Recently I went through the process of trying to buy an investment property. For me this should be a simple process, right? After all, not only do I run a business in Sydney where we assist clients by identifying quality property and negotiating the deal for them, but I also advise people on national television how to purchase real estate across the country.
Well I am here to say that this was no fait accompli.
There are so many variables when buying property. Every real estate negotiation we are involved in has, at the very least, subtle differences. From the outset I expected to be able to navigate these issues with ease and so I did not involve anybody within my team until the final stages.
However, this was my mistake, and I will take you through the litany of rules (my own!) that I broke as a result of not asking for help.
Now, I have always harboured a bit of a dream of owning an old shop and running my business in it. So when a heritage Edwardian terraced shop came on the market a few doors up from my office, my interest was piqued.
First rule I broke:
Harbouring a romantic attachment to a particular style of property, particularly one that is to be an investment. Due to this, I was more susceptible to behaving emotionally during the purchase process.
Second rule I broke:
Looking for property seriously before my finance was approved. I had been talking about buying an investment property for some time and had made initial inquiries with the bank, but was a long way from gathering all the documents required for pre-approval.
The risk I ran was that another buyer would be in a much stronger position to act and I would end up missing out purely because I wasn’t ready.
This shouldn’t have been a major risk in this case, since the property was a little overpriced and the market was quite flat, particularly for a property that had a specific buyer profile.
I was a fairly unique buyer in the way that this property would suit my needs. It would function as a dual purpose for me: part business premises and part investment. As well as the original shop front, this building housed a three-bedroom residence and I could have easily separated the two to create an income stream.
Third rule I broke:
Not looking for an investment property with maximum buyer appeal. In my business we always aim to buy real estate for which owner occupiers will compete when it’s time to sell.
What was I doing here? I was interested in a property that was most likely to appeal to local small business owners like me.
And how many of these are likely to be in the market at the same time to vie for such a property?
In my own defence, I will say that this property was unique and the most recent comparable sale was made two years earlier. And we do recommend looking for scarcity when looking at investment property.
Fourth rule I broke:
I did drag the chain a bit when it came to getting my finance approved. This meant the longer I took the more opportunity there was for another buyer to come along, which would erode any advantage I had through being the only buyer showing serious interest.
This property had been on the market for two months when I first inspected it. And it ended up taking me another two months to get my finance arranged and due diligence completed. It had been advertised that whole time with a price of “POA”, which is usually agent code for “overpriced”.
I had many discussions with the agent over this period, with the prime objective of developing an understanding of where the vendors were at regarding their price. A crucial part of a selling agent’s job is the managing of their client’s expectations. I also wanted to understand how this function was being performed – or whether, in fact, it was being addressed at all. To be frank, these conversations were very unenlightening and I was beginning to break another rule.
The fifth rule I broke:
Showing my frustration with the selling agent. It’s very hard to negotiate in the dark. I had little faith in the agent’s ability to be fully abreast of their client’s position. Not one of my direct questions got a direct answer. I kept getting rehearsed dialogue. And none of it rang true nor did it give me the confidence to proceed with negotiations.
I think the core problem here was the approach of this particular agency. Once an agent lists a property, it is then open slather within the office as to who actually sells it. I was concerned, and rightly so, that the agent I was dealing with wasn’t the one actually communicating with the vendor.
Ideally the agent you are negotiating with is also the one directly working with the owners, otherwise competing agendas can come into play. For example, the listing agent may downplay the interest of buyers who are dealing with other agents in the same office, as his/her commission will be reduced if another agent’s buyer clinches the deal. He/she would want to list AND sell the property in order to maximise his/her earnings.
So, if the agent isn’t managing the vendor’s expectations, who or what is helping them to understand the value of their property? The thing is, if it’s overpriced, nobody will make any offers. Then the owner gets no feedback regarding price. So we, the buyers, need to do the job of the agent. A cheeky offer is sometimes needed as the opening gambit so that the owners can start the process of lowering their sights. But this is a delicate process, as you don’t want to insult the vendor and negatively impact subsequent negotiations.
I did my price research and established a range within which I believed the property to be worth. But this was less than the price quoted by the agent. So I decided I needed to make an initial offer at a figure less than I was prepared to pay in order to start the conditioning process.
The sixth rule I broke:
Making an offer before I was ready to sign a contract. Not that this really had much of an impact in this instance, nevertheless, we usually advise against doing this as an offer lacks strength if it can’t be followed through with action.
The answer to my offer was, as I expected, “no”. So I let it sit for a while. There was no point increasing my offer for two reasons: I wasn’t ready, plus I figured the vendor needed to sweat a bit. No counter offer had been forthcoming and I couldn’t work out whether this was because the owners were rigid on their price or whether the agent was not capable of negotiating. In fact, it took days for the agent to even get back to me after I made the offer and in the back of my mind I harboured doubts over whether they had even passed it on to their client.
In the meantime I finally got my finance pre-approved, then immediately ordered the bank valuation and building and pest inspection so I was ready to make my final offer unconditional.
The seventh rule I broke:
Taking the agent’s obtuseness personally and almost cutting my nose off to spite my face. This particular agent was so difficult to communicate with that I was very tempted not to submit my final offer. I did in fact delay making an unconditional offer following numerous unproductive conversations after which I was dubious about the vendor’s commitment to selling. I also doubted the existence of another serious buyer about whom the agent suddenly started referring to. It was at this point that one of my staff gave me a serious talking to and reminded me of all the conversations that we have with our clients.
We advise clients all the time on pricing and purchasing strategy. When an agent brings up the subject of “another buyer making an offer” it is often hard to decide whether or not they are bluffing. But if you have done your price research and have a clear understanding of the property’s value, it doesn’t really matter whether this other buyer exists or not. If they don’t exist, it’s merely the agent using it as a ploy to negotiate with you (a tactic required if their negotiation skills aren’t well honed). If the buyer does exist, you will either pay more than them or not. It is better not to be emotional at this stage.
Certainly we are able to be much more clear-headed than our clients. And as a result, they can have a sense of confidence when we approach negotiations on their behalf. I must say that after my teammate took me aside and reminded me of what was important, I was able to continue with a different mindset. I remembered that I did want the property and was prepared to pay what I had deemed to be a fair price, but no more. Given that I still hadn’t made my maximum offer, I would kick myself if the property sold to someone else for less than I was prepared to pay. So I decided to do the very thing that I would have recommended to a client under the same circumstances: put my final offer on a signed unconditional contract and submit it with a deadline for exchange.
One rule I didn’t break:
I did my pricing research and narrowed down a range in which I believed the property to be worth. And despite my emotional attachment I was able to remain clear-headed about the value and the price I was prepared to pay, which was at the lower end of that range due to the limited market for this type of property. In the end another buyer was prepared to pay more than me and they bought it. So, I understood value, I set a limit and I stuck to it.
And at the end of the whole transaction, I have no regrets. Well, maybe one – I really should have got my act together earlier so that when I was ready to make an offer there were no other buyers in the wings.
The greatest lesson through this whole experience for me was the reminder of how stressful and confusing it can be to buy a property. And this was an investment for me, not even a home to live in! Not only that, but I do this for a living. In reality, it has further convinced me of the value that we add to our clients’ property buying experience.
Veronica Morgan is the founder and principal of Sydney buyers’ agents Good Deeds Property Buyers, and co-host of Location Location Location Australia on Foxtel’s The Lifestyle Channel.