To make a deal work, we want to lead agents to our optimal offer price. The strategy will be to offer below the your optimal price and then make it look like a “compromise” to land at your optimal price.
Let’s run through an example. Say today you want to purchase the property at $330,000 and the property is currently advertised for $350,000. The first offer is always the tricky one – you will need to low ball but at same time don’t put through a ridiculously low offer.
At this stage, you want the vendor to counter offer around $340,000, and ideally, you can meet in the middle for $330,000. Therefore, I would start by offering at $320,000.
Agents might be very upset with this initial price. This is where you, as an investor, can let them know you’re investing, so it’s numbers that count, and not emotions. While you do like the place a lot, this is the price where you can see the deal will work and you look forward to hearing back from the vendor.
There can be three outcomes after this initial offer:
- The vendor rejects the offer and insist on $350,000
- The vendor provides a counteroffer above $340,000; or
- The vendor provides a counteroffer below $340,000
If vendor comes back with outcome one, then there won’t be much opportunity to negotiate further. Time to move on.
Outcome three is the ideal scenario but usually unlikely, as you’ll have more opportunity to get close to $330,000, or even a slight opportunity to negotiate below $330,000!
Outcome two is probably the most common scenario: the vendor will come back with a counteroffer, but it’ll be above $340,000; let’s say $345,000.
Now, if we take the middle price between $320,000 and $345,000, we come to $332,500.
This is where you show:
- The willingness to meet in the middle at $332,500, and attach a 24-hour to 48-hour expiry so you can put the pressure on vendor; and
- You have no intention to play games so this will be the absolute final offer. Take it or leave it.
Again, there can be three outcomes after the second-round offer:
- The vendor rejects the offer and insist at $345,000
- The vendor provides a counteroffer above $332,500; or
- The vendor accepts the offer
Outcome one shows the vendor is not willing to really meet in the middle. I would suggest it’s time to move on.
With outcome two, you can decide whether to continue negotiating again and use the process above to rinse and repeat, and get as close to $332,500 as possible, or just bite the bullet if it’s not too much different.
If you get to outcome three, well done on leading the vendor to this price!
About the Blogger
David Shih is a Sydney-based investor who have built and amassed a property portfolio across NSW and QLD. David has a real passion in helping others with property investing, personal development and believes having the right mindset and optimism is absolute paramount to the success of everything in life. David is sharing all his tips, lessons and experiences in his blog which can be found at mypropertystories.wordpress.com. He is happy to talk property anytime via Facebook, Google+, Twitter (@diyshih) or via the blog.