Who doesn’t want to sell at the top of the market?
We’re all keen to maximise the return on our property investment, so it’s no surprise that vendors across the country will look to list when prices are on the way up.
It can be frustrating as a Property Developer to watch prices jump up 10, 20 or even 30 per cent when property markets enter a boom cycle.
One minute the market is shuffling along, calm and controlled, the next minute there’s a stampede of buyers fighting over every last listing, pushing prices ever northwards.
And once the media jump on the bandwagon, the market can feel like a runaway train. The sensational headlines compound the fear of missing out and prices go even higher as buyers empty their pockets at weekly auctions.
But while vendors are rubbing their hands together reading the headlines, they’re typically slow to make decisions, which creates a significant lag. In fact, this lag is what contributes to a shortage of stock which, if demand is high, translates to higher prices for existing stock.
As sales records topple, vendors are slowly but surely coming to the realisation that it’s a good time to sell. And between listening to the media and their local real estate agent, they’ve locked in some sky-high price expectations.
Yet by the time the latecomers finally get their property listed, the market has actually cooled, and their magic number is well behind the market. These vendors have a tendency to overshoot reality, and they’re so stuck on their top-of-the-market valuation they can barely contemplate a lower sale price.
And that, folks, is when you should come knocking…
This is one of those classic win-win scenarios we often talk about at PDN.
When we’re looking to do a low or no-money-down deal, there are two levers we can pull: time and risk. In this instance, we can use time to add value to a property.
The vendor is looking for top dollar for their property, even though the market has clearly come off the boil. They want to hold onto that price point they arrived at when the media hype was in full swing because “my house is still worth all this money”. Clearly it’s not, but we can use the terms of sale to prop up the price.
When the market is starting to boom, nobody wants to agree to unusual terms of sale. Every agent and every vendor wants a quick settlement. But when the market is going the other way they’ll do anything to get the market-high price.
And that’s where we want to take advantage of that psyche.
If a vendor will give us time, allowing us to work on our development deal without paying holding costs, we’ll give them their dream price.
I’ve just spent two years negotiating this kind of deal through a rollercoaster market. In that two years, the market has gone up and come down more than once. The vendor’s expectations were greedy right from the start, yet the market wasn’t there. Then the market started to move favourably in their direction and they said “See, we were right! Our property is worth these big dollars!”
But finally the market hit its peak and started to turn and they were desperate to hold onto those big dollars. I had been checking in with them periodically to see if they were ready to sell, but it took that whole two years and a flattening of the market before the vendor decided to get on board.
I negotiated an 18 month option with a six month settlement, giving me two years’ worth of control of that property to get all my building contracts and finance organised.
My offer was based on where I think the price point for that property will be in two years time, rather than where it is now. I factored in holding cost savings in that timeframe, any elements of risk saving, and because of the option I’ve got in place I’ve given myself the ability to walk away from the deal if it doesn’t add up in those first 18 months.
This is a classic “low money down” deal, where I only pay a relatively small sum for the option, and if I exercise that option, I’ll pay a deposit on the property.
So it’s all about timing…
Keep an eye open for when prices are coming off the peak and the expert market commentary is starting to predict the peak has occurred. The media jump in with “Oh my god the sky is falling” headlines. You want to be using the market commentary in your favour to justify your positioning statements with the vendor, your conversations about how the market is starting to come off the boil.
Of course quite often you position it and the vendor doesn’t believe you straight up. They go ahead and put their property on the market with a market peak price and it doesn’t sell.
Then they get desperate. It’s the classic combination of fears, pain and desire. You’re playing on their fear of losing the price they want for their property.
Your job is to raise the fear, agitate the fear, then become the antidote to the fear.
It’s important to be really good with your body language, and to get them to talk more than you talk.
Get them to highlight the headlines by asking them questions: “Have you seen the latest news on the property market?”
See if you can find out what their source of truth is – where they get their property market news – and pull stories from that… “Did you see the story on such and such?”
Quite often I might walk into a meeting with a compendium and a laptop. I won’t pull it out to begin with, but in conversation I might gesture towards it, indicating I’ve done the research.
At some point an opportunity might arise to say “Do you want me to show you some of the things I’m talking about?” What you’re looking for is their invitation to share what you’ve learned.
As always in the development game, it’s about understanding a vendor’s needs and drivers. That’s always the baseline sitting underneath our negotiations. Quite often their greed gland is more powerful than anything else. If you identify that as their primary driver, you can squeeze that pretty hard: “I can get you the price you want if…”
If they want the high price point, they need to give you the time to make that happen.
It always comes back to two pathways:
- your terms and my price or
- your price on my terms.
The bottom line?
The best time to do low or no-money-down deals is when the market has peaked and prices have started to wobble and drop. This is the perfect time to negotiate a win-win for both you and the vendor.
We’re all keen to maximise the return on our property investment, so it’s no surprise that vendors across the country will look to list when prices are on the way up.
It can be frustrating as a Property Developer to watch prices jump up 10, 20 or even 30 per cent when property markets enter a boom cycle.
One minute the market is shuffling along, calm and controlled, the next minute there’s a stampede of buyers fighting over every last listing, pushing prices ever northwards.
And once the media jump on the bandwagon, the market can feel like a runaway train. The sensational headlines compound the fear of missing out and prices go even higher as buyers empty their pockets at weekly auctions.
But while vendors are rubbing their hands together reading the headlines, they’re typically slow to make decisions, which creates a significant lag. In fact, this lag is what contributes to a shortage of stock which, if demand is high, translates to higher prices for existing stock.
As sales records topple, vendors are slowly but surely coming to the realisation that it’s a good time to sell. And between listening to the media and their local real estate agent, they’ve locked in some sky-high price expectations.
Yet by the time the latecomers finally get their property listed, the market has actually cooled, and their magic number is well behind the market. These vendors have a tendency to overshoot reality, and they’re so stuck on their top-of-the-market valuation they can barely contemplate a lower sale price.
And that, folks, is when you should come knocking…
This is one of those classic win-win scenarios we often talk about at PDN.
When we’re looking to do a low or no-money-down deal, there are two levers we can pull: time and risk. In this instance, we can use time to add value to a property.
The vendor is looking for top dollar for their property, even though the market has clearly come off the boil. They want to hold onto that price point they arrived at when the media hype was in full swing because “my house is still worth all this money”. Clearly it’s not, but we can use the terms of sale to prop up the price.
When the market is starting to boom, nobody wants to agree to unusual terms of sale. Every agent and every vendor wants a quick settlement. But when the market is going the other way they’ll do anything to get the market-high price.
And that’s where we want to take advantage of that psyche.
If a vendor will give us time, allowing us to work on our development deal without paying holding costs, we’ll give them their dream price.
I’ve just spent two years negotiating this kind of deal through a rollercoaster market. In that two years, the market has gone up and come down more than once. The vendor’s expectations were greedy right from the start, yet the market wasn’t there. Then the market started to move favourably in their direction and they said “See, we were right! Our property is worth these big dollars!”
But finally the market hit its peak and started to turn and they were desperate to hold onto those big dollars. I had been checking in with them periodically to see if they were ready to sell, but it took that whole two years and a flattening of the market before the vendor decided to get on board.
I negotiated an 18 month option with a six month settlement, giving me two years’ worth of control of that property to get all my building contracts and finance organised.
My offer was based on where I think the price point for that property will be in two years time, rather than where it is now. I factored in holding cost savings in that timeframe, any elements of risk saving, and because of the option I’ve got in place I’ve given myself the ability to walk away from the deal if it doesn’t add up in those first 18 months.
This is a classic “low money down” deal, where I only pay a relatively small sum for the option, and if I exercise that option, I’ll pay a deposit on the property.
So it’s all about timing…
Keep an eye open for when prices are coming off the peak and the expert market commentary is starting to predict the peak has occurred. The media jump in with “Oh my god the sky is falling” headlines. You want to be using the market commentary in your favour to justify your positioning statements with the vendor, your conversations about how the market is starting to come off the boil.
Of course quite often you position it and the vendor doesn’t believe you straight up. They go ahead and put their property on the market with a market peak price and it doesn’t sell.
Then they get desperate. It’s the classic combination of fears, pain and desire. You’re playing on their fear of losing the price they want for their property.
Your job is to raise the fear, agitate the fear, then become the antidote to the fear.
It’s important to be really good with your body language, and to get them to talk more than you talk.
Get them to highlight the headlines by asking them questions: “Have you seen the latest news on the property market?”
See if you can find out what their source of truth is – where they get their property market news – and pull stories from that… “Did you see the story on such and such?”
Quite often I might walk into a meeting with a compendium and a laptop. I won’t pull it out to begin with, but in conversation I might gesture towards it, indicating I’ve done the research.
At some point an opportunity might arise to say “Do you want me to show you some of the things I’m talking about?” What you’re looking for is their invitation to share what you’ve learned.
As always in the development game, it’s about understanding a vendor’s needs and drivers. That’s always the baseline sitting underneath our negotiations. Quite often their greed gland is more powerful than anything else. If you identify that as their primary driver, you can squeeze that pretty hard: “I can get you the price you want if…”
If they want the high price point, they need to give you the time to make that happen.
It always comes back to two pathways:
- your terms and my price or
- your price on my terms.
The bottom line?
The best time to do low or no-money-down deals is when the market has peaked and prices have started to wobble and drop. This is the perfect time to negotiate a win-win for both you and the vendor.
