How can you source and negotiate the property prices You want?
Are you a pro-negotiator, or do sellers see you coming and start planning their holidays?
Deal sourcing and negotiating are the property investment areas where you should be making the most money– so you don’t want to screw them up.
The average discount on the original asking price for a UK property hovers at around £25,000, but here at Progressive Property we want you to be slashing 35% or more off the property’s asking price. That’s because the job of a professional investor is to sniff out the small percentage of property deals where the seller’s desire for the property’s asking price is secondary to their desire for a sale.
To secure these 10%-or-fewer BMV deals, you’re going to need in-depth knowledge of both the opportunities available and the negotiation techniques you can use to show the seller that they need to snap your offer up. Without that deep understanding of how to reach the right terms of a property deal, you’re likely to shoot yourself in the foot by falling prey to one of the negotiating mistakes that investors make every day.
Read on to learn the most common cock-ups and amateur errors that you can make during negotiations – and what to do instead.
When you lie, you put future negotiations at risk, you build yourself an unreliable reputation, and you are likely to encourage undesirable responses from those you are negotiating with.
Don’t think so? Consider this.
The Kellogg School of Management at Northwestern University, Illinois, conducted an investigation into negotiators over a 10-week period, and found that when people believed they were negotiating with liars they were far more likely to employ “aggressive, tough strategies”.
Professor Leigh Thompson, of the university, said that the most commonly spoken phrase in negotiations is, “This is my final offer”, and that people often claim that they “have a better offer” when they don’t. For the first, making a claim that you immediately go back on demonstrates how little your word is worth. For the second, you risk either losing out on a deal that may still bring you profit, or once again reveal that you are a liar as soon as you backtrack and accept the original offer.
What to do instead: If you are asked difficult questions, state that for strategic reasons you are not yet prepared to answer them and move the conversation back to your optimism for the deal. Instead of claiming that something is your final offer when it isn’t, make smaller concessions with subsequent offers.
2. Chase property owners who aren’t motivated to sell
When you discover a property that you believe could be a goldmine, it can be tempting to make an offer even if the owner is not interested enough in selling to give you the right deal. 90% of the properties on the open market are owned by sellers who are unmotivated, and novice investors will chase these until they have either wasted days’ or weeks’ worth of time, or have been offered a mediocre deal that will never make them a high profit.
What to do instead: Professionals let others argue over priced deals, and nail down how to source the best, lowest-priced deals and BMVs where the vendor’s priority is not getting the highest price. Debt, divorce, or the imminent need to relocate are all great drivers for this, and help to ensure that sellers are at least motivated, and at best desperate to sell their property to you.
3. Fear of walking away
Some deals start off looking like winners but over time become less and less profitable. Not every deal is going to make you a fortune, and some sellers will um and aah until you are exhausted or change the conditions after they have already been agreed upon.
At Progressive Property, we’ve seen (and in the early days, been involved in) deals that lost thousands of pounds more than they should have due to the fact that we felt that we had put too much time, cash and effort into it to call it a day.
What to do instead: Set yourself a goal and a basic timeline and stick to it. Negotiations can be emotional journeys, but never be too afraid to walk away due to the amount of time or cash you have put into it. If a deal drags on for too long, or your seller goes back on their word, or unexpected problems crop up that mean you aren’t going to reach your profit targets, recognise that it is often better to walk away than go through with a dud deal. You can always make up the difference on your next project.
More than 15% of London-dwelling adults (that’s over 1 million) have lost out to a rival property buyer after their offer was accepted. While gazumping is not technically illegal, offering a higher price at the last moment when a deal has been agreed can land a property investor with a reputation for being unethical and untrustworthy.
In a market where investors lay large sums of money down while putting faith in their collaborators to do as they claim, a bad reputation is often enough to ruin your chances of partnering with future investors.
What to do instead: Value your reputation over a quick buck, and make a vow to keep a closer eye on the opportunities available within your area. There are always other great BMV properties and deals to source.
5. Admit your true budget
A common question asked during negotiations is, “What is the most you are willing to pay?”
It seems like an obvious question to pose because of course buyers and sellers want the best deals they can get – sometimes at the expense of the other party. Once you have revealed your true budget you have revealed your hand, though, and you lose all reasonable opportunity for bargaining.
What to do instead: Don’t weaken your position by revealing your genuine budget, but as point two advises, resist the urge to lie as well. Instead, reconfirm your offer as it stands or make another, without stating in absolute terms how much you are willing to spend.
6. Walk in uninformed
While closing a deal may seem glamorous, due diligence is not. However, like every opportunity in the property market, without accurate knowledge you simultaneously leave yourself open to exploitation and appear ignorant. Given this, it’s amazing how many amateur or inexperienced investors make offers or accept figures without putting in their due diligence, and thereby sabotage many opportunities for higher profits.
What to do instead: Compare the property with others sold in the area during the past three months, and recognise that the spread of opinions between the value estimates of the estate agent, the vendor and the surveyor can often play in your favour. Knowledge is power, and the more information you have about the property, the more leverage you have for having a vendor accepting a lower price.
7. Buy/sell solely on property price
Investors often see the property price as the prime motivation for a purchase, but when a seller is driven by a need for the best price for their property, you as the buyer are limited to a negotiation where both your aims are the same: profit.
What to do instead: Focus on those 20-35% BMV deals where the seller is motivated more by the need for speed, security or discretion. For most vendors, selling a property can be a hugely stressful event, and with pain like that many will be hungry for a quick solution.
8. Take as much and give as little as you can
It can be tempting to see a negotiation as a strictly “you vs. them” event, where you have the enemy in your sights and your aim should be to chew them up and spit them out. Some investors and entrepreneurs take pride in having a tough reputation that intimidates what they see as the “opposition”, but this can also result in creating hesitance in potential partners and peers to do business with you. If they believe that you are out for yourself and no one else, then they will either avoid working with you or may be less likely to take you at your word.
What to do instead: Think of any deal as the start to a partnership with the aim of creating long-term benefits. While you want to create a great deal for yourself, the best kind of negotiations will satisfy both parties and have each side walk away feeling content with what they have achieved.
If you would like to gain a deeper knowledge of property investment, you can find our book, “The 44 Most Closely Guarded Property Secrets” here
What negotiation techniques do you use during property deals? How do you source the best deals and BMVs? Let us know in the comments!