Negotiating win-win real estate deals (1

Abiodun Doherty
| credits: File

Real estate is a people business and whenever human beings interact they consciously or unconsciously engage in negotiation.

 Although this often involves simple issues, at times the stakes could be high.

Understanding the basic principles regarding negotiating real estate deals will stand you in good stead as it could determine whether you buy a property for more or less than the actual market value.

 In real estate transactions several areas of negotiation will surface. Such as what price to pay for a property, when to pay (in full or installments), mortgage terms, agency fees, legal fees, possession issues and several others that involves different individuals or organisations.

 Negotiation can simply be defined as a series of discussion between two or more people aimed at reaching an understanding on an issue. A more common variant of the word is “Bargaining.”

Negotiation is not an end but a means to an end – it involves a process and an outcome. The outcome could be WIN/LOSE. This occurs where one of the parties is happy with the deal but the other party is not satisfied with the outcome. It could be a ‘No Deal’, where both parties refuse to reach a compromise and thus call off the transaction.

  Also, negotiation could result in a win–win deal where both parties are satisfied that their goal has been achieved in a mutually satisfying way. This is what experienced investors seek to achieve and the reason is not far-fetched.

 When you engage in win–win deals you increase the circle of people who are interested in doing business with you and ultimately make more money due to more people bringing information to you on great opportunities.

Negotiation always takes place within a context and an understanding of the prevailing real estate climate at the time is important to your success in negotiating a Win/Win deal. In real estate, the general climate could be a buyer’s market or a seller’s market or a neutral market.

When the economy of a country is stable the real estate market will be normal or neutral. Sale, purchase and rental or lease prices will be reasonable in percentage of annual or monthly appreciation.

But when the economy is waxing strong at a fast pace, foreign direct investment is increasing, jobs are being created and the stock market is doing well, you will have a seller’s market.

This means that property prices are appreciating at such a fast pace that those who have a property to sell or lease are the one’s calling the shots and are making good profits.

We have experienced this in Nigeria recently. As recent as seven years ago you could make as much as 20 per cent profit on a property less than one month after purchase.

During such periods some properties could be overpriced and still get sold because the economy is awash with money. This normally happens gradually over time then suddenly gains momentum, which will definitely not last forever.

Since everything usually goes in circle, there comes a time when every economy shows down. And sometimes the economy is suddenly hit by a global or national disaster or series of bad decisions in government or in the corporate world that negatively affects businesses and inevitably affects individuals.

When this happens, people and corporations will lose a lot of money, market shares will be depleted and cash flow will be affected. More often than not, both individuals and companies who have real estate assets in their bid to survive the economic onslaught will view it as a lifeline.

The only problem is that in a slow or busted economy more people want to sell than buy. This automatically creates a buyers’ market.

 This is a natural law of economics in operation – when supply is more than demand, price plummet.

Desperate sellers will drop prices of their properties to ridiculously low amount and buyers will have their pick among several good options.

 This is the time when cash is king and you will get several good deals at a discount.