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The common mistakes investors make during property negotiations

Thursday, 11th Oct 2018

Negotiating is one of the fundamental aspects of property investment, but it’s also the one aspect that many investors dread. Strong negotiating can be crucial to maximising your profit; however, it’s also an easy process to get wrong, especially when you’re negotiating against a selling agent whose very job is to represent vendors on a regular basis. So what are the key mistakes to avoid during property negotiations?

Property negotiations

Not knowing what the property is worth

Arguably the most important bargaining chip you can have when entering property negotiations is knowing the worth of the property you are investing in. This will form the fundamental starting point of your negotiation strategy by helping you determine what you should offer for the property (and the maximum you are willing to pay).

In addition to preventing you from overpaying for a property that won’t pay you back in profit, knowing an asset’s value can be key to helping you identify high potential opportunities when they arise. If, for example, you know a property is listed on the market significantly below value, this knowledge will put you in a stronger position to make a competitive offer on the property, in turn increasing your potential for success during negotiations. This can be especially important in a moving market when prices are fluctuating regularly, as even the most recent sales evidence may not reflect current market conditions.  In addition to thorough research into comparable properties and the local market, having a property expert appraise the property to assess its worth could be key to giving you the confidence and knowledge you need to leverage a profitable investment opportunity.

Letting emotions drive your buying decision

“Emotional buying” is usually associated with home buyers purchasing a property to live in; however, a surprising number of investors also let their emotions dictate their actions during property negotiations, and end up paying more than a property is worth as a result. This is often the case with properties that are attracting high levels of interest from prospective buyers.

Whilst emotions are an inevitable part of the buying process, it’s really important to assess a property objectively and remain level-headed during negotiations. Most importantly, however, you need to know when to walk away from a deal and look elsewhere. One of the ways you can reduce this emotional investment is to research the market and have alternative properties in mind as a secondary option. However, if you know keeping emotions out of your investment decision is not your strong point, you may want to consider enlisting the help of an experienced buyer’s agent to handle the negotiations on your behalf.

Giving your cards away too early

The key to being a good negotiator in any situation is being able to understand and leverage the motivations and needs of the opposing party. In property negotiations, however, it’s also about keeping your own cards close to your chest. If the selling agent knows you are only interested in that particular property, or that you are emotionally invested in the asset, they will often leverage this to secure a higher offer. Divulging your motivations early in the process could therefore significantly reduce your bargaining power moving forward.

On the other hand, knowing a seller’s motivations during property negotiations can give you a fundamental advantage when it comes to negotiating the price of a property. Have they already bought another property? Has the property been on the market for a significant length of time? Or do they need to sell the property by a certain date? Whilst this will ultimately depend on what the selling agent is willing to disclose, this information could be key to shaping your negotiation strategy and helping you secure the best deal possible on the property.

Don’t get caught – consider engaging a buyer’s agent

If you’re not confident in property negotiations or don’t have the experience and knowledge of the market to support your investment decisions, you may want to consider engaging a professional. A buyer’s agent can research properties and negotiate the purchase process on your behalf, with the benefit of local agent knowledge and ongoing experience in the property market. Having access to this objective and informed third party can give you a huge advantage during the negotiation process, helping you to avoid costly mistakes and make the most of opportunities for profit.

At Momentum Wealth, our Perth buyer’s agents have been helping investors grow their wealth through property investment for over twelve years. If you are planning to purchase a property or expand your existing portfolio, our property acquisition specialists would be happy to discuss your needs in an obligation-free consultation.