You've done the hard work - identified a site with potential, contacted the owner, and miracle of miracles - the holy grail. They responded and are keen to talk.

Cup of tea in hand, all the small talk done, they suddenly come out with the price they want for their property. Hopefully you manage not to spill your tea all over yourself, as it's clear they're aware the site has development potential and seem to think they deserve a large chunk of that potential profit.

Now what?

Well, you could calmly put down your cup and say "I'll be back in 6 months" and leave. I know I've been tempted to do exactly that!

Seriously, though, you still want the site, so it's worth taking the time to do some extra digging.

Keep Calm

First up, keep your cool. Getting angry isn't going to help build further rapport or solve anything, so don't go there.

And I get it. The media love to put the word "greedy" in front of the phrase "property developers". Most likely the vendor believes you're going to make squillions of dollars developing their site, and their own greed kicks in.

They do have a point - chances are you're willing to pay extra for their site because of the potential. You certainly wouldn't pay the same amount to Joe Blow next door who has a site half the size.

Staying calm and talking it through is the first step to a result that works for you.

Comparables

So now you're nice and calm, ask the question - "What have you based that price on?" If you're gritting your teeth as you speak, keep them hidden.

It's fairly common for them to say "oh, because John's place down the road sold for $x and mine is bigger, so it must be worth more."

Now, you've all heard me talk about the importance of being an Area Expert, and this is a moment when all that research comes into play.

Because you've already seen the sale price for John's place, and you know the reasons WHY it fetched a premium price. It could be it was in a zone that allows higher density, or it doesn't have a particular overlay - the list goes on.

The conversation can now go in two main directions. Both of those paths start by you explaining the reasons why John's place sold for what it did, and that those reasons don't apply to their site.

And that's when things will diverge. First option is that they ignore what you've said, and stick to their price. At that point, they're basically just making it up and you're flogging a dead horse (figure of speech - I love horses!).

So say thanks for the cuppa, and it's probably time for the "I'll touch base in 6 months" line, just in case they get realistic by then.

Educate Them

The second option is to educate them. In real estate speak, this might also be called "conditioning" them.

Essentially what you're aiming to do is help them to understand market realities, hopefully leading to an outcome where they lower their asking price.

Real estate agents do this regularly. They know they need to pitch a high price to the vendor in order to win the listing, and once the listing is secured, they start showing the vendor evidence for why they should accept a lower price.

Let me be clear - DO NOT pressure the vendor in any way, shape or form. There's a good reason why a lot of people don't trust real estate agents, so the last thing you want to do is coming across as pushy or manipulative.

Also keep in mind that you don't have to do all of this in one meeting. If you're having a cuppa with them today but know you need more information, say so, and set a date for another meeting.

Comparables are always a good place to start, so have them either printed out or on a laptop. These should be both for the site as it currently is, and the potential end product.

Next, start talking about numbers. How deep you go on this may depend on their level of interest and knowledge. As a bare minimum, give them likely sales at the end, then subtract costs and profit, with the end number being how much the site is worth.

Again, if they're interested, you can certainly break down the costs into more detail. I find asking questions is often a good way to manage this conversation.

For example, I would ask "how much do you think it will cost to build 2 townhouses?" They might say $200k each, at which point you can say what the realistic cost is. Again, break it down further if they need you to. Sites like BMT Quantity Surveyors have approximate build rates for all sorts of different products, so you can refer them somewhere like that to verify your numbers.

There are also plenty of costs they've probably never even considered. Finance, for one. How much will you borrow? What are current interest rates? How much interest will you have to pay?

It's important to stay calm and polite throughout this process. If you start to sound condescending or pushy then you'll lose their trust and can forget about building rapport.

The bottom line is to be prepared. The more you know, the easier it will be to discuss their ideas and potentially debunk them. But always keep in mind that this only works if they're open to it. If it becomes clear they're not, back to option 1.

I'm a big believer in keeping doors open for as long as possible, so don't get hit with a high price and give up. Take the time to work out why they're asking for that price, and patiently educate them about the real numbers.

Maybe the approach I've outlined won't help a lot of the time, but every now and then you'll work with a vendor who does get what you're saying and bring down their expectations.

Also, keep in mind that there's two parts to a property purchase - price and terms. But that's a topic for another article! Happy negotiating.