Before I show you how we have just bought an apartment for a client at 25% below the asking price, I just wanted to highlight a recent statistic.
The Land Registry has just released its house price figures for houses that have actually sold compared to figures released on asking prices. Of course, this isn’t a truly fair comparison because the transaction price of these properties would have been agreed at least a month earlier although this is often not pointed out in the press.
It just shows how easy it is to manipulate the statistics. Indeed the Land Registry figures are still far too vague and general to be of any use anyway. At risk of repeating myself, it is essential that you do your own research focused on the areas and price range in which you wish to buy. If you rely on the papers and general statistics you might as well release your bank details onto Facebook. The result will be similarly disappointing.
However, assuming that you are not insane and that you would rather buy your ideal home or investment on the best terms possible, I thought you would find it useful if I showed you how I have just helped a client buy a fantastic property at 25% below the asking price.
I will talk about negotiation skills later and show you strategies we use. However, the negotiation could not have been nearly as successful if a number of other factors has not been put in place first.
Alexander Graham Bell said “Before anything else, preparation is the key to success.” Wise words. Admittedly not exciting words, but certainly profitable. I am constantly amazed by how many buyers shoot themselves in the foot before they even start the search.
It is a simple fact that if a good opportunity arises, then you need to be able to move swiftly to secure that property. Because if you cannot, then 9 times out of 10 you will suffer the frustration of seeing the opportunity bought from under your nose because another party can move more swiftly than you.
Most buyers treat buying a property with about the same deference as buying a plasma TV. This is astoundingly stupid. You can give yourself a massive head start simply by approaching the transaction as you would any other business deal – and, yes, you may be buying a home but ultimately this is a business transaction.
Consequently I ensured that my client:
- Had instructed a solicitor
- Had spoken to his private bank so that funds could be available at short notice
- Had spoken to tax advisers to structure the purchase
- Had a defined list of requirements and criteria for the property he wanted to buy
- Was in a position to view properties at short notice or have a member of his family do so on his behalf
This is not exactly complicated, so you may be tempted to wait until you have found a property and agreed a price to instruct a solicitor and speak to your bank. However, if a situation arises where you need to exchange within 48 hours, you will regret not already having these pieces in place.
Indeed you may find that letters from your bank and solicitor confirming that the funds are available to transact are a vital weapon during these negotiations. So just spend a few hours preparing everything before you start your search. This alone will save you tens of thousands of pounds and likely much more.
Why would you handicap yourself in the negotiation by not being able to move quickly?
The key is to have total market coverage so that you are in the right place at the right time when the ideal property becomes available. Unfortunately too many buyers take this to mean that they have to be the first person to see new properties when they come to the market or ideally even before they come to the market.
Indeed 33% of the properties we bought for clients last year were off-market properties so this is an important method. However, that leaves the other two-thirds that we bought that were on the open-market. The property we have just bought was on the open market and had been for a while. However, it had not been available at the price we paid, i.e. at a 25+% discount to the asking price for too long.
We just happened to know that the sellers became highly motivated to move and would accept offers that they would not otherwise have considered. And this is the mistake that 98% of buyers make – in fact it is two mistakes:
- They keep the price range of their search too narrow
- They fail to regularly monitor properties
In the first instance most buyers do not consider properties that are 20% or more over their budget. And this is understandable. Firstly, if you look at too many of these properties you can become unrealistic about what you can achieve in your budget. Secondly and more pertinently for most people – it involves a huge amount of time, which you simply might not have, i.e. many of the properties priced at 20% more than your budget are correctly priced.
However, it is vital that you keep an eye on properties that are significantly more expensive as these could be completely mispriced and provide you with an opportunity because no-one else is considering them.
In this case we had the perfect mix: a property that was about 16% overvalued and a very small agency selling the property. So, despite the fact that the property was openly advertised on primelocation.com they were not achieving anywhere near as many viewings as one of the better agents in the area would have done.
I expect that the sellers used this particular agent because they were cheaper. This is an unbelievably stupid mistake. It has cost them hundreds of thousands of pounds even if they think they have saved £60-£70,000. If you are selling a property, please do make sure that you use the best agent for your type of property (and do try to negotiate their fees). This is one of the reasons I advise clients which agencies to use and do not sell properties myself.
But back to the main point: you need to ensure that you have total market coverage. Most buyers register with 20 estate agents and regularly keep in contact with 10-15 (I am being generous with these figures). In addition they tend to look at too narrow a price range, so the probability of them finding their ideal home is severely limited. In fact they are relying more on luck than they realise.
By way of comparison, we speak to over 230 estate agents every week and our list of over 300 off-market contacts. We check the websites and auction houses. In addition we also directly approach vendors of houses that we know are suitable even if they are not for sale and we also receive calls and emails from owners who wish to sell without using an estate agent.
Now, it is not going to be realistic for you to do this – for one you do not have our network of contacts – but it should give you an idea of how many more agents you should be speaking to on a regular basis.
And that includes the small agencies which appear to be hopeless. Many of them are but occasionally they sell properties that they essentially aren’t equipped to sell – that is where an opportunity can arise.