The very simple dynamics behind any investment market centre round supply and demand and the property market is no different. We have seen markets pushed to heady valuations as buyers flocked to a particular market and on the flipside fall to seriously undervalued levels as buyers disappear. These times of volatility allow those property investors with some experience and a little bravery to “make hay while the sun shines”.
When a market is flying high you are unlikely to have any luck with cheeky undervalued bids because there will likely be other buyers around. The situation is a little different when buyers are sitting on the sidelines, the real valuation of a property asset is shrouded in mystery and sellers are in a kind of race to the bottom. So, how can you take advantage of such situations?
Pay with cash
Cash buyers have an enormous amount of power whether markets are flying high or depressed. In times of uncertainty there will be both forced sellers and those looking to reduce their exposure while the situation settles down. If you’re able to place an offer on a property and pay in cash with no buyer/seller chain then you have a great chance of finding a bargain. The term “cash is king” is often bandied around in the investment markets but it is correct. Those with cash are in an extremely strong position.
Finding the crossover point
When a market is struggling and there is volatility there will be some room for negotiation with potential sellers. While an unrealistically low bid may potentially offer the bargain of a lifetime the chances are you will not even get past first base. Finding a crossover point where negotiations may start, at a price significantly below the quoted price, is the key. Show them you have cash, show them you are a serious buyer and put the ball in their court. Let them know that you can close the deal quickly and you are keen for a quick decision.
If you offer somebody a price for a particular asset but you leave the timeline open then if markets were to fall further it is likely will come back to you to accept your offer. However, leaving yourself open to an undefined timeline places no pressure whatsoever on the seller and could place you in a difficult situation if markets move quickly. There is nothing better to focus the mind, force a decision and in some case panic weak holders into selling a property asset than revealing a deadline. They may turn round and tell you the price is not right but then again they may recalculate their figures and forecasts for the future and decide to cash in now rather than later. A bird in the hand is worth two in the bush!
Offering somebody a crazy price for a property will not only antagonise them in the short term but may well cut you out of any possible deals in the future. Always conduct yourself in a professional manner being clear and concise about your offer, any timelines and any potential scope for negotiation. However, always keep in mind what you believe to be the fair value of the asset in question and never overpay.