IT’S ALWAYS INTERESTING to discover some Commercial property investors still feel contracts there’s a need to include a “subject to finance” clause – so they can check whether or not funds will be available.
However, they are in fact approaching things from the wrong angle. You see, you don’t need your finance approved before entering into a deal.
Besides, in the current commercial market, vendors will not allow you to take the property off the market for any length of time, for you to get your finance approved.
So, what I have done for my clients is make available one of Melbourne’s leading valuers – who are on 95% of all valuation panels for lenders.
All you need to know in advance is the figure up to which a valuer will support. That way, you also know it will be acceptable to the lender.
Several Reasons why this is Important …
First of all, you can make sure you are not paying more than what a financier would be prepared to lend against.
Because over the years, many people have felt they’ve negotiated a top deal, only to find the banks will not lend the expected 70% – based on the contract price.
The second reason for including the valuer is … being armed with that upper limit, you can also find that very helpful when negotiating with the vendor, or the vendor’s agent.
And that’s especially true when you reach an impasse – where you can share the valuer’s figure with the selling agent, who can “confront” the vendor without appearing to talk down the price.
In other words: The vendor realises if you don’t buy the property … then everyone else looking at it is going to face exactly the same problem.
The main point is that you start taking control of the whole finance process. Because you have the comfort of knowing you’ve not overpaid.
But more importantly, you are able to avoid any nasty surprises down the track – by unwittingly agreeing to a price, not supported by a valuation.
And therefore, with this in place, you are ready to begin negotiatiing to buy the property.
Putting together your Initial Proposal
One of the very first things you need to understand about negotiating is that it is a process – not an event. And it is something that should not be hurried.
And if you do rush things, one or other party will feel they have sold it too cheaply or paid too much. Therefore, you need to respect the negotiation process – which in simple terms comes down to only three elements.
The first one is Power.
As you delve deeper, you find there are probably a 7 or 8 different sources of Power. And as a newcomer to negotiating, you’ll discover you actually have far more power than you imagine.
It simply comes down to understanding what constitutes power and how it’s used. And we are talking about the ethical use of power, NOT the manipulation.
Next comes Information – where most people don’t realise the other side is often prepared to share information with you … before the negotiation starts. And you can use that to your advantage down the track, as things unfold.
During the information stage, you need to identify the motivations of the other party, which might relate to price or settlement. They might have a deadline, or perhaps be under financial pressure.
By identifying what that is, you can then structure your purchase proposal – to provide to them what they need, while also achieving what you want out of the negotiation itself.
The secret is to have more than one item under the negotiation throughout the process.
The third crucial element is … Time.
You can use time to your advantage over the course of negotiation, to gain the confidence of the other side – building commitment in small steps along the way.
What I generally find is that 80% of concessions occur in the last 20% of the negotiation – as you get closer to a deadline. And in most cases, you’ll find the stated deadlines people give … will actually prove to be artificial.
Remember to Include several Negotiable Items
We won’t have time to go into them all, but the main ones common to all commercial property Proposals would be the Price (obviously); the Deposit; the Due Diligence you’ll need to carry out on the property; and the actual Settlement Date.
Bottom Line: You see, if the only thing under negotiation is the price (which is what most people tend to focus on) … then someone is going to lose.
And so, the more “balls you can have in the air” at any one time takes the focus away from the price – and leaves the other side feeling they have extracted the best deal.
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