Secrets To Winning Negotiation: Skills in Real Estate
Simon Loo is a successful property buyer’s agent and director of property buyer’s agency, House Finder. He has vast experience in the property industry, working as a buyer’s agent for many, many years. We are lucky enough to gain some knowledge and receive some advice on the varying topics about property investing.
Join us as we delve into the topic of tactics and negotiation skills and the insider secrets on the best way to come out with an amazing deal. We hear about an example of one of his clients and the negotiation tactics that he used to get a great deal, what to expect when you begin negotiating a deal and how to soften the blow, what you can use to your advantage during negotiations, a key point you should always remember, and much much more!
The topic of “winning negotiation” is quite important when getting the best property deal as it can mean a difference of a few hundred dollars to tens of thousands of dollars. We hear a story about one of Loo’s clients that he was able to help.
This particular buyer, the property just settled actually, so it wasn’t that long ago. He reached out to me and he’s Sydney based. He actually runs his own business and he’s quite a young investor looking to start out. And he wanted me to help him find a property that was going to create another stream of passive income for him so that he could focus more time on expanding the business or have the financial capacity to expand what he’s currently doing, which is his passion. So, you know, he signed up, we started looking for some properties, ticking the fundamental boxes of properties that are distressed below market value. Properties in good areas and within capital cities that, you know, have the fundamentals for long term growth, consistent long term growth.
And also ensuring obviously properties that have good cash flow so that he can hold onto it and move onto the next one afterwards as well. So we had a couple of options I sent to him and he was really happy with one property, which I started negotiating. We were already very happy with the purchase price. We did all the checks in terms of the visual inspection, making sure it wasn’t in any flood zones, bushfire zones, power lines, main roads, easements or anything like that. So it was a really good property and to add to that as well, the property was actually in a zone where you could develop high-density units in the future.
What kind of property was this?
It was a single-story brick house. It was four bedrooms, two bathrooms. It had one garage and one carport. So I guess you can say two-car accommodation. It was on about 700 square metres within about 25 kilometres of the Brisbane CBD. Walk to shops, schools, parks, and also walk to a train station, which was really good. The reason why the zoning was high density as it was located by residential properties, but it was very close to an area that had more sort of commercial type properties. So your shops and your little restaurants and things like that. We could see that it was going to be inevitable that this area was going to be built on at some point in the future.
So that was actually a bonus. We didn’t start looking for this property with the outset of having a property that you could rezone and redevelop one day but just happened to be nice to have. So when we did the comparable market analysis, looking at the comparable sales and all that type of stuff, we figured out that this property was around about $55k below market value based on what we bought the property for. The property was owner-occupied, so it was lived in for a very long time before and it was in original condition but it wasn’t falling apart. It was livable, it was rentable from day one probably, you know, could do with a bit of a cosmetic update. But from an investment perspective, sometimes it’s just easier to leave everything as is as long as it’s clean, tidy, safe. Get it rented, get the cash flow moving and then move on.
So that was the intention of this property. So we negotiated, we did the visual inspection, we did all the title searches, we made sure there are no red flags. Part of the due diligence is looking at surroundings as well. So making sure there are no dodgy neighbours or nothing extraordinary that would sort of bring this property down. So after we’ve done all that, it came to do the building and pest. Now, this is one of the reasons why having a really solid team around you that knows exactly how you work can work to your benefit. So the building and pest person that I use personally and the business uses, I have a very strong relationship with him. He knows exactly how I work. He knows exactly what I need and he’s extremely thorough in what he does as well when it comes to doing these reports. So that’s what you want. Especially if you’re doing lots and lots of building and pest inspection reports, you want to make sure that it’s checked out correctly before you invest in a property, especially for 100%. I mean, you go, you can do all the inspection, visual inspections on this planet and you just won’t know what’s in a wall. You just won’t know what’s in the roof cavity, you don’t know what the ins and outs on maybe what material is used to build the property. There’s just so many things that a building and pest inspector will reveal that you won’t know until you get it done.
We find out more about the intricacies of a building and pest report and the importance of having someone that you can trust do the inspection.
This guy you went through, did the inspection. And the reason why I like using this particular building and pest inspector and that we’ve got a good relationship is that he’s extremely thorough. And there’s a couple of reasons why he’s extremely thorough. The main reason is for me and the buyer to find out everything that’s wrong with the property, from little cracks that could be structural or it could be just settlement cracks, through to maybe some really minor termite damage in the fence line, in the back fence line. But then there might not be a termite barrier to the inside of the house may be affected. Maybe there’s moisture reading inside a wall of a shower which could indicate inner foul waterproofing, anything and everything. He goes in, he’s just extremely thorough for that reason, to give you a very thorough picture on not only what’s wrong with the house currently, but what could be a risk in the future or what could develop into something severe.
We learn about what a building and pest report actually looks like and what you should be looking for in the report.
A building and pest report starts off with a lot of regulatory jargon. Probably the first six or seven pages is about, this report negates risk to the inspector and you need to do your further inspections and all this legal disclaimer stuff. And then it usually goes into a bit of a summary about things that have been found. I guess major red flags. It’d be a small summary of if there is termite issues, it’d be on there or if there are structural cracks or beyond there and where it is and that type of stuff.
And then after that, it would sort of detail every single room, every single part of the house, from a door binding to the most severe of items, including pictures. So after you’ve gone through the building component, you’ve seen every single room, all the defects, after that would be a pest component. So that pest component would cover things like obviously termite damage, termite activity. It could be wood rot, it could be high levels of moisture or a wood borers. Anything that would relate to current damage or a risk of infestation at some point in time. So when you combine these three elements, it just gives you a very clear picture on anything that’s wrong with the house.
Structurally you don’t want any surprises. No one wants to buy property and realise that, you know, half the house is falling apart and they have to spend tens of thousands of dollars to fix it. So you always get a building and pest inspection.
Not only is getting a building and pest inspection important, it’s to help understand possible problems with the property and how it can also be used to your advantage when it comes to effective negotiation skills.
This is what this particular buyer did and what we ended up doing for this particular buyer is that when we got these inspections, it naturally is extremely detailed. And to cut a long story short, it’s going to look pretty bad. Even if there’s nothing wrong with, or very little wrong with the property. If the property is a little bit older, it’s going to come up with a lot of other little things, big things or potential risks. So as investors or as buyers, we can sometimes use this to our advantage to potentially get a price reduction on the property. Now there’s a certain art to maximizing this potential. One of the ways that I use is to time it very, very specifically, a lot of people make the mistake of getting the building and pest done and asking for money off maybe a week before the building and pest condition is due. So if you’re doing that, then you’re basically giving the seller a weeks opportunity to do their own research to see if whatever you’re claiming is legitimate or to basically maybe do their own quotes or maybe even fix some of the stuff themselves.
Or look at maybe other buyers, maybe some competitors that may be wanting to buy the property, but they don’t want to reduce the price anymore. So for this particular buyer and for all my buyers, I always leave the building and pest inspection negotiation to the very last second. Giving the buyer a lot of urgency to make a decision, but also not giving them too much of an opportunity to research or to suss out if there are any other buyers that are willing to buy at a high price. So that’s one of the little things. The other little thing is you have to make sure that you’re not coming across as super greedy. If you just say, Oh, we found these issues in the building and pest report, we want $20,000 off.
But the things that are found in the report actually don’t equate to $20,000. The worst thing that can happen is you end up with a seller that will just get their back up. Originally they may be willing to have given you some money off but now that they’ve seen that clearly all you want is just a quick buck or to take advantage of them, then they’ll just say, no, we’re not giving you anything. We will give you nothing at all. So you have to be reasonable. You have to position it so that it looks like you’re doing them a favour instead of them doing you a favour. And that includes, you know, listing out the actual things that are found in the report.
There are some useful skills and tactics that you can utilise to soften the impact when negotiating a better deal with the vendor.
Making it very clear, we accept that the house is 20 years old. If the house is 20 years old and there are going to be some defects some wear and tear items as well, cosmetic items, but these are the main issues. As a result, we want X amount of the original purchase price and the amount you asked for. It has to be reasonable as well. And what I actually like to do is state approximately how much it would cost to fix all those issues and going below that, because when you’re going below that, you come across as the good guy. You’re trying to look, I mean, it’s going to cost $7,000 to fix everything, but in a spirit of getting the deal done, you know, I’m happy to take off $6,000.
Little things like that really give you an advantage at the end of the day and it makes you not look like just a money-hungry investor that just wants to suck the blood of every single vendor out there. This is exactly what we did with my client’s property that I was talking about. We did the building and pest inspection. We found out that even though there were issues to get the property to a safe, rentable, clean condition, it would only cost around $1000. But because of the nature of the building and pest report and some substantiated risks as well, we actually managed to negotiate $13,000 off the contract price just by negotiating well and not being afraid to ask for it as well. So that was definitely a very good outcome.
Above and beyond what was already a really good purchase price. I always consider building and pest inspection negotiations as gravy on top. You never want to rely on it to get a good deal. But it was certainly pretty good gravy.
We delve deeper into the negotiation side and we hear from Loo’s experience on some of the reactions he gets from sellers when he tries to reduce the price.
Sometimes you do get a bit of push back. Actually, when I say sometimes, you do most of the time get some kind of a counter offer. For this particular seller, it comes down to finding distressed sellers. This particular seller didn’t really have the time or the capacity to negotiate and he was willing to just let it go which was good for us. Every negotiation has two sides. It was a situation where we got what we wanted and they managed to sell the property in a very quick and timely manner. The property was off-market by the way, so it wasn’t actually advertised. And in other negotiations, building and pest, sometimes they might come back with another figure and then you just negotiate maybe to the halfway point or a point where it’s more skewed towards you. And look, sometimes you get an outright no.
That’s just the reality of different situations. And at that point, you need to assess whether it’s worth it, whatever money you get off. Or even if you get no money off to proceed with a deal, 9 times out of 10 you would still want to proceed because remember that the purchase price that you originally negotiated should be the price that you will be happy to buy the property. The only time where you wouldn’t is if the building and pest actually revealed some serious issues and that would have cost whatever amount of money to fix and the seller just wasn’t willing to play ball. And then you kind of have to assess, okay, is it worth it if I spend this amount of money, do I still get a good property as a result?
There’s a lot of different scenarios that can play out. But by doing a few little things that I talked about earlier, you just put things to your advantage at the end of the day. So that’s what it’s all about.
Loo explains the process of getting the building and pest report done and the timeframe you should be looking to negotiate within.
It’s a little bit different in each state, but in Queensland, you get a property under contract. Usually, there’s a finance and a building and pest condition, which is normally about 14 days. And within this 14 day, you do all your due diligence. You could get the property valued by a bank or broker. You do the building and pest inspection and at the end of 14 days, you have to either waive these conditions or you can, as I said, use it to negotiate new terms or a new price. After this particular point, if you waive to conditions, then the contract is what we call unconditional. And that’s when you’re basically obliged to purchase the property. Exchange a contract and settle on the property within the rest of the settlement date period.
We have heard about skills and tactics to use for negotiations but what happens after terms have been agreed on.
Just staying on top of all the dates is super important. Having a really good solicitor that advises you throughout each step. What your obligations are, how much you have to pay is also super important. Most of the solicitors that I’ve worked within the past have been all about just purely obligations. What you need to do, what you should do, what you shouldn’t do. A good property solicitor should give you advice or give you tips on how to use certain conditions or certain scenarios to your advantage. Using the building and pest example, like having a really good solicitor that’s willing to help you draft up that negotiation email or letter to the seller’s solicitor is super important.
Because you’re on such a tight timeframe, having a solicitor that you can get access to, even by text message, which is what I do with my solicitor, is super important, you know, where’s this negotiation at? It literally could be the last 15 minutes of the day before you come up with an agreement with a seller. So there needs to be that kind of constant communication. So that’s very, very important as well. During the stage between buying, getting a property under contract and settlement, you have to be mindful of not inconveniencing the seller too much before the property goes unconditional. Because especially for distressed sellers, you may have bought the property for cheap with the notion that you’re not going to be wasting time.
You’re not going to be stuffing around too much with delaying finance conditions or you may not be stuffing around too much with 50 inspections, which happens a lot if let’s say you’re a first time home buyer. You’re kind of unsure of what you’re doing. You might check out the property and you might get your mum to check out the property and then your grandma. So I’m not saying that we shouldn’t do the research that we need to do to make us feel comfortable or to make us know the complete ins and outs of the property, but we should try and make it as easy as possible for the seller and as convenient as it is for them to ensure that the sale goes through as quickly as possible. But also to let them know that we’re not here to waste their time. So that would be the other tip that I would give during the conditional stage.
We find out about what you should do if you are planning on adding value to the property, as in subdividing or renovating, and whether you should negotiate that before settlement.
Getting early access is something that I ask for on pretty much every property that I buy. For me, my client’s price is number one. So what usually happens when you’re working with a seller, giving the buyer a discount is the last thing they want to do. So you should always negotiate on the building and pest first, get that sorted, get that out of the way. Then ask for things like early settlement because if you ask for early settlement and building and pest at the same time, if you put these two things on the table for the seller, you know, you can give me $13,000 off and early access, you’re really giving them a choice and they’re just going to be like, well I’m not going to give you $13,000 but I’ll give you early access. So you just need to be a little bit smart about it, set your priorities right, making sure that you lock in the most important thing first before moving to another thing. I think I might be revealing too much. That’s a one really small part on obviously the whole negotiation process. If you do it right, it usually works fantastic.
So it’s basically a staggered approach, get the best price first. Then from there, you’d go back in to ask for potentially early access or whatever else you need to do.
That’s something that the building and pest example, there were so many other things like when you’re actually negotiating the price of the property, you know having a really solid relationship with the agent is crucial. Because if you think about it, you’re not actually dealing with the seller. You’re dealing with the agent, you’re talking to him.
You don’t contact the seller at any point during the entire transaction process. So your job isn’t really to sell the buyer to take your offer, it’s to sell the agent. And that comes with a good rapport, really good relationship. You need to establish yourself so that you’re not there to waste their time. But most importantly, it’s the understanding that there’s a myth out there that the agent works for the seller. Now, I’m sure there are some agents out there that only have the seller’s interest at heart. But the reality of it is every single agent out there is a real estate agent to make commission, make money and sell houses. Now, if you provide an avenue for the agents to sell that house as quickly as possible, AKA them getting paid as quickly as possible, then they’re going to work in your favour.
Real estate agents are looking for the best deal possible, as quick as possible. Remembering this might just be the key to closing a deal in the future.
You have to also understand that most agents get paid 1–2% commission from the selling agent. And you know, $50k difference in price may not mean that much to them from a commission perspective. But you know, if it means them not having to do 50 inspections, you know dealing with time-wasters and silly offers or anything like that. If you provide them an avenue just to bypass all that process, they’re not too fussed about 1 or 2% of $50k. Potentially you might be able to pick up a good deal just by doing that.
This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.
Originally published at https://propertyinvestory.com on February 3, 2020.