Monday, 30 April 2012

Investing in Real Estate - How to negotiate the price

This is the seventh post in my 'Investing in Real Estate' series and will answer the question: How do I negotiate the price of my house.  The last thing we covered in the series was information you should know before you negotiate so I am going to presume at this point that you have some or all of that information.

There are many different approaches to negotiating for a real estate investment.  A lot of this has to do with your personality.  I (probably like most people) am not really comfortable playing hardball and I get really frustrated with games so the method I outline below is the simplest way to negotiate for your property  which allows you to walk away relatively quickly and easily if your offer is not accepted.

To reiterate previous posts, at this point you should know:
  • Approximately how much the property is worth from comparable sales in the area taking into account the type of property as well as how much you can / should pay for this property to be a good investment (see my post on whether a property really is a good deal)
  • You should know why the seller is getting rid of the property because this improves your bargaining position - if you know how much they are willing to sell it for (as opposed to how much they want) so much the better
There are a few rules for negotiating a house purchase that you should never ever ignore.  They include
  1. Never ask the real estate agent what the price is.  You come off as an amateur if you do this and the real estate agents tend to walk all over you.  Do your own research into comparable sales and how much you think the house should be worth.  If you have managed to get how much the owner is willing to sell it for (see my previous post again) then this is a redundant question anyway.
  2. Never appear over-interested in the property.  This property may be exactly what you are looking for and may be your 'dream investment' but if the real estate agent or the seller knows this then there is no way known you're going to get a good deal.  Always let the agent know that this is just one of several you are looking at and don't appear over interested (this includes when you make your offer)
  3. Never get emotionally involved.  This is an investment - always remember that.  People pay too much for personal residences because they get emotionally involved in the property.  If you think of a property like any other investment you will not get too attached.  I promise you that no one gets emotionally attached to a particular savings account.
  4. The way you dress is important.  I think people often forget this one.  What you want when buying a property is to give the impression that you can afford it relatively easily but not that you are so well off that you can afford to pay over the odds.  This ensures that your offer gets noticed but you do not get scalped.  Tracksuit pants is unacceptable but going in a suit is going to sink you as well.
  5. Be confident and ask all the necessary questions up front:  Again this comes down to establishing the power in the negotiation.  If you are confident the other party is less likely to play games with you and asking the right questions up front ensures that they know that you know what you are talking about.
Below I'm going to outline how you should proceed in a negotiation
  1. Make all offers in writing.In many jurisdictions real estate agents have an obligation to take all offers in writing to the vendor.  With verbal offers you have no idea if the offer actually has reached the vendor and you often end up bidding against yourself.
  2. Include all conditions that you want in your original offer: This includes conditions like building / pest inspections as well as finance clauses and other get out clauses that you require.  Note that the more get out clauses that you put in the less attractive your offer becomes.  Some conditions can make your offer more favourable though.  For example if you offer a shorter settlement period then a vendor is more likely to look favourably upon your offer.
  3. Make an offer slightly below where you think you will get it. People like to think that they have gotten a good deal so if you have to raise your bid for them to accept it then you want your initial offer to be below where you want to get it (I always leave about 5 - 10% for negotiation)
  4. Never bid against yourself: Real estate agents will almost always tell you that there are other interested parties out there that are offering more.  As you have not seriously low balled the offer you should not feel tempted to keep increasing your offer.  If there really are people out there willing to pay more than you are then you are simply not going to get the property
  5. Be prepared to walk away.  This is one of the most effective negotiating techniques.  If you reach a point where the deal is no longer good for you then walk away.  There is always another deal around the corner.  Further if you find that the agent / vendor is now chasing you then you are in a much better negotiating position so you can if you want lower your bid (no one says that bids always have to go up)
  6. Beware auctions:  Auctions are where you are likely to get stung.  In some jurisdictions there is no cooling off period for auctions where you can change your mind.  Also people get caught up in the bidding atmosphere.  I attend auctions but prefer to find one where the auction has failed as the vendor tends to be much more open to negotiation after a failed auction
  7. If you have made an offer that is good value and you have done all your research then sign the contract and complete the deal  Investors always get second thoughts with investment properties because of the amount of money involved.  If you have done your research then ignore these feelings and go ahead and sign the contract
Never forget that there are heaps of good investments out there and that perfect investment that you missed out on because you 'didnt offer enough' will be replaced by another.  I made offers on four properties before I bought my first one and people often go through the process many many times before they get one that works for them so keep trying.

I'd be interested to know if anyone has other tips of negotiating for investment properties so if you do please comment and I'll be happy to update my advice above.


  1. Over the past couple of weeks @ nights I've been reading all of your posts (am still in the process of catching up to the most recent). I must say it's given me plenty of ideas for property, financial management/literacy & share trading & I'd say the blog really has wheels..
    I've also found it rather humerous at times & is inspiring me to keep on to achieve my own financial goals..
    Was wondering how you actually get across all this information? (Is it through your background as an IB?) Looking forward to a reply


    1. Hi Jef,

      Thanks for the feedback on the blog - it's great to know that people are getting some use out of the blog. I really appreciate the comment.

      Most of what I post on this blog I have learned through personal experience. With corporate finance and shares my job means that I come across a lot of this information and I find myself researching various topics so that I'm on top of it for work (in both my previous roles in IB and my current job)

      With investing in real estate I found that there was so much I didnt know when I bought my first investment property and the learning curve was pretty steep. I thought I would post the things I was learning along the way

      If you have any questions or comments you don't really want to enter as a comment feel free to send them to 90millionblogger at

  2. We must not stop on learning specially in Property Investment Brisbane and look for the possibilities that might occur. Our goal is to ensure that we succeed in this business. There are lots of things that we must do to ensure that we will achieve all the things that we dreamed of.