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CEO of GTSA gives six negotiating tips for foreign buyers - Gateway
Source:
September 19, 2023
Geoffrey McRae, GTSA Real Estate Consultants CEO, outlines some basic negotiation skills that can help when approaching the sales process in a foreign country.
Many foreign buyers are uncomfortable or inexperienced with the negotiation process in a country where they know little about the local customs.
While the vendor has their broker to negotiate for them, buyers are at their own mercy. (the vendor’s broker will often also act as a buyer’s agent, which is the norm in most markets we cover, excluding Brazil, which only has a vendor’s agent who pays the commission, normally around 6%). The negotiating buyer’s fee will vary from 2% to 4%.
All buyers need negotiation skills, so I’ve outlined some basic principles below. South American real estate markets have a high degree of informality, so make sure you are dealing with a licensed broker, or you could run into trouble. The key is doing due diligence using professionals who are not benefitting from the sale. Trust but verify should be your guide.
Show interest – but not too much
However, you have to be careful not to play it too cool and negotiate yourself out of a purchase, but it should be known you have other options.
It’s okay to reveal you’re interested in the property, and I’d like to buy it, but don’t let on that you’re too attached to this purchase against others.
If the vendor feels you’re interested but have other options, that’s a powerful negotiating position to be in.
Always be respectful of the vendor’s feelings
If you can help the vendor get a win, you often get one yourself.
Look for some common ground that works for both of you. For example, you can often trade off terms favorable to the vendor for a lower price.
You must communicate that you’re a serious buyer and can be trusted. Ways to do this include making your offers in writing and confirming you have finance approved and available. It is very uncommon for buyers to need finance in our markets, but it does exist. Remember, verbal offers give you little negotiation power.
Don’t comment negatively about the property; this will only offend the vendor. They are human and are influenced by their emotions, too!
Put a deadline on your offer acceptance
Use a deadline to encourage a decision. Give the vendor a timeline for a response – 5 p.m. the next day is not fair – but be aware that the agent will use this time to encourage other buyers to make offers. Simply extend the deadline if the vendor hasn’t reached a decision. If the property is owned by a company or is multi-family member ownership, you must give them more time as you effectively deal with a committee.
The best way of showing you’re serious is by signing the contract and attaching a small deposit (say USD 10,000) to be held in an escrow, where the party has it in good faith until the deposit payment for the property is due. This makes your offer a lot more seductive.
Find out the vendor’s motivations for selling
If you can understand where the seller is at and what their next move is, you can figure out how you might be able to assist them and get a good deal for yourselves.
The terms and conditions of the contract can be powerful bargaining chips. You may be able to stand firm on your price but give the vendor favorable terms to sweeten the deal.
Some examples:
It’s better to make your first offer somewhere below your walk-away price and move your requests upwards in small increments.
If you know the property is overpriced, it’s okay to open negotiations with a lower or ‘cheeky’ offer. To be effective, it must be high enough to get the vendor’s attention but soft enough to give you room to negotiate up to your walk-away price.
However, if you have your heart set on owning the property, starting closer to the asking price might be a better option. If you are in a competitive situation with another buyer and want the property, then be prepared to offer a short settlement over the asking price. Prime Properties seldom come up, and if you are going to make it a long-term home rather than an investment, then losing the opportunity might not be worth haggling for a small percentage of the asking price.
Justify your offer with factual information, such as recent comparable sales, if it is lower than the asking price. Don’t present them with a catalogue of the property’s faults, as it annoys any vendor. They know this information already.
Avoid making ultimatums such as, “This is my top-dollar price – take it or leave it”. You leave yourself no room to move. If you then make another higher offer, you’ll look untrustworthy.
Offering odd amounts is a great tactic, especially after making a few lower offers. It suggests some logic to your request and implies you’re at your limit. Rather than offering on a property asking USD 900,000, instead of $860,000 or $865,000, offer $863,500.
If you can’t get your price, get your conditions
You can always make a higher offer contingent on the vendor undertaking certain repairs or requesting that pieces of furniture be included, or if it is a farm, have some of the stock and plant included in the offer.
You can also ask for a longer or shorter settlement to suit your circumstances.
Don’t forget in these markets where finance is unusual, you can sometimes get vendor finance by asking for it.
You can also offer to pay outside the country the property is located in.
Also, remember that in countries with capital gain taxes, how your offer is structured might appeal to the vendor.
Often, you will find multiple brokers involved, making it difficult to send or receive clear messages to the vendor when negotiating. This puts you and the vendor at a serious disadvantage. Find out before starting any negotiations if this is the case.
I hope these tips are helpful to you. It is stressful, but owning a nice piece of real estate is one of the most satisfying things you can buy, and unless you are a trader, the money you pay will seem insignificant after a few years.
Good luck with your search, and give yourself plenty of time.
Source:
September 19, 2023
Geoffrey McRae, GTSA Real Estate Consultants CEO, outlines some basic negotiation skills that can help when approaching the sales process in a foreign country.
Many foreign buyers are uncomfortable or inexperienced with the negotiation process in a country where they know little about the local customs.
While the vendor has their broker to negotiate for them, buyers are at their own mercy. (the vendor’s broker will often also act as a buyer’s agent, which is the norm in most markets we cover, excluding Brazil, which only has a vendor’s agent who pays the commission, normally around 6%). The negotiating buyer’s fee will vary from 2% to 4%.
All buyers need negotiation skills, so I’ve outlined some basic principles below. South American real estate markets have a high degree of informality, so make sure you are dealing with a licensed broker, or you could run into trouble. The key is doing due diligence using professionals who are not benefitting from the sale. Trust but verify should be your guide.
My 6 negotiating tips for buyers
Show interest – but not too much
However, you have to be careful not to play it too cool and negotiate yourself out of a purchase, but it should be known you have other options.
It’s okay to reveal you’re interested in the property, and I’d like to buy it, but don’t let on that you’re too attached to this purchase against others.
If the vendor feels you’re interested but have other options, that’s a powerful negotiating position to be in.
Always be respectful of the vendor’s feelings
If you can help the vendor get a win, you often get one yourself.
Look for some common ground that works for both of you. For example, you can often trade off terms favorable to the vendor for a lower price.
You must communicate that you’re a serious buyer and can be trusted. Ways to do this include making your offers in writing and confirming you have finance approved and available. It is very uncommon for buyers to need finance in our markets, but it does exist. Remember, verbal offers give you little negotiation power.
Don’t comment negatively about the property; this will only offend the vendor. They are human and are influenced by their emotions, too!
Put a deadline on your offer acceptance
Use a deadline to encourage a decision. Give the vendor a timeline for a response – 5 p.m. the next day is not fair – but be aware that the agent will use this time to encourage other buyers to make offers. Simply extend the deadline if the vendor hasn’t reached a decision. If the property is owned by a company or is multi-family member ownership, you must give them more time as you effectively deal with a committee.
The best way of showing you’re serious is by signing the contract and attaching a small deposit (say USD 10,000) to be held in an escrow, where the party has it in good faith until the deposit payment for the property is due. This makes your offer a lot more seductive.
Find out the vendor’s motivations for selling
If you can understand where the seller is at and what their next move is, you can figure out how you might be able to assist them and get a good deal for yourselves.
The terms and conditions of the contract can be powerful bargaining chips. You may be able to stand firm on your price but give the vendor favorable terms to sweeten the deal.
Some examples:
- They might be amenable to a lower price if they have bought elsewhere in exchange for a faster settlement.
- You can offer to release the deposit early so they can use it for their next home (get legal advice first).
- You can offer to rent the property to them after settlement if they haven’t secured a new property by then.
It’s better to make your first offer somewhere below your walk-away price and move your requests upwards in small increments.
If you know the property is overpriced, it’s okay to open negotiations with a lower or ‘cheeky’ offer. To be effective, it must be high enough to get the vendor’s attention but soft enough to give you room to negotiate up to your walk-away price.
However, if you have your heart set on owning the property, starting closer to the asking price might be a better option. If you are in a competitive situation with another buyer and want the property, then be prepared to offer a short settlement over the asking price. Prime Properties seldom come up, and if you are going to make it a long-term home rather than an investment, then losing the opportunity might not be worth haggling for a small percentage of the asking price.
Justify your offer with factual information, such as recent comparable sales, if it is lower than the asking price. Don’t present them with a catalogue of the property’s faults, as it annoys any vendor. They know this information already.
Avoid making ultimatums such as, “This is my top-dollar price – take it or leave it”. You leave yourself no room to move. If you then make another higher offer, you’ll look untrustworthy.
Offering odd amounts is a great tactic, especially after making a few lower offers. It suggests some logic to your request and implies you’re at your limit. Rather than offering on a property asking USD 900,000, instead of $860,000 or $865,000, offer $863,500.
If you can’t get your price, get your conditions
You can always make a higher offer contingent on the vendor undertaking certain repairs or requesting that pieces of furniture be included, or if it is a farm, have some of the stock and plant included in the offer.
You can also ask for a longer or shorter settlement to suit your circumstances.
Don’t forget in these markets where finance is unusual, you can sometimes get vendor finance by asking for it.
You can also offer to pay outside the country the property is located in.
Also, remember that in countries with capital gain taxes, how your offer is structured might appeal to the vendor.
Often, you will find multiple brokers involved, making it difficult to send or receive clear messages to the vendor when negotiating. This puts you and the vendor at a serious disadvantage. Find out before starting any negotiations if this is the case.
I hope these tips are helpful to you. It is stressful, but owning a nice piece of real estate is one of the most satisfying things you can buy, and unless you are a trader, the money you pay will seem insignificant after a few years.
Good luck with your search, and give yourself plenty of time.
