NEGOTIATION: The highest paid work you’ll ever do

By: Dale Beaumont, 1/05/2007


The following six (6) points are the author's perspective of the contributor's views on the subject of 'The Psychology of Negotiation'.

1. Understand where the money is made

All successful property investors know that the money is made when they 'buy' and not when they sell. Buying at wholesale or 15-20% below market value is like adding rocket fuel to your portfolio's growth. By buying below market value you instantly build significant equity in your investment. You can use this equity to move onto your next property faster, or perhaps to fund renovations which in turn increases the property's value even further (more equity) and enables you to receive a higher rental return (more income).

2. Know that the deal you do is the best deal for them

Remember that if you come to a deal with the vendor, it was the best deal they had on the table. So by doing a deal with them, you have in fact helped the vendor take the property off their hands and you've paid more than what others could afford to pay. By understanding this you will make a small yet significant shift in your psychology when negotiating on a property. By having the mindset that you are there to help the vendor out of their predicament you'll be less inclined to become emotionally involved in the negotiation.

3. Get to know the vendor's needs

Although it is true that in negotiation 'information is power', it is information about the vendor's needs that will help you to reach the best deal for both parties. If you can find out the real reason why the vendor is selling, you'll know how motivated they'll be to accept your low offer. What's more, by asking questions, you'll be in a better position to offer more favourable terms and conditions. So show interest and ask questions!

4. Don't act too keenly on a property

When talking on the phone or while doing a house inspection, a trained real estate agent will ask pointed questions of you to extract information which may later be used against you to lever up the price. When this happens stay neutral and even a little nonchalant. But be careful to not come across as disinterested, otherwise you won't be seen as a serious contender and you'll be left out of the communication loop. So stay relaxed and cool but with your eye on the ball.

5. Never lose your cool

Keep in mind that you'll need to be communicating with the agent and vendor over the entire length of the contract, which could be up to 90 days or more. So it's imperative you stay consistent and refrain yourself from sudden outbursts if something doesn't go right. Remember if the vendor believes they have been taken advantage of or felt offended, even the smallest request by you will be seen as an opportunity to get even. It's called human nature!

6. Be prepared to walk away

Sophisticated investors understand the deal of a lifetime comes around once a week, so don't be disheartened if one slips through your fingers. Take some time to sit and think about what happened and what you can learn from the experience. Then get on your feet and keep moving, because another deal may just be waiting right around the corner.