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How to negotiate and make offers

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By : Rob Thompson    99 or more times read
When investing in property you make your money when you buy. If you buy well below the selling prices of similar properties in that area you are starting out ahead of the pack.

How do you find vendors (sellers) that are willing to accept underpriced offers for their properties? Simple, look for motivated vendors. Where do I find motivated vendors? At any given stage in a property market's cycle there are always those who are facing unforeseen circumstances such as bankruptcy, divorce, or just consumed by fear that the market will turn on them. They are everywhere, most people just don’t ask the right questions. Remember that you want a win win outcome, so be sensitive to their situation.

Ask lots of questions. If you ask the right questions you will often be quite surprised by the answers. So, why are you selling? Well I have already bought another home and I can’t afford the repayments on two. This simple question that most people never ask can often uncover an extremely motivated seller by their answer. Other important questions to ask are “how long has the property been on the market?”, “have there been any offers submitted?”, “what’s price would buy this property today?” When a property stays on the market for a long time it might prompt the vendor to accept a lower offer. Often real estate agents will disclose the ballparks other offers (if any) have been in and what price they know that the vendor is prepared to accept. If you decide by the answers to these questions that the seller is not that motivated , do not pursue the property any further. Unmotivated sellers will hold out for top dollar and often have unreal expectations of what their property will achieve. Never be afraid to make low offers, the worst that they can say is no. If they are truly motivated you will be helping them out of a jam by offering to buy the property. Every no could also be one step closer to a yes.

Occasionally the listed asking price will already be well below market value, so get to know your target areas values. In the time you waste negotiating a lower price it could be snapped up by someone else. On one of my best deals I offered to pay eleven thousand dollars more than the asking price to secure the property. It was in a boom market in 2002 and southeast Queensland property prices were growing by about ten thousand dollars per week. I was looking through the local area paper and saw a run down, forty year old midset housing commission home for sale asking eighty six thousand dollars. Upon walking through the home I discovered a true diamond in the rough. There were holes in every wall, but the structure was solid. In fact the house was built strong, with hardwood floors, three large bedrooms on a large block of land walking distance to the train, hospital, shops, and schools. The suburbs prices at the time were just beginning to feel the ripple effect as it spread from Brisbane and I just knew it was a winner. But property renovation at that time was very much the flavour of the month so I knew there would be competition. Twenty six different parties submitted offers on that property, many of them would have stuck to around the asking price. However, I sealed the deal by offering ninety seven thousand dollars against the eighty six thousand dollar asking price. Within three months and some basic cosmetic renovations the property had doubled in value and I was collecting cash flow positive rents (more money in rent than outgoings such as interest on loan repayments and rates).

Identify what type of market you are currently in. Is the market rising, steady, or in its correction phase, change your strategies accordingly. Rising markets are times to generally sit back and watch your existing portfolio grow in value, but in the case of finding a property that’s price has not yet felt the ripple like the one I mentioned, jump on it. Steady markets are good for making low offers, but correcting markets are even better as market sentiment is quite poor. Always put offers in writing to ensure it is presented with your conditions. Special conditions can benefit you greatly, such as longer finance and settlement times, small deposits and escape clauses. Negotiating smaller deposits will allow you to go out and do more deals.

A well located property bought at under market value will soon generate large amounts of equity to help fund many other property deals. Whilst negotiating with vendors or agents it is very important to keep a friendly easy going disposition. Become someone that you yourself would like to deal with. People will often give a much better price to someone they like. Don’t go on about the problems with the property, stay positive but at the same time play your cards close to your chest. Never disclose the amount you will go to on a deal. Initially put a in low offer, leaving room for some negotiation. If the vendor plays ball, and counter offers, gradually increase your offer in smaller increments each time he counter offers. Do not get caught up in the game, know in your mind what you are prepared to pay and don’t pay a dollar more. I like to create a sense of urgency in the minds of vendors or agents by giving them a time limit on my offer of usually 24 to 48 hours. Also I inform them that I have made offers on other properties.

Remember that you make your money when you buy. Successful investors do not let themselves be ruled by emotion. Falling in love with a property can be a recipe for disaster. If the sums don’t work walk away. Know that a better deal is always just around the corner. If you look hard enough the deal of a lifetime can come around once a week.

Do not go home and sleep on it when you find a good deal. Indecision and procrastination are a property investors worst enemies. Take charge of the situation and make your written offer. Exceptional deals are often snapped up in the first couple of hours that they are on the market. Become decisive, once the vendor signs the contract to accept your offer and terms you control that property.

All successful investors are good decision makers, resolve to become one yourself. The mind set of a property investor should be forever evolving, openness to learning is the key to acquiring the skills it takes to achieve.
Property Purchase Professionals,
Gold Coast, Australia.

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