How to Offer and Negotiate for Success
So, let’s assume you’ve followed the steps in my last blog, How to find your BTL investment area and you’ve found a property you’d like to make an offer on, brilliant! Now what’s next? You make an offer through the estate agent to the vendor and you will probably do some negotiation, which is what I’m going to talk about today…
Go for Win-Win
Every time you buy a property, you want it to be win-win for everyone involved; you, the estate agent and the vendor. Although you want to get the property for the lowest possible price in order to maximise the return on your investment, you also want the vendor to be happy and not regret the sale.
Whilst the estate agent will be happy just to have made the sale and receive the commission, it would be a win for them if they’ve had a good experience with you as the buyer. You can help to make it a good experience by being honest and reliable for the estate agent.
If you want to put in an offer that is miles off the asking price, go through your figures with them, and ask their opinion (even if you already have a good idea) on the rental/resale price can help to build a trusting relationship. It’s far more likely that they will put the offer through to the vendor and genuinely talk it through with them if they can understand where it’s coming from.
Legally, estate agents have to put every offer they receive to the vendor, however this isn’t always the case. If you have a good relationship with the estate agent though, they are more likely to put a low offer to the vendor…and you never know…that low offer just might get accepted if the property has been on the market for a long time or the vendor is after a quick sale.
Rejection is inevitable when you’re buying property for investment, if you’re not having any offers rejected, you are offering far too much!
When buying a house to live in the value of the property is whatever it is worth to you, whereas when you’re investing you want to get the best deal possible to maximise your ROI. Some of the offers you’ll put forwards will probably feel uncomfortably low, but if you accept that rejection can happen it will be an easier process for you.
I put in 80 offers before I had my first offer accepted, which is a lot of rejection; and a lot of work going to and from the investment area and viewing properties! I knew from the start that it would be a part of the process so accepted it, making it a lot easier to handle. Now, roughly 1 in 20 of my offers are accepted, which is a much better ratio!
Position Yourself Well
If you want to put in a low offer, try to make the way you’re buying the property as attractive as possible. The best way to do this is to be a cash buyer, meaning that you can pay the money as soon as they’d like, which theoretically could result in a quicker sale. Normally an investor is a cash buyer, as you can source the money required from various places even if you don’t have your own capital sat in a bank.
Currently mortgages are often holding up sales as there is a backlog from COVID-19 along with increased demand resulting from the stamp duty holiday, so saying that the cash is already there may convince a vendor to accept a slightly lower offer, especially if they’re in a hurry to sell. The quickest I’ve had a sale go through was 2 weeks from offer to completion…so it is perfectly possible, and highlighting that you can move quickly can be incredibly attractive to a lot of vendors.
If you’ve said that you’re a cash buyer but then have to change to a mortgage later down the line it doesn’t always mean a huge hold-up that could de-rail the sale. Realistically it is usually the solicitors holding up sales with enquiries, surveys and paperwork going backwards and forwards, not the mortgage process.
Build a Relationship with the Estate Agent
Making yourself reliable and trustworthy to the estate agent can go a long way to assist you in future investments. Aim to always get back to the agent after a viewing within 24-48 hours, with feedback, figures or ideally, an offer. If you’re the person that always gets back to them quickly, they’re going to remember you as you get to know them more and build that trust. If they’re onside they’ll be more likely to try and talk the vendor round to your offer.
Don’t undermine their experience, even if you’ve got a good idea from Rightmove on what the resale/rental value will be, still ask their opinion and position them as the expert…and if they are giving you similar values to what you’d calculated it is good to know you’ve got your estimates about right! Getting them involved in the process also helps when you’re then explaining your figures… if the final value of the property which you are basing your offer on is a figure that they’ve suggested, it can help to convince them that your offer is reasonable, even if it is low.
And of course, by building a relationship you’re making it more likely that the estate agent will come to you in the future with other deals or suitable properties. Just the other week I had an email from an estate agent apologising for having not been in touch recently with any properties for me, as the market is currently quite quiet there! This is the ideal sort of relationship I like to have with agents…knowing they are always keeping an eye out for me.
There are no hard and fast rules when it comes to negotiation. Remember, you’re dealing with human beings who all have different ideas on what the lowest acceptable offer would be and how they negotiate.
As much as there’s no single rule to follow, you need to make sure you give yourself room for negotiation to happen. If you start off at the absolute maximum you are willing to pay, you give yourself no wiggle room!
Always start a little below your maximum, but not too far as most offers will be low already and you don’t want to turn the vendor off completely from engaging with you! Perhaps start a few thousand pounds below your maximum to start with so you still give the opportunity for the vendor to feel as though they’ve won something from you.
Remember, the vendor may have a mortgage that they need to pay off, so there could be an absolute fixed figure that they can’t go below no matter how good your negotiation skills are. If you forced them to go below it with some incredible negotiation, would it then be a win-win for everyone? Personally, I don’t think so.
Final Top Tip
Always try and draw out from the estate agent or the vendor what the absolute minimum is that they would be happy accepting. This is a powerful bit of knowledge to have.
They can’t usually tell you exact figures, or what offers other people have put in, but they can give you some pretty un-subtle clues, such as “We’ve had an offer that is around £40k, but it was too low, it’s got to begin with a 5, or closer to the asking price.”
Normally agents are perfectly happy to give you a lot of hints and tips on where your offer needs to be. If your figure is higher than that you can always try to put in a slightly cheeky lower offer and still have a chance of getting it accepted.
If you’re dealing with the vendor directly, all of this same advice still applies. You never know, the vendor may be a landlord selling off their property, so by having a good experience with you, they may then have more properties they want to offer you to buy.
The key thing to remember is that everyone involved in the property buying process is human…so much like in the rest of life, treat people well and sooner or later you’ll get good results!