Going into negotiation is like playing a game of chess.

Posted on Sunday, October 6 2013

Going into negotiation is like playing a game of chess.

As an Investors starting point ideally you want to be a cash buyer or as second best pre-approved.
First you need to know your criteria and price range and understand your pre-approval conditions if you have any.

If you are a cash buyer or have a strong pre-approval it is best to carry out your Due Diligence first and then move in with a cash unconditional offer with deposit attached at 10%. This is the strategy I would use if there is an agent involved, then the deposit would be payable to the RE Company.
Effectively the agent would see his commission attached to the contract and the owner would see his share of the deposit coming in within 10 days.
With private sellers I would pay 5% deposit and would get my solicitor to transfer the deposit to the vendor’s solicitor on the same day of signing.
(Your solicitor should check the offer prior to submission.) I once met up with a vendor in Christchurch and gave him the deposit over a cup of tea. I was confident that the vendor was honest and added the appropriate clause that the deposit had been paid. This is most effective way for securing great deals with favorable terms.

Submitting conditional offers;
The cleaner the offer is, the better chance you have of the vendor being receptive.
I mostly use a DD clause which covers everything to do with investigating the viability of the deal.

It is best to keep the Clause as short as possible from 5 working days to 10.
In some Councils you can get urgent LIM and copy of the property file on CD and you could go unconditional within a short time frame.

Some sellers have sentiment or good relationships with a tenant, and asking for vacant possession could be a deal breaker. I always find out if this could be an issue for the vendor and try to work with them in exchange for something else. When taking this approach it is important to do some DD on the tenant so you make sure you are not taking on the tenant from hell – it is best for you or your PM to meet with the tenant to ask them if they wish to stay and pursue with credit checks etc prior to unconditional.

Price: when submitting a conditional offer always start below your bottom line, as you can always go up but it is not that simple to go down with the price, provided you did not find anything wrong and costly issues within your DD.
As an example you could have set rules of starting negotiations at15% – 10%-% below your maximum price.

At the end always try to create a situation that a fair middle ground has been met and both sides are happy.
In some cases you can advise the vendor that you could be flexible on any of the terms but the price, this way you may be able to create win win by answering the vendors needs which may not be related to the price you want.

In some cases when negotiating private sale the vendor is very fixed on a price which would not work for you due to financial stress, instead of walking away you could ask the vendor if they would consider selling the property on a Lease Purchase program, which if structured correctly could be a reasonable solution which would give immediate relief for the vendor when the tenant buyer takes over.
I usually pass these leads to fellow investors who specialize in Lease Options.

Knowing Vendors Motivation is Key for successful negotiation;
To be a strong negotiator you need to do your research on the property and the seller.
Information is power in negotiation and knowing if your vendor is motivated to sell and why is key element.

Property Negotiation is like playing a game of chess

 

As an example asking the following questions could reveal the vendor motivation:

Why are they selling?

How fast do you need us to settle?

What would it take to own the property now if I would give you cash offer?

Would you like to stay and rent the property back? What would you use the money for?

Finding out the vendors price expectation first would save you time from starting negotiations with the wrong seller.

What is the vendor’s price expectations and did they have any offers, when and at what level? – This could give you good indication if you are working with a realistic and motivated vendor.
If the vendors have already received what you would think is a reasonable offer and refuses it then you should try and find out why?
Was it the price that they did not accept? Or the terms?

Whatever it is you should be able to get an idea in which direction to lead the negotiation.

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Expert's Bio

Hadar Orkibi

Hadar is a full time Property Investor and Trader, Specialising in Do-ups & Add value, Multiple income properties, High Yielding, Commercial, Equity and "Move Forward" Properties. Hadar is co-owner and Sales & Marketing Mangers at www.PropertyGenie.co.nz. Owner of the Private House Buyers companies www.WeBuyProperty.co.nz & www.PropertyBuyersAuckland.co.nz/ Find Hadar on Google+

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