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Category Archives For: Negotiation Tips

Game Mechanics & Property

With the gamification of almost everything being a growing trend,  property is no different.

The big banks are starting to use more and more of these tools for consumers out in the property world.

Commonwealth Bank has released an online game called Investorville which lets investors manage their portfolio and analyse possible yields when buying a property.

With growth mortgage growth not going to be as strong over the next few years compared to the last,  I’d expect to see many interesting tools available to property buyers and consumers as a way to capture some market share for the banks.  Either way,  it’s good for property seekers.

 


Different ways people negotiate

Many people will seek advice about the best way to negotiate for an object.

Home buyers can fall into the trap of having one negotiation stance especially when dealing with real estate agents.

The problem with one adoption is:

  • Each situation is different
  • Every agent/ vendor is different
  • The property is different
  • Competition ( other buyers ) will differ

One adoption or method such as the ‘take it or leave it’ can often disadvantage when used incorrectly.

People operate vastly different, yet most gravitate to either a red, blue or purple negotiator.

A Red negotiator:

  • View a negotiation as ‘Zero Sum’.  I win,  you lose
  • Think the outcomes is more important that the relationship
  • Use forceful negotiation ploys

A Blue negotiator:

  • Value the relationship over the deal
  • Often give away more than they receive
  • See the negotiation in a longer term view

A Purple negotiator:

  • A hybrid of the two
  • Better negotiators will often take the best aspect of each and merge them together

It’s important to note that a red negotiator will exploit a blue negotiator.  Yet the outcome a purple negotiator reaches will often eclipse the red negotiator.

Different attributes are required for different situations.


Contrarian Investing

According to wikipedia a ‘contrarian’ is one who attempts to profit by investing in a manner that differs from the conventional wisdom, even when the consensus opinion appears to be wrong.

We see signs of this in the property market all the time. It wasn’t too long ago that many people refused to invest or purchase period homes. Buying in the inner city was also un popular yet some of the greatest fortunes in Melbourne have been built by acquiring inner city property when no one else would.


Hovering

Two very differently used tactics for negotiations can be stalling and striking.

Striking means seeing an opportunity and pouncing before anyone else has a chance. A very effective way to buy property in a good to solid market.

Stalling can work when you really aren’t fused about the outcome. These can also yield good buying oppurtuities especially in achieving large price drops. Also this can be used when other interest is almost non existent.

Hovering is more of a concern. By being too unsure or being unable to make a decision – Hovering is what I see many entrants into the property market go through. Any advantage or control is quickly lost and the less control you have of the outcome.


POA

Price on application.

It’s one of those quoting methods that really doesn’t work.

Except for extreme cases (price sensitivity or privacy), it doesn’t work well for sellers or buyers.

The problem I see with a quote that has ‘Price on application’ is that 4 out of every 5  listings seem to be overpriced. It’s often used as a way to gather some interest while the agent is busy working on the owners expectations.

Exceptions do exist I must say. It is often the first thing that comes to my head though when I see it used in the marketing campaign – especially with residential listings under $1 Million.


Round figures

I think it’s something that follows a little on from yesterdays conversation.

People seem to think round numbers when buying or selling.

It becomes a need to ‘hit a number’ or to ‘clear a certain amount’ out of a transaction.

I think it helps to know this when you’re in negotiations. It gives some perspective on what the other side might be thinking.

You don’t hear too often of the owner who wants $956,200 for their home. Most brains aren’t wired that way.


Fear of leaving ‘money on the table’

It’s a very real fear when buying property. Many places, most noticeably private sales will go into a tender situation once an acceptable offer has been placed to buy the property.

Often these tenders are ‘blind tenders’ where it’s hard to determine what other bids are. A typical real estate office might have many different agents receiving ‘sealed offers’ for a tender closing at a certain time.

The hardest thing is that while I might have an instinct as to where other offers will be, there is no way to know for sure.

This is where the fear of leaving ‘money on the table’ comes into play.

I’ll explain how this comes about.

The first thing most purchasers will be inquisitive about when having won the tender is ‘what were the other offers?’. In fact, I could count on one hand the amount of times that someone HASN’T asked me this.

Now this is a perfectly inbuilt human tendency. Most of us will want to get the best deal possible and we like winning tenders by only a couple of thousand of dollars. We don’t want to hear that we won the tender process by $80,000 – that get’s us into a very uncomfortable situation.

So we have this problem. We want to buy this property, but we don’t want to leave ‘money on the table’ by paying too much more than anyone else. We have no problem with being in a competitive situation and paying our price but cringe at any other way.

Tenders are a little like ‘Russian Roulette’ in my opinion. Sometimes they produce some seriously spectacular (or scary) prices for real estate, other times they fail to bring out those ‘competitive juices’ so vital to pushing up the perceived value of an asset.

The best offers I’ve seen were from parties who have looked at this buying situation – have taken on board what data we could gather about amount of interest/ other parties potentially placing a bid – then looked at the asset for what it’s worth to them and haven’t been scared about ‘leaving some money on the table’.

It’s the situation when you miss out, realised that you perhaps should have gone with a stronger bid and have missed a vital opportunity that
this really hits home.

Lesson learnt

Money left on the table may not be what it seams. For example: the same property being auctioned may have gone well in excess of what you were prepared to pay anyway. A tender situation can cause confusion and this in turn can benefit you.

Don’t get stuck into thinking about how you can predict an offer $1000 more than another buyer unless you have some serious inside information or share the same DNA to Nostradamus.

Understand that you will be uncomfortable if you haven’t done this before. It’s normal, embrace it and just make sure that you are fully
aware of the rules of the tender. This issue is for another post altogether.

‘Money on the table’ can happen in many other situations. Think of an auction and an extremely high opening bid.


Crossing the other side

Property buyers can change mindsets extremely quickly when the point of purchase is arriving.

Recently I was discussing with a gentleman a recent property purchase. He had missed out numerous times on different places and had reached the pinnacle ‘buying mode’ that can often be disastrous yet somewhat understandable in the buying process.

He’d missed out on 3 places previously and by the time he noticed a private sale come up, it was all systems go – he wanted to buy this place.

Now at this point in time, we can see a mental shift from ‘is this the right place?’ or ‘what is the right price to pay?’ to ‘I’m buying this place’!

So he paid $40,000 over asking price and made sure he got it. Initially he felt relieved that he had conquered his purchase. Overnight however his brain’s more logical analytical mind started to kick in.

He started to look at it from the view point of ‘did this make sense as a purchase?’. The answer was no but he had crossed the other side – he had purchased.  The one lucky element here was that he had a cooling off period to play with. He decided to pay the $1000 fee to cool off and rescind the contract.

He had felt what it was like to purchase something, then realised that his emotions almost got him into a lot of trouble.

It’s actually a great experience for him without any real bad consequences.

Notes learnt:

  • Understand when you’re in a deeply emotional state. Be careful about making decisions of this magnitude without some further thought and discussion.
  • If you’ve missed out on 2 or more places, be aware that this emotional ‘take over’ will kick in more easily.
  • If you don’t challenge your thoughts and the thinking is that you’re just going to buy that place – You’re in emotion mode!

Why you need to know how to ‘pivot’ when buying property

Everyone wants a plan. A plan to purchase and a plan to secure a property.

The best buyer agents though are the ones that can easily ‘pivot’ when required whether that be on what to purchase or in the negations that follow.

By pivoting I mean changing direction at rapid speed as you think a better way exists to execute the purchase or the type of property you’re looking at acquiring.

The deeper you get involved in the process of an extensive property search or negotiation, the more information you discover. Often this is different to what you’ve planned.

Some of the best property decisions I’ve been involved with are the ones were we have ‘pivoted’ and changed direction last minute.

For example, recently a client was looking for an investment property.

They had a place in mind they wanted me to bid on at 1pm that day, another auction however at 11am ‘passed in’ and was tremendous value – in fact the reserve was below the quote price.

By pivoting and quickly showing the client through, she could see the absolute value on offer. We purchased the property that was ‘passed in’ prior to the 1pm auction – which went well over our anticipated range.

Pivoting can be adjusting the price you’ll pay for something just before crunch time or anything else for that matter. In an ideal world everything happens to the plan, yet with property this doesn’t always work out that way.

Pivoting can be crucial.


Getting alignment

Buyers that are serious about buying at the moment don’t need much work on alignment. Not as much as earlier in the year anyway.

By alignment I mean, accepting market based prices for property.

As the market changes and pricing moves up or down, both vendors and buyers need help with alignment.

Vendors at the moment are needing most help with alignment, most are going into stalemate and not meeting the market. This often works badly for both sides of the transaction.

Many agents in Melbourne do a good job of getting sellers into alignment with the current market. It’s difficult though to accept less, especially when conditions have been good and have only started to slow down over the past month.

These adjustment periods can be frustrating for both buyer and seller as semi-motivated/unmotivated vendors are holding tight. This adjustment period is necessary however to reach alignment.