Negotiating the best deal on a property is fairly simple in theory but in practice it can be very different. You need your own tactics, strategy and an endgame and as “The Property Expert” John Howard says:-
“It’s said that a good outcome to any negotiation is one where both parties are happy. I’m not sure I actually agree with this, as I much prefer to be the happier!”
While there are occasions in life where it is nice to be nice, let’s not forget when negotiating the price of property this is business. This is not charity, not a handout but pure and simple business, where the facts and figures need to add up. John’s book “Property Investment and Development for Newcomers” offers an array of tips and advice from someone who was been there, done it and has many T-shirts to confirm this.
How should you approach making an offer?
In this article we are assuming a standard property purchase with a degree of redevelopment and a resale. So, how should you approach the task of making offer for a property that you like? Let us take a look at some of John Howard’s tips and advice.
• Play your cards close to your chest, like a game of poker, never tell the agent your top price
• Unless you have prior information, do not throw lowball offers as this can alienate selling agents
• Try to build up a rapport with the agent so they trust you – they will often give you additional information
• Where possible, find out the bottom price the seller would accept for a quick sale – this information can be priceless
This will all come with time but in John Howard’s book you will learn the tips and tricks of making an offer which is acceptable and extremely attractive for you. Building up a rapport with the selling agent can be priceless for not only the purchase you are negotiating but also future opportunities. Once an agent trusts you then they will deal with you time and time again as they know you are hassle-free.
Have you ever thought of meeting the seller?
While many property investors prefer to hide behind some form of anonymity this is not John Howard’s way. He has been in the industry for many years and while his book is extremely popular so are his one-day seminars. In the seminar you will learn one of the strategies that many people fail to recognise, meeting the seller face-to-face can build up an invaluable rapport.
• It is easy to trust somebody you have met face-to-face
• Who better to show you around their property than the seller themselves?
• Find some common ground, if you have a dog and they have pet pictures in the house, talk about your love of animals
• Connecting with the seller will likely occur in the first 10 seconds so go prepared, have a strategy in mind and make it work
• Ask them why they are selling – it may be a very different answer to that given by the agent
• If you have funding available and they are looking for a quick sale, tell them you can help
On some occasions you will find that the seller will initially refuse to get involved in showing people around the property but persevere. If you go for a second viewing ask if the seller will be around what’s the worst they can say? No?
Knowledge is power
We all know that knowledge is power but how can you maximise this when looking to buy property? Well, let us handover to the expert again with a very apt comment from John Howard:-
“When I meet the seller, I try to find out their situation, as knowledge is power. When you have the information, you can use it to your advantage.”
When dealing through a selling agent very often you are dealing blind, you don’t know the seller’s background, their bottom price or details about their particular circumstances. If you arrange to meet the seller directly you will be surprised at the information they will willingly pass on which can prove to be very useful. One thing you will see in John’s book, which is available here, is the fact that many people are looking for a quick seamless hassle-free sale. If you know that, you can adapt your strategy accordingly.
Exchanging contracts but delaying completion
It is common for contracts to be signed with completion within 28 days although the timescale is flexible. You may find some sellers are looking to exchange contracts and complete on the same day. There are others who will exchange contracts but delay completion to give themselves a chance to find another property. Either way, assuming you have the funds available you can use this to your advantage.
An immediate exchange and traditional completion will give you time to get your finances in order, plan the renovations and get your team ready. There will be occasions where the seller may allow you entry to the property before completion to begin work. They may require an additional deposit for this but it may help to speed up the resale process. This all goes back to face-to-face conversations with the seller and the ability to build up a rapport and a degree of trust. Priceless!
Reducing the price
Until the property sale has been completed you are well within your rights to reduce your offer for whatever reason. However, John Howard believes that you should not try to reduce the price until you have paid the 10% deposit on the exchange of contracts. This shows that while you may be looking for a reduced price you are still serious about buying the property. If you have a rapport with the seller then you can explain the reason for reducing the price which could be anything such as:-
• Findings from your legal searches
• Opportunistic (maybe explain that you overpriced your initial offer)
• Issues with your finances
• Market movements may impact your resale profit margin
You will be surprised to learn how many sellers will at least negotiate with you when looking to reduce the price. Remember, business is business!
What did the seller pay?
You will be astounded to learn how many people pull out of transactions once they find out what the seller paid for the property and THEIR profit margin. In John Howard’s mind, this is irrelevant because you should already have done your own figures and worked out your potential profit margin at the agreed purchase price. What the seller originally paid for the property, even if they have simply flipped it for a large profit, is absolutely irrelevant. Don’t forget, it is now possible to check all property transactions on the Internet with the Land Registry a treasure chest of information.
If the seller bought the property at a knockdown price, good for them, next time that could be you. The best property investors keep emotion out of their decisions, whether this is jealousy or greed, looking at each transaction in the cold light of day.
John Howard’s book and his one-day seminars will give you an array of different ideas and strategies to use going forward. While many of these sound simple when you hear them, why have the majority of property investors never thought of them?
“Property Investment and Development for Newcomers ”, by John Howard, a must read for any property investor.