Property Investment Negotiating Basics

Diligence is the mother of good luck.
— American proverb

Believe it or not, you are not going to find heavily discounted deals with 10% yields leaping out at you from the Property Press or similar publications. The way to get them is through negotiating and setting up your offers correctly. Knowing how to add value is also part of getting a property to meet your criteria.

A cash unconditional deal is far and away the best way of negotiating the price down. These contracts are clean and uncomplicated, with no conditions to be fulfilled, which makes them very appealing to vendors, especially if a large deposit is part of the offer. However, you have to know what you are doing in terms of being certain of your figures and the property itself as well as having finance in place before you make a cash unconditional offer. Once it’s accepted, there’s no turning back!

Although I personally don’t buy at auction, in a slow market there can be good deals to be had at mortgagee sales (which almost always sell at auction in New Zealand). But you really do have to know what you are doing in this case, so it pays to find out how to go about it successfully from an expert, such as one of the PropertyTutors coaches.

Find the motivation of the vendor

The negotiation process involved in each deal is never the same and is determined to a large extent on the motivation of the vendor and their reason for selling. Price is just a small part of any agreement, and depends on the seller’s circumstances. For instance, if the Inland Revenue Department had just knocked on their door with a bill for $150,000, chances are they would be very motivated to sell and possibly not so concerned with the price. Or perhaps they might have bought another property and so may be prepared to sell at a large discount in order to complete the purchase of their new home. Another scenario might be that they’re happy to drop the price by $50,000 so they can buy a business that will make them $150,000. What it all boils down to is that by discovering the vendor’s motivation, you can put yourself in a strong negotiating position in which you can meet the vendor’s most pressing need while achieving a price that makes the deal work for you.

Put your foot on the contract with due diligence

One of the most practical lessons I have learned is how to use the due diligence clause. In effect it secures the contract for you so nobody else can buy the property from under your nose, while still giving you time to make sure the numbers and the property stack up. Thus the bulk of my negotiating tends to take place after my offer has been accepted. Doing business this way allows me to buy properties without seeing them first (but you have to have expert knowledge of the area to be able to do this). The first step for me is to negotiate with the agent over the phone, fax him or her the agreement, and then, once the property is under contract, I do my sums. I can’t see any point in wasting time researching properties that I may never buy, which is why I always put my foot on the contract by insisting on a due diligence condition.

The above post is based on the book “The 15 Million Dollar Man” by Sean Wood, to read more click Property Investment and download 2 free chapters.