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It astounds me these days how people are going around buying properties. It’s as though money is like water. Whenever an agent or developer tells them that it’s the best of cheapest buy in town, they buy it, hook line and sinker.
More and more reports are coming out these days on the ballooning prices of properties in the market. It still amazes me that investors tend to turn a blind eye or a deaf ear to these warnings.
“So, what should we do then?” one anxious new investor once asked me.
Well, the answer is simple; should you need to keep buying, go for the great deals in the market.
“Where can we find such deals?” they reply. Everywhere.
It’s true, great deals are everywhere, you’ll just have to keep looking, doing your research, digging for the facts and figures, and eventually, a potentially good find might come up.
Then, you’ve got to negotiate it down to get a great deal.
“Huh? I have to negotiate the deal?” ask the same anxious investor.
The answer is a resounding YES! Of course you do. You negotiate when you buy meat at the wet market, or when you shop at the pasar malam (night markets), so, why would you (not) negotiate when buying property?
How do you suppose great deals come along. Even though a seller may be motivated, they will most certainly post it at market price first. It is up to you to peel away the layers and find out how great a deal you can obtain. I’ve attached some excerpts from my up coming book, First be free, then be rich, on negotiating deals as a reference to what I’m mentioning. I hope it helps!
“Let’s sit and talk” was what I proposed to the agent.
It is a great find. It was a 3-storey commercial shop lot that is situated right across a main road. Visibility is good, accessibility is good and the valuation came back at RM1.1mil to RM1.2mil. The owner is a busy businessman who has not seen his own property for the past 2 years. All the 3 floors were tenanted and upon renewal, all have agreed to increase the rental by another 15%, making the total rental returns of 7.7%.
This is it. I was sitting facing the agent. We’ve viewed and assess the property and it is in fair condition. It was now time to negotiate a deal with the agent. A tingling feeling of nervousness flows through me, as we sit. With a smile on my face, I started with a little bit of small chat, asking the agent of his background, moving on to find out more about the history of the property and also the story behind the owner. Finally, it was time to ask the question.
“So, how much is the owner willing to let this property go at?” I asked. The agent replied “Well, the owner is pricing it at about RM970K negotiable, what’s your budget?”
The moment I heard the price, I knew it was a good buy! My heart starts racing, my mind starts screaming “buy! Buy! BUY!” It was a struggle to calm myself and have proper negotiations at the same time.
As much as I wanted the deal, I kept to my rules and started the negotiating on the deal with the agent. We got into the details of the property, worked out the maths of the rental, viewed the unit and checked out the tenants. All the while, we kept mum about our intentions to buy and didn’t show our excitement on the deal.
It was 30 minutes into the negotiations. We eventually lead ourselves to a local coffee shop nearby. The agent, anxious to close the deal, was either on the phone with the owner or talking to us with regards to the property and the deal.
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A negotiation in process between house buyers and house sellers. |
Occasionally, he would walk away from the table while on the phone. We concluded the deal on that day, but not before knocking the price down a further RM100K, placing terms of purchase onto the booking form in favor of us as well as doing the proper due diligence with the necessary documentation.
We finally shook hands with the agent after 5 calls being transacted to and fro the seller with a couple of harrowing near call-offs, both on my side as well as the seller, for various reasons. This all took place under an hour. As we shook hands and departed, there was a sigh of relief, and satisfaction, for a job well done.
I would like to leave you with 3 main key points to take away when negotiating deals.
1. Always go in numbers.
Don’t be superman and try to do everything yourself. Get a friend or family member to go with you, when negotiating deals. Besides the safety aspect, going in numbers has several key benefits which I would like to share. When negotiating deals, try to have at least 1 to 3 (maximum) friends along with you. How would an agent feel, if there was 2 or 3 of you present during the viewing?
Yes. Agents would be a bit more intimidated. The power is in the numbers. Also, your partners can inspect the building for damages or potential hazards, and point them out to you when you are busy doing your negotiations.
When I’m following a friend along, on a deal, I sometimes comb the area, call other agents and even talk to neighbors, to find out more information about the area, to feedback to my friend.
2. Always go with a price in mind
Never go into a negotiation without having a price in mind. How do you determine a good price for the area?
Do you research. I’m surprise how people go into deals without doing proper due diligence, prior to closing the deals. Here’s a couple of things that may help, prior to negotiating a deal.
a. Compare and look for at least 8 ads on the same property in the past, to determine if you’ve got the best deal
b. Call and speak to at least 5 agents
c. Visit and view at least 2 properties
d. Call at least 3 banks to obtain valuation
Once you have obtain all the information, then make the appointment and go into the deal.
3. Close the deal on the day
If you’ve completed the deal, close it on the day. Never leave the scene and allow the agent or owner too much time to think. I have seen great deals lost because of the owner or agent getting cold feet, a day after the deal is made. It’s common.
If you have spent hours negotiating a great deal, close it. Make sure the agent pens down the booking form, calls the owner and gets a verbal confirmation of the deal. If possible, speak to the owner and confirm the deal and thank them for it. All this is vital to ensure that everyone is serious on the deal.Yes, that also means that you would have to prepare the money for the 2%/ 3% deposit. Best to avoid giving cash. Write a check instead.
Also remember to follow up. A deal is not a deal until the sales and purchase agreement is signed with the owner.Finally, upon closing the deal, always seal the deal with a firm handshake.
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Michael Tan is part of an organisation call FREEMEN which focusses on educating people towards their financial freedom, particularly in the field of real estate investment. FREEMEN has conducted more than 10 courses in the field of investment methodologies and mindset. For more information on upcoming events, SMS
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