London Real Estate NEGOTIATION – PART 2
Successful London real estate negotiation
You have carried out your research and you are happy that you know what the fair value is of the property you want to acquire. Do not call the agent and put forward an offer at this stage.
The classic mistake most novice negotiators make is to start the negotiation without a plan. Unfortunately, if you do not have a set target and a strategy on how to reach it, you are virtually guaranteed not to achieve the best price possible. In the worst cases you may end up paying more than you want to.
I will give you the first five steps to a successful negotiation in a second but first it is worth looking at how a negotiation works. A very simple illustration of a negotiation can be seen below:
The buyer will have a minimum price he/she will be willing to pay, the minimum being £0! Conversely, the seller will have a maximum and minimum selling price, the maximum being infinite!
A negotiation will only take place if the seller’s minimum sale price is less than the buyer’s maximum purchase price.
Conversely the buyer’s maximum purchase price must be more than the seller’s minimum sale price. This zone is depicted by the overlapping area above.
If this is not the case as shown in the chart below, then a negotiation will not be concluded unless the buyer’s or seller’s target prices move due to some external factor – this is highly unlikely, but can happen.
The art of negotiation is to agree a price within the overlapping area, which gives the other side as little extra money as possible while ensuring you do not lose out to another party by trying to be too clever/greedy/egotistical, etc.
THE FIRST FIVE STEPS OF A NEGOTIATION
1. Ensure you have a walk away price - You have carried out your due diligence. You have been thorough. You know what would represent fair value. Now you must decide what the London real estate is worth to you. This is subjective but you must have a figure that satisfies you. This is the target figure which you must not exceed whatever the situation. Now everybody has a different reason for buying. You may decide that you are willing to pay a premium for your London real estate. You may decide that you will only buy if you can negotiate a 20% reduction. Alternatively you may be happy with fair value. Whatever your preference you must set this figure in stone. Simply having this target figure puts you in a strong position. You can only fail in the negotiation if you allow yourself to pay more. Therefore you are in control of the negotiation.
2. Devise a strategy - ideally you will want to pay less than your walk away price. Unfortunately you do not know what the owner's minimum sale price is. Don't worry. They probably don't either. However, you should have discovered plenty of information about the specific piece of London real estate. Do they need to move quickly? Would a delayed completion suit them? Would they rather sell the piece of London real estate with all the furniture? Would they prefer to be paid in gold rather than sterling? You need to work out exactly what will be of value aside from money and position yourself accordingly. Keep this information to yourself until the appropriate time in the negotiation.
The key is to keep asking questions throughout the negotiation to glean whatever information you can. One never knows what tiny piece of information could come to light that could shift the balance in your favour.
You will also need to take into account who has the "power" in the negotiation, but I will discuss that later.
If you are planning to acquire a piece of London real estate and would like a professional to handle the negotiations on your behalf, while removing all the wasted time and stress of the buying process, you may want us to act on your behalf.
To see if you are eligible for membership to our elite club, please fill in the form below (we require this information to ensure you do not have the same property requirements as a current member).
3. Never offer the asking price - Even if you think the piece of London real estate is undervalued or at a price that is acceptable to you. The problem is if you do offer the full asking price, the vendor may realise the property is underpriced or think that you have much more money. Consequently he/she may increase the asking price. He may also do so because he thinks you are desperate. Always offer less even if it is only a tiny reduction of a few thousand pounds.
4. Always bracket the negotiations - The apartment is on the market for £6m. Your walk away price is £5.75m. Then the maximum opening offer should be £5.5m. Both sides should then realise that £5.75m is the middle ground. Of course it is best to offer less than £5.5m initially, because it is always better to be seen as "losing" the negotiation. In the example above if you offered £5.25m initially but settled at £5.75m, you would have agreed a price that was acceptable to you. Therefore the negotiation is a success at this stage. Importantly the seller thinks he has "won" because you have "surrendered" £500k to his £250k. Psychologically this is important as you want the seller to be happy with the agreement, because he will be less likely to renege on the agreement.
5. Always ask for more than you think you can get - The fact is that in any negotiation it is highly unlikely that you have all the facts.
- You have no idea of what the sellers will accept (assuming
you have no information to the contrary). You never know when
a low offer will be accepted. You have to ask.
The worst they can say is no.
- It will give you room for manoeuvre and the seller will
assume they are doing a great job negotiating.
- It will bracket the negotiations. For example, if the piece of
London real estate is
on for £9m and you offer £6m the seller will guess that you
will be looking to settle c. £7.5m even if your ceiling price is £8.5m.
- If you include other details that are not important to you,
you can concede these points later in the negotiation to show
that you are flexible and trying to help while they are being
intransigent.
Too many buyers are scared of making low offers. I have
numerous testimonials from members who have been
amazed at the prices I have been able to negotiate on their
behalf, which are below what they would have placed as
their opening bid.
Ultimately the worst the vendors can do is say no. In twelve
years I have never had a seller say they will refuse to negotiate
further with me just because my offer was so low. If it does
happen, I will simply increase the offer. If they are serious
about selling, they will negotiate. If not I will have saved myself some time.
Quite simply, you have to ask the question. Otherwise you
might find yourself saying: "I can't believe they accepted such a
low offer" as the home you had your eyes on is sold while you
waited for the price to be reduced.
Warning: I am not suggesting that you go out and put hundreds
of low bids on every property you see. You do not want the London real estate
agents to think you are a time waster. The low bid is an early part
in the overall strategy. It needs to be carefully considered and constructed.
If you are planning to acquire a piece of London real estate and would like a professional to handle the negotiations on your behalf, while removing all the wasted time and stress of the buying process, you may want us to act on your behalf.
To see if you are eligible for membership to our elite club, please fill in the form below (we require this information to ensure you do not have the same property requirements as a current member).
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