photo credit: moron noodle
Purchasing real estate is an unique experience. Even the most experienced investors like to “haggle” or negotiate the price. Before entering into a formal offer to purchase the property you have selected, you need to understand what will probably happen when you start to negotiate and what you need to prepare in order to get what you want.
Prepare yourself
Now, you are ready to buy the property that fits your needs. Where do you go from here?
Assuming this is your first investment purchase, consider using a knowledgeable investment Realtor to assist you. Purchase contracts can be tricky.
It is interesting to note how some investors feel it is wise to negotiate the purchase of investment real estate without professional help, even though they are probably about to spend the largest sum of money in their entire life. And yet, they will call a mechanic friend to look at a used car before they buy it to certain it’s a good deal for the price they are paying.
The first step in negotiating a purchase is to determine exactly how much you are willing to pay for the property and under what terms you want to pay. We have discussed some basic techniques that help you to prepare yourself in our previous posts (“How to find good real estate/property agents?”, “How to estimate the value of a property?”). However, there are always outside factors that enter into a possible modification of your purchase criteria.
Know the market
First of all, you must get a “feel” for the market. What are comparable properties in the area selling for. When you are in a seller’s market, where prime investments are difficult to find and buyers, your competitors, are plentiful, you may have to revise your minimum standards for purchasing.
Remember, while you are deciding what is best for you as a purchaser, the seller is deciding what is best for him/her as a seller.
Generally speaking, you hope to meet somewhere in the middle. You may go into a property negotiation hoping for a 10% cash return. The seller may has a price on the property that will only give you a 5% return on your investment.
You then try to reach a happy medium with him/her, one that you both find acceptable and you both can live with. Neither you nor the seller can expect to get everything you both want. This is the reason for determining your maximum acceptable price and minimum acceptable terms before you meet the seller face-to-face.
If he/she doesn’t get within reasonable range of these terms, don’t give in and buy anyway. You may be sorry later. Again, I must emphasise that you must be realistic in your request. You may end up with a little less than you hoped for, but do not lose sight of two facts:
- Fact #1: you have chosen this as your first priority investment. it was better than any other you have been able to find.
- Fact #2: even at a higher price or terms somewhat less than you hoped for, how will it stack up compared with your present investments?
How much should you offer?
It is customary to assume that any seller has “padded” his asking price to allow for negotiating with a prospective buyer. It is also customary for a buyer to make an offer below the price he expects, and is willing to pay. With this in basic unwritten law in mind, you need to determine how much you should offer.
Never offer full price, unless the property is such a “good deal” that it is well worth what the seller is asking and you have been told by him/her that he will not negotiate on the price.
Conversely, a “low ball” offer, one way less than the listed price, may not be taken seriously by the seller. Unless he/she is highly motivated to sell, he/she will probably be insulted by an obvious attempt to “steal” his/her property and you may not get a counter offer at all.
When this happens, the buyer will have a difficult time getting the seller to consider another, more reasonable, offer. He/she might as well start looking for another property.
So, what should you offer? Assuming the property s priced fairly close to fair market value, try 5 to 10 percent less than the listed price. Your offer should be such that the final price you will accept is halfway between the listed price and your offer.
For example, assume you are willing to pay RM240,000 for a condominium, which are being offered for RM250,000. Your offer will be RM230,000 or about 8% below the listed price.
Keep in mind that this is a rough rule of thumb. Circumstances may dictate an even lower offer. These could include:
- A highly motivated seller – he/she must sell;
- Distressed or problem properties; or
- An offering price far above current, comparable prices in the area.
In any event, make an offer and be prepared to negotiate with the seller. That’s half the fun of buying investment real estate. You may even end up paying less than you expected, but you won’t know unless you try.
(If you’re not already a subscriber to REIJB.com, subscribe here to receive FREE monthly updates of auctioned property from more than 10 banks and our latest articles via email.)
We write regularly about real estate investment. Some of our featured articles include:
“What must you know before buying auctioned properties?”
“Where to find cheap properties?”
“Why apartment can be the best real estate investment?”
“How important is location to an investment real estate?”
(Also, don’t forget to subscribe to our newsletter to receive a property investment evaluation tool. You can use this tool to estimate monthly cash flow, monthly installment and return on investment for your property. This tool will also show you if a property investment is worth borrowing/leveraging.)
Your comment and feedback on our posts are very much welcome. Please visit our blog posts to view other readers’ comments and write your feedback.
Related posts:
{ 1 trackback }
{ 1 comment… read it below or add one }
Make sure the negotiations aren’t personal by making an agreeable price for both parties for selling your car.