is to sometimes include terms such as those above along with the price. More often than not I do this so that I can drop them later on in the negotiation. This can help to take the other party’s focus off price – if that’s important – and can be useful to build or maintain empathy. In this manner, you look like you are being reasonable rather than dogmatic, which can go along way to securing a purchase price that favours you.
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