Investor Mistakes: Not knowing how to negotiate
Not knowing how to negotiate
The art of negotiation in Property Investing is key. You may have been told that a great investment is all in the purchase and this couldn’t be truer.
I myself was an awful negotiator when I first started property investing. Rather than having that awkward conversation with an agent about how my offer would be $80,000 below the asking price on a property, I would just walk away from it. I would often find out that eventually it would sell close to what I would have offered. The problem with walking away is that I missed my opportunity to help condition the vendor or to find out where they truly sit. Also had I offered, then the agent would have thought of contacting me when the vendors started to become realistic. I may have then had another opportunity to try and secure the deal.
Not only have I made mistakes with not knowing how to negotiate I have also witnessed them. Through Profity I get asked to come and look at a renovation by a client who is just starting out in trading property. I am often told that the property is under contract for, example $600,000 because the vendor wanted $630,000 and $600,000 was the lowest offer that they would accept. Unfortunately, the client is hoping to save costs elsewhere to make up a profit, where they need to understand that you need to negotiate that profit in the beginning with your purchase price. Now they have just negatively conditioned the vendor to think their property is worth that amount because someone has offered it. Therefore, making it that much harder for someone to negotiate with them later.
There are many reasons that a vendor lists a property and while getting their purchase price is one of them, there may be other factors. Maybe they need a quick sell because they are in financial strife or have another property they have already offered on? It could be that they need an unconditional offer but want a long settlement because they need security that they have money coming in before they move overseas and they need time to organise the move. Conversations using negotiation tactics, such as mirroring and labelling, help you find out how best to approach the negotiation on a property. I was lucky enough to have Phil Thompson mentor me as to the best way to utilise negotiation skills.
So, negotiation isn’t just in the purchase price when it comes to property investment. Your offer which could be the lowest at multi offer could just well be the offer that is accepted. How could that be? You may have been able to complete your due diligence on a property before offering, therefore putting in a ‘clean’ offer, no conditions, otherwise known as an unconditional offer. Maybe it was due to your settlement date.
Negotiation also relates to when you sell a property. I never negotiated on the sale of my properties, believing that if I had made a profit, I was better to sell quickly and move onto the next deal. It isn’t worth sitting on a property for a little bit more when you could be making another $20,000 on the next deal right? While that might be true, it can’t hurt to ask for another $5,000 - $10,000 without the deal falling over or holding onto a property for any more time. The purchaser only has to say “no”. Why are we so afraid of that word? If they say no then we are “no” worse off, but if they say “yes” … Looking back at the seven trades I completed in my first year, if I had asked the question I could have potentially made an extra $35,000 - $70,000 that year. Too easy!
My biggest take away when learning to negotiate was to lose the fear of receiving a no. If I don’t ask then I don’t get, so why wasn’t I asking the question? I am now having a far better success rate in my property investing by having the conversations and asking the questions.
Learn from these mistakes, look at your own property investing and ask yourself, how could you be using negotiation tactics better in your business to yield you better results?
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