How To Negotiate With An Estate Agent In 5 Simple Steps
Donald Trump, the next American President.
Interesting thought isn’t it?
Despite the shenanigans Mr Trump has been getting up to lately, a lot of people have forgotten what a prodigious businessman he really is.
More specifically he’s a property genius.
He’s built skyscrapers, hotels, casinos, golf courses, and numerous other developments across the world, and it’s made him a billionaire.
One thing Donald Trump attributes his success to is his belief that you don’t get what you deserve, you get what you negotiate.
And he’s right.
In fact, when it comes to investing in property never a truer word has been spoken.
That’s why I want to give you the tips and tools you need to negotiate like a seasoned pro, with arguably one of the most important people you’ll deal with when building your property portfolio.
Let me show you…
How To Negotiate With An Agent Like A Pro
When looking for properties, there are various ways in which you can attract leads.
Often times, an estate agent will be your best bet.
Unfortunately, or fortunately, estate agents don’t always have the best rap (similar to that of a letting agent).
They’re seen as people who work only for the seller, which causes an obstacle when you’re the buyer.
Estate agents are also not hugely fond of professional property investors.
We, professional investors, are not scared to put in cheeky offers, which can at times put estate agent’s credibility at risk.
Let’s say, for example, Miss Smith wants to sell her house.
An estate agent will view the property and consult Miss Smith on a fair market value – In this case let’s say they agree that R1 million is fair.
A professional property investor would have done his research and found realistic “comparable’s” and would know that in order to make money, he cannot offer more than R600,000.
By law, the estate agent is expected to put forward every offer to the owner.
Can you imagine what the owner would think if the estate agent valued the property at R1 million and then the first offer is only R600,000?
The owner would already be sceptical about the estate agent’s credibility and ability to sell the property.
This is precisely why estate agents aren’t always fond of working with us!
Luckily, we know this, and we can use this to our advantage.
Let’s look at five ways in which you can better negotiate with an estate agent.
Turn Any Estate Agent Into Your Secret Property Weapon
Negotiation Step 1: Understand The Mind-Set of The Estate Agent And How They Work
Within any good negotiation it’s critical to follow the habit described in Stephen Covey’s book, 7 Habits of Highly Effective People - That habit is simple: seek first to understand.
An estate agent has two things on their mind.
Firstly, to help their clients sell their properties.
And secondly, and probably the more important one, to get a commission from selling the property.
Those are the two forces that are constantly playing in their minds.
You need to understand that an estate agent is paid by the seller, which means that the seller is their client.
As the buyer, you are not the client.
You are therefore “less important” to the estate agent.
you also have to realise that the estate agent and the client discuss their strategy before putting the property on the market.
If the client would like R1 million net, the estate agent would recommend to market the property at R1.4 million, to leave room for negotiation.
They’re aware that people will fight them on price and therefore they give themselves a negotiation buffer.
A seller can also tell the estate agent not to consider prices that fall below a certain range.
In the end, the more information you can gather from the estate agent and the seller, the more prepared you will be when negotiating.
Negotiation Step 2: How To Put In ‘Cheeky’ Offers Without Offending Estate Agents
If you’re not able to clearly describe your property strategy, how do you think a stranger is going to understand it?
Estate agents often get offended by cheeky offers, but only if they do not understand your rationale behind making that offer.
For example, if you were looking at Miss Smith’s property of R1 million, let’s say that you did the numbers and realised the property only works for you at R600,000.
Instead of telling the estate agent upfront that this is your highest number, a more tactful approach would be to show them your cash flow calculation.
Start by showing them the asking price (IE R1 million).
Remove the profits you hope to make from the deal (this amount depends on you).
Explain your estimations regarding the renovation costs, the estate agent commission, the holding costs (costs accrued due to holding the property for a period of time), transfer costs...
If you’re able to show that you’ll be in the deal for R1.4 million (for example) and its market value is only R1.2 million, they’ll quickly see that the deal doesn’t work for you.
Showing them your rationale will lower the “blow” of putting in a cheeky offer.
At least they’ll have comfort that you didn’t suck a low number out of your thumb, but rather put in a lot of thought and preparation into your calculation.
You can then summarise once you’ve broken it all down, that the maximum offer price you can give, in order for this deal to work, is R600,000.
This is not to say that the estate agent is now going to sign the contract, but it’s a lighter way of dumping the hard news on them.
They will then have to consult with their client and together make a decision.
Usually, if the seller is not distressed (in a difficult situation) they will happily ignore your offer and wait for the next one.
Only when the seller is in a very difficult situation, will you get by with your cheeky offer – and that is where good profits are made!
Negotiation Step 3: Interview Your Estate Agent
Your estate agent is a crucial player in your power team and if they’re not right for the job, you will risk failure because of it.
That’s why you need to “hire” an estate agent as you would someone into your company.
You have to determine if you are a good fit (IE you get along) and if they are right for the role you need (IE someone who will bring you distressed properties/sellers that will sell below market value).
Often investors will find an estate agent and build an incredible relationship. They’ll then explain they’re looking for a good deal and start viewing houses with the agent.
When they come across Miss Smith’s house, their offer of R600,000 is then refused immediately.
The estate agent might not mind and will continue searching for houses.
As soon as another 2/3 deals fall through because of ‘cheeky offers’, the estate agent will start avoiding the investors calls.
This is because the estate agent might not understand the investor’s needs, and the investor hasn’t been clear with what he is looking for and how he intends to invest in property.
You have to find a match that works.
In order to fast track this “hiring” process you might want to ask the estate agent if they’ve ever worked with another investor before.
If so, does she have any deals that they can show you? Some critical questions to ask then are:
1. What did this property go on the market for?
2. What did the property sell for?
3. Did the investors renovate and then resell?
4. How much profit was made on the property?
These questions will give you a good sense as to whether this estate agent actually knows how to work with investors and has the right kind of attitude to deal with our cheeky offers if and when they do arise.
Negotiation Step 4: Entice Your Estate Agent With Sweeteners
Remember, your estate agent is paid by the seller.
This means they’ll often have the seller’s needs in mind, over yours. This is where you have to sweeten the deal for the estate agent.
A tactic that I like to use is to offer them two commission cheques.
What does that mean?
Firstly, if the estate agent can find a deal that works, I’d be willing to pay cash for the property (Cha-ching – the estate agent now knows that there is a potential of a quick sale).
Then you mention to the estate agent that if she can bring a deal that works, you’ll give her the sole mandate to sell that property once the refurbishments are complete.
You can also mention that your renovations don’t take longer than 6 months, therefore she will receive two commission cash injections in a short space of time.
Hopefully, the estate agent will be drooling from the mouth, and enticed to find you deals that work.
It has to be a win-win scenario (another habit learnt from Stephen Covey).
Tell your estate agent that you would like to find properties in which people are struggling, so you can help them out with a quick injection of cash.
You will then renovate the property and bring it back to a decent level and sell at a profit, in which both you and the estate agent win.
If you can find win-win scenarios, you will be a profitable property investor.
Negotiation Step 5: Learn When To Walk Away
There are times in which you and the estate agent are not going to see eye to eye.
And that’s ok.
This happens from time to time.
Unfortunately, some estate agents are not fond of what professional property investors do (probably because they do not understand what we do).
In these cases, make sure that you distance yourself as quickly as possible from these people.
Rather interview other candidates until you find yourself an estate agent who can be a valued member of your power team.
How To Negotiate With An Estate Agent
Your estate agent is a critical member of your power team.
In order to be a profitable property investor, you need to master the skill of negotiating win-win scenarios.
Some strategies you can use to negotiate are:
- Understand the mind-set of the estate agent and how they work
- Understand your strategy and be clear in your articulation of that strategy
- Interview your estate agent
- Enticing your estate agent with sweeteners
- Walking away when the relationship is not a win-win scenario
Your next negotiation could be the difference between making and breaking your profits.
Take these tips and become a master at the negotiation table!
Until next time, be bold and go build that property portfolio.
Analyst, The SA Property Investor
The Money Lab