Good day! My name is Ben Everingham and today we’re talking about the best tips when negotiating an investment property.
Hi! My name’s Ben Everingham and I’m the director here at Pumped On Property and today we’re gonna to talk about the best tips when negotiating and buying an investment property. I honestly couldn’t be more stoked. This has got to be, probably, my favourite part of my job and one of the major reasons I get out of bed everyday. I’m obsessed with negotiating. When I was at university, I read this amazing book called ‘Power Negotiations’ and since then, it’s changed my life. But when I think about myself when I was growing up, I was always that guy that was never afraid to ask, I was never afraid to push the envelop a little bit and see what I can get out of a situation. So that cheekiness of being a kid has definitely passed on to the way I negotiate now. And some of the things that I learned at a very young age, and through that book, and when I was at university doing negotiating and conflict resolution courses has definitely paid off on the way we buy properties today.
So I’m gonna keep this one fun because I love this topic, I’ve sort of broken it down into a few of the things that are important to me, and the things that I consciously and unconsciously think about as I negotiate property these days. But in terms of us and why I’m talking about this video today, I’m a buyers agent and each year we help about a hundred and twenty clients buy investment properties, primarily in New South Wales and Queensland. And so a hundred and twenty properties is somewhere between, sort of, forty and a hundred million dollars worth of property that we buy per annum, and so what I’ve learnt from that experience of buying so much property for our clients is some stuff that I suppose you’re never gonna learn from buying one property a year, or one property every six months, or one property every five years over the course of your journey. I’m gonna share these insider tips with you today, and some of the cool things that I know that agents selling property definitely don’t want you to know.
So, let’s get started!
There’s some things that you need to know before you even start to negotiation. So a great negotiator has a plan of attack and a strategy for the negotiation before they even get started. And you’re like ‘man, that sounds like hard work. I don’t want to do that’, these are super simple things that will take you about two minutes to get prepared for it. This video will prepare you for most of them.
First one is jumping on the suburb that you’re looking at, and these are all property negotiation tactics. So jumping on the suburb that you’re targeting, let’s say you want to buy in Geelong, and you jump online and type in ‘Average Vendor Discount’ plus ‘Geelong’. So the average vendor discount is the difference between the listing price on realestate.com and what average local agents actually sell it for. So I’ve seen average vendor discounts being zero percent and I’ve seen average vendor discounts, no joke, being twenty or thirty percent. So sometimes when you jump online, and I hear people all the time say, they say that they looked online and they know what market value represents, and I’m like ‘did you check out the average vendor discount?’ and they thought they bought themselves a bargain. The purchase price was five hundred k online, they bought the property for four hundred grand, and so they’ve saved themselves about four percent, and I hop online and I’m like ‘the average vendor discount in this suburb is eight percent. You’ve actually just paid four percent above market value for this property on average’ and knowing this stuff is powerful. So jump online and have a look at the average vendor discount, and then, let’s say your discount on average in the suburb is four percent, start your negotiations between ten and eight percent below the purchase price. So with the intention to, for most of us, to buy at market value, but for those of you who are a bit cheekier and that want a bit more, you know, buys far below market value is possible.
The second thing you need to know before you start negotiating, or even begin the process of talking to the agent is to identify what market value is for the property that you’re prepared to buy. So market value is based on one thing; sales history. It’s not based on what a motivated mum and dad is prepared to pay, it is based on what the average person in the suburb, let’s say theres been a hundred sales in the last twelve months, and ten of those, or fifteen of those sales, are comparable to yours. You know, four bedroom, two bathroom renovated home that’s ten years of age. You know, you want to find out exactly what they sold for and you want to begin to piece together the differences between what you bought, or you’re gonna buy, and what other people have paid for similar properties.
You also need to identify what you’re prepared to spend. And I see this happen all the time, people go in and go ‘my cut off point in this suburb is four hundred grand’ and then I talk to them and they end up spending four hundred and thirty grand and I’m like ‘how does that help your negotiation process? How does that add any value to what you’re trying to do? you’ve gone in, you’ve overpaid because you’ve got emotional and often the thing with negotiating is it takes time. People don’t have the patience or the time and they get frustrated with the process. So they’ve got all these intentions, and this good will, and they’re like ‘I’ve got my strategy, I’m not going to diverge from my strategy.’ until it gets to inspecting property number 40, and ‘ I’m completely over it and I’m sick of spending my weekends doing this stuff.’ And then, ‘this property looks okay, it ticks most of my boxes but it’s a bit more expensive. Stuff it! my offer’s been accepted, I’m just gonna take it’. All of the hard work you’ve put in is gone, your strategy is no longer in play, you got emotional and you got frustrated in the process. So knowing how much you’re prepared to spend and if a property can’t be bought for that price, just walking away and knowing that there’s always another fish in the sea. When one door closes in property, it’s only two weeks before another amazing deal comes up in any one suburb in Australia.
The next thing is to know who you’re negotiating with before you get started. This is one thing that most people don’t do. So the coolest, new feature on realestate.com is when you click on the listing that you’re interested in having a look at, or potentially putting an offer on, then you click the agent’s name and all of this information comes up, in terms of what types of product they target, what they’ve recently sold. It’s also got every suburb and how many properties they’ve sold in the last twelve months, and then you can click into each of those areas and see the types of properties. And there’s two types of agents, it’s just so black and white in real estate. There’s top performers that sell ninety percent of the property in one suburb, and then there’s everybody else which is the ninety percent of agents that are earning less that fifty thousand dollars per year and that need to sell you a property to keep their job, or to put food on their table. And as bad as that sounds, this gives you so much power. So when you jump online and you see an agent that’s selling, lets say, less than twenty properties per year, you know they’re probably making a bit over minimum wage, depending on how much property’s in the suburb pay for. And the reason I say that is because, you know, they’ve got to give their boss fifty percent of their commission, they’ve got to pay tax, they’ve got to pay for their admin persons. So at the end of the day, they might be selling a bunch of properties, but the money going into their pocket isn’t always as significant as you’d think it would be. Know who you’re negotiating with and take that two minutes to have a look at them and understand what they’re looking at. You can actually jump on this really cool — there’s two sites now available for consumers looking to buy a property. One is called Open Agent and the other one is called Rate My Agent. You can Google them, you can put the suburb that you’re thinking of buying in and then you can select it, and the agents who have sold property in that suburb will come up with reviews, with exactly what they’ve sold, with exactly what they target. And it’s really cool because now, for the first time, you can understand where the person you’re negotiating with is coming from, as opposed to just being that person that rocks up on the site, doesn’t understand the person, doesn’t understand their motivation, doesn’t know how good they are, doesn’t know what their history over the last ten year in real estate is. And you’re going in cold and I can guarantee that someone that sells fifty to a hundred properties per year in this space is gonna clean you up every single day of the week. They’re gonna be your best mate, but they are legally working for their seller, and they’re not doing you any favors at all as much as it might feel like they are.
The last thing, in terms of the things you need to know before you start to even negotiate, and these are all pre-stuff, is really understanding what’s important to a real estate agent. To a top performer, one thing; money and easily selling properties quickly. So if you understand that money is important to these guys, which means prices are important to them, and secondly their reputation.
The last thing I wanted to talk about in terms of the things that are important to know before you even start the negotiation process is understanding what’s important to the agent. So part of that is from researching them before you arrive, but fundamentally, there’s a few things that are important to any real estate agent in the property industry and that is their reputation, getting the best possible price for their client, if they’re an ethical and a high performing agent. Getting a property with good terms because people always go ‘ugh, it’s price, it’s price, it’s price!’. I’ve bought that many properties in the last couple of years where price had absolutely nothing to do with it. Finance had fallen over once or twice, the seller was completely motivated and they just wanted a deal which wouldn’t fall over. So getting your pre-approval in place is important and showing the agent that you’ve got a pre-approval. Crossing out the number that you’re pre-approved for, but showing them that you’re a serious buyer. Simple terms, like a thirty day settlement, a quick settlement, is important to agents because it means they get their commission faster. A quick sale and an easy sale is important to an agent because it means they can move on to their next listing faster. And for any high performing agent, it is a long term business with a churn and burn mentality. It’s ’how quickly can I get my next listing, how quickly can I sell it? how quickly can I move on to the next one’. They’re important. Making sure that you’re doing the things to protect yourself like building and pest clauses, due diligence clauses, finance clauses, etc. But making them acceptable to the agent, as well, so they’re not sitting there for the next two or three months waiting for you to get all of your ducks lined up, but they know you’re a serious buyer with good quality terms that are meaningful to them.
Another thing that I’ve learned that’s important to agents is they really always looking for, when you put down that initial deposit, enough deposit to pay for their sales commission on the day that the contract settles because that money goes and sits in their trust account and then is paid to them first. The last thing agents want and agencies want is to have a person where they’ve sold the property, and then they’ve got to chase up that person to get the money because as we all know, sometimes people just don’t pay. And chasing up payment is a pain in the bum.
So to just confirm those things, sale price is important, the terms of the contract’s important, making sure there’s enough in there as a deposit is important, making sure you’ve got a pre-approval in place and making them aware that you are a serious buyer are all important things. And understanding that they’re people too, they’ve got dreams, they’ve got goals, they’ve got things that are meaningful to them, will put you in good stead to begin putting yourself in their position before you start negotiating. And as soon as you know what’s important to them, then you can structure your conversations around the things that you know are important to them. And they will begin working for you, as well as themselves, as well as the seller.
So when you actually start the negotiating process, which is seriously — like for anyone that’s a real property person, I don’t know anyone in property that loves it, that owns a lot of properties that doesn’t like the negotiation process is as stressful as it can sometimes be, but the way that I like to start is low. I’m not talking about when I was twenty four and buying my first properties and seeing a listing at five hundred thousand dollars and starting at four hundred grand, and scratching my head when the agent didn’t ring me back because he’s secretly having a beer on a Friday, laughing with his mates going ‘This little kid, this little shit, thought he was a hustler and he put in this lowball offer’ and I never heard from him again. You know, laughing about it like, it’s a massive joke because when you’re on the other side of the industry, like these lowball offers that you put in are laughed off the table. The agent will never even present them to the client, and any feedback they come back with is just BS, to be honest with you. So when I’m taking about starting low, I’m talking about an educated offer. So here’s market value, here’s the average vendor discount, let’s start a little bit below that with the intention to buy five, ten percent below market value. Or if it’s a great property with potential to add value, pay market value if you’re gonna hold it for the next twenty years. It’s completely acceptable.
So there’s two things that I’ve learned when negotiating an initial purchase price. If the agent gives you a dollar off, I’m talking about one dollar off where the price is. So let’s say the price is 400K on this property, and the agent comes back to you with a counter offer of 399,999 dollars, they are open for negotiation. It is that black and white. If the agent comes back and says ‘we’re not even talking about this’, you’ve got to think of another way around it because obviously your initial asking price was offensive. You’ve got to remember the world of an agent, it is not cool. They constantly overset their client’s exceptions around price to get the listing, because they’ll tell people whatever they need to hear. The person selling the property, whatever they need to hear to get the listing. And then, their job from the time that they completely mis-set their client’s exceptions around price, is them working the client down to market value or a price where they can get a sale. That’s why top performing agents are amazing because they set a realistic price point, and they know the game. They know that there’s a bit of to and fro they’ve got to negotiate. Where you find, unfortunately, a portion of ninety percent of bottom feeder agents in Australia, they’re the ones where you put in a great offer and they come back to you after five minutes going, ‘Nup, it’s not accepted!’. And you’re just like, ‘are you serious? this is a fantastic starting point, let’s do something’. And they can’t create a win win because they don’t have the ability to sell their client properly, the ability to explain your offer properly to their client, and they just don’t have the bloody ability to negotiate and create a win win because they’re so obsessed with ‘Can I make my fifty thousand dollars this year?’ that they’re completely missing the point. This is one of the most frustrating things in the industry of buyers agents. Luckily, those ninety percent of people only sell ten percent of the properties in the industry. So you’re gonna be working with high performers most of the time and those guys are up for negotiation as long as you can give them something that they can negotiate with.
Another thing when negotiating on property and beginning the process is, there’s two things that are important as I discussed before, there’s price and there’s terms. Now what I normally do is I start with a low price and I start with very average terms because at some point price is important, but on another point, terms are important. So once you get to a point where you can’t get agreement on price, terms become extremely important.
So let’s go through an example of this. Let’s say I’m buying or negotiating a three hundred thousand dollar property. I want to buy that property for two hundred and eighty grand, the agent wants to sell it for three hundred and twenty grand, we’re sort of stuck in the middle. So I’ll start with a low ball offer, I’ll wait for them to counter offer back to me. I start at two eighty, they come back at three twenty. I might go to two ninety and then they come to three ten, and now we’re stuck. And what I don’t want is to be the person that says ‘ I’m not going above this price point’ and end the negotiation there. So what I’ll do is I won’t increase the price, but I’ll say ‘Okay, I had a forty five day settlement, I’m prepared to cut it back to thirty.’ or ‘I had a twenty eight day building and pest and finance clause, I’m prepared to pull them back slowly to fourteen. Will that get it over?’ And it means that the conversation stops being about price, and now starts being around terms. And you can put your foot in sand and go ‘Look I can do one of two things, I can talk price or I can talk terms, but you’re not gonna keep hammering me on price because this is a win win outcome for everyone and I know that price isn’t the only important thing to you. So really important to keep those two things in mind. Start high with your terms, start low with the price, and negotiate both ways.
Another thing that I’ve learnt from this industry is that people share way, way, way too much information with you that is not in their best interest. You’ve probably had this experience somewhere in your life before where you talk to someone, you ask them a couple of questions, and then they just drop their life story on you. And that’s completely cool, I completely understand why people do that, but real estate agents are no different from that. They give out that time when you met your partner, and you’re trying to impress your partner, so you’ve just told them a little bit too much about yourself. Which is really cool, like it builds trust, but it’s also like putting all your cards on the table. It’s like the first person in the relationship that says ‘I wanna be in a relationship’ or ‘I love you’. It’s always kind of that first step that’s telling them a little bit too much, it feels a bit awkward sometimes, but after you’ve done it, it feels amazing. Agents are the same. They will tell you a lot about the property that they shouldn’t. Often I walk into an inspection and the agent’s like ‘Hey man, how you going mate? Yes it’s listed at five hundred but one of your clients can buy it for four sixty.’ and I’m like ‘Dude, thank you!’, in my own mind like ‘Why the hell did you tell me that?’. And sellers and buyers are the same. So you as a buyer, a great agent, a top performing agent, and in every suburb there’s normally two or three of them, will know how to ask you very general questions and then throw in a very specific question to get the information that they actually want. So the concept is ‘look over here, I’m waving!’ boom ask this little question here, your guard’s down, and you give that little snippet of information that you want.
A very good example of this is when you walk through the property and they ask you a question ‘What do you think the property is worth?’ and you might go ‘well based on this, or that, it’s worth this’ or ‘I think it’s worth this’ and immediately they know in their mind where you sit, price wise. Another thing they might ask is ‘have you seen any other comparable properties in the local area that were around about this price point?’ and they’re beginning to ask and like peel back the layers of where you sit with price and what’s important to you. It’s super hard as anybody in this world, when someone asks you a question, to not answer it. A great negotiator will just not ask the question or as Zoolander said ‘can I ask you a question with another question’ type thing. You know what I mean? Like just draw it off. You don’t have to speak, you don’t have to answer the question.
Another thing that gives it away, and this is what your average negotiator, or your average person that buys a property every couple of years, misses out on and that is — it’s so funny! — they walk through the property and they think that picking the property apart is going to be something that shows the person that’s at the property that they’re not interested in it, and that you know ‘ugh, I’ve got to do this kitchen, I’ve got to redo the bathroom, that’s gonna cost me thirty grand.’ The agent, as soon as you start doing that, is rubbing their hands together going ‘This person can see themselves living there’. I sort of have a laugh about it. It reminds me of like the little boy in the school playground chasing after the girl that he’s in love with, and then that’s not working, so he starts being mean to them and picking them apart, slapping them and teasing them, and then all of a sudden, they’re in a relationship together. The little boy doesn’t know what’s going on and the little girl’s got all the power. So I love that as a concept, and that is the game of real estate.
The next thing that’s important is to actually take the time to build a relationship. I see people all the time, and I used to be like this as well, I would be like ‘If I’m building a relationship with this agent, I am giving away the fact that I might be interested in this property’. Who cares? Give it away, you are interested in this property. When they see you as a real buyer, and as a real prospect, they will make time for you and they will continue the process. So what I do every time I go to a property, and what the girls in my office do, and the people in our team do is before I even walk into the property, I spend a couple of minutes talking to the agent, building a relationship. I ask them if they can show me around the property, and show me the features and benefits, or if I don’t need them to, I’ll go and have a look myself and then at the end of it, I’ll come back and ask some very, very specific questions about the property, as well. And so its building rapport, finding out what you need to know and then building rapport, and keeping it personal. And then you’re not one of fifteen people at an open home, you’re the one person that they can remember. You send them a text after going ‘Thank you so much for your time today. This property looks super interesting, I’m gonna have a think about it. If you can prepare a contract I might be interested in placing an offer’. And then you’ve thrown the hook out and you’re slowly reeling them in. The fact that you’ve got a relationship with somebody goes so far in this industry because a lot of agents get treated like crap. They’re just above politicians in the social standing of people in society. So when someone treats them well, when someone’s easy to work with and honest, and not hiding and guarded, not being completely open and sharing everything either, but it goes a long, long way.
The next thing is building a win win relationship. So this is the thing that I’ve learnt most since I started this business. Someone doesn’t always need to lose for someone else to win. Sometimes it can be a win win relationship. There’s no agent in Australia thats sitting with a client who’s about to sell their property with a gun to their heads, saying ‘sign off!’. If someone’s prepared to sign off on a price point that you think is below market value, and you’re making some money, good on you! But that person’s still was prepared to sell the property at that price because of whatever their situation was. Find a way to get a win. Find a way to make the agent’s job easier, find a way to get terms and price into the conversation, find a way to understand who you’re working with. The agent, the person you’re buying from. Take the time to create a win win so that in the future, when you need to sell that property, the agent’s not like ‘ugh that was that dickhead. He’s a top performer, I don’t want to work with him.’ type thing. It’s, you know, ‘That was a good guy, I enjoyed the process of working with him, He’s gonna be a good client. I’m gonna go the extra mile for him because of it.’
So the last thing that I wanted to share with you on this video, which is about the best tips for negotiating when purchasing an investment property, was this amazing story that I heard in this incredible book that I mentioned before, Power Negotiations.
So I was listening, I think I was driving down to Brisbane for an inspection, and I was listening to this book, which I’ve listened to about five times. I absolutely love it and I’ve got so much value out of it. He talks about this story which is called the red herring. The red herring is like your traditional magic trick, it’s like ‘focus over here, focus over here, focus over here’ ‘I want this over here’. And so this story isn’t just incredible to me, it makes me laugh every time I think about it or tell it.
Basically, the concept is the Korean and the American governments were negotiating and it was conflict times, it was kind of like, the Americans needed to go into Korea and establish a military base or something along those lines, I can’t remember all of the details. And the Koreans were saying that they didn’t want them to do that. So the Koreans during the negotiation process, and this is significant negotiation. These two very, very powerful military forces with egotistical guys and big negotiations to lose if things fall over because the Americans needed to be there. So the entire time the Koreans are waving their hand up over here, saying ‘hey look at this’ and negotiating. And negotiations after about two years got into a complete grid lock where neither party was prepared to even continue conversation, let alone find a win win solution for both parties. And so the Americans, because they needed this to happen and the Koreans knew that they needed this to happen to find a win, opened up the lines of communication again. And the Americans came back and said ‘okay, we can’t give you this.’ and the Koreans said ‘that’s okay, we want this but we’ll settle for this’. What it was was basically the Koreans wanted the Americans to build an airport for them and an air force base for their military, but didn’t have the money to pay for it themselves. So they were waving their hands up over here, focusing the Americans on this, when this, during the entire two year negotiation process was what they really wanted. They just pretended that they didn’t because they knew if they weren’t waving their hand up over here and didn’t get into a deadlock in negotiations, they wouldn’t get what they really wanted.
I just think that’s a cracking story because one, it’s awesome when Goliath gets smashed by David and anytime that America gets hustled like that, I’m happy about it. Personally, I think it’s just that cheekiness of my nature and how it’s like the fact that ‘hell yeah, the little guy’s done it!’. But the story and why it’s powerful for real estate it’s too often, we focus on this over here, and we forget about what this is over here. The only way to get this, sometimes, is knowing what you really want before you start the entire negotiation process and waving your hands around like a madman a little bit, going ‘I’m not prepared to do this’ or getting it to that point where it gets to a bit grid lock, and then asking for what you really want over here.
I know this video has been a really round about way of talking about negotiating, but it is a big game and it’s a lot of fun. And the sooner you get comfortable with negotiating, the better an investor you’ll be because it’ll be a huge part of your journey. And buying the right property at the right prices is a hundred percent dependent on your ability to negotiate.
So I hope you enjoyed our video, the best tips for negotiating when purchasing an investment property. Until next time, stay hungry!