Friday, 31 May 2013
b.Contract - The Art of Bargaining
It is very typical for seller to mark up a little just in case the buyer bargains. In order not to lose the deal, the seller normally gives in a little and closes the deal as if you as a buyer having made some in-routes into some discounts by bargaining.
Supermarts also resort to periodic discounts to lure customers. No choice. In the east, bargaining has become a way of life. But, in the west, this is not as common. Hence, the great opportunity to make some great savings from bargaining, simply because the westerners are not as well-trained as the easterners.
Bargaining is uncomfortable. Hence, it has to be handled with great caution. One good thing that comes out from a good bargain is both seller and buyer must feel happy to get that deal. That way, the seller wouldn't back out last minute. The seller must feel painful enough not to back off and lose the deal. He has spent way too much time closing it. That way, the fall-off is a lot lesser. If you don't bargain and just take his asking price, you might not even get it as the owner might just back off thinking he has made a mistake in the asking price. He will then withdraw and come back with an even higher asking price. Stupidity! I know! I meant the buyer not the seller.
Contract 101 - The Art of Bargaining (for land deals only, I couldn't care less about other contracts)
Identify the land - Once identified, do look for a few more alternatives. You cannot be emotionally attached to the said land. I know you love that waterfall, river, mountain view, woods, animals, neighbours and so on. You will either die from heart-attack (normally very high stress during negotiations) or lose the deal if you are shown to be too eager. These contracts behave like gals. The gals love to chase. So let them.
Agent - Do not appoint your own buyer agent to do the contract for you. Seller agent hates to share his/her commission. So be brave, deal with the native agent alone. It is not usual for the buyer to pay any buyer's commission.
Approach - Approach the agent as if you are approaching a gal. Careful not to scare her away too soon. Nowadays, even better, the agents are normally gals too. So not much different from approach any new gal on the street. You have to be humble and smiling.
Humility - Gals hate poor bastards (I am using "gal" in place of the word "agent"). By being humble, you are showing that you are fucking poor. Being fuckening poor, she will not even reply your email enquiries or phone calls. This is good news. You will feel dejected and unwanted. This is normal, get use to that feeling. Contact her 4-5 times humbly. Show sincerity that you want to bid for that deal.
Money talks! - No matter how nasty the gal is. She needs to eat. The good thing about land deals is that the gal will get nothing if the deal is not closed. She will come around and start to talk to you about the contract.
Home work - Do you home work and find out all the transactions that happened around that area. Most of these valuations and transacted price information can be purchased online. These prices are normally VERY VERY VERY LOW compared to what the seller wants. Don't panic.
Offer - By this time, the agent would have spoken to you a little and asking for your identification. Ask her humbly for more information. She will definitely find you irritating and uselessly stupid. Don't feel bad, you are like a cheapo foreign trash in their eyes trying to rob their land. She will not respond anymore. That is when you deliver that offer-to-purchase. It is backed by the information you researched online and be brave - put that value as your offer-price. It is easily 25% - 60% from the selling price. Yes. You heard me right. I had offered 60% off the selling price before. But, because I backed this offer by attaching physical evidence of such value and pricing, the agent couldn't reject my offer as unreasonable. In fact, it made the seller looked real bad. It is as if the seller has been trying to sell his ware with a super-sized mark-up and con the agent in trying her luck. Such deals, the agent will know better not even bother to advertise and waste her limited valuable advertising resources. LOL.
New selling price - After the initial shock, the agent will come to her senses and realize that the seller is pulling a hard price. She will get back to the seller and try to lower his expectation. She will return to you with a lowered selling price (not much reduced though).
Ding-dong - In any contract negotiations, you have 3 reductions. Say, the first reduction is $100. You can counter by giving a $50-$100 increase. The second reduction from the seller would be around $50 (about half of the first reduction). You can counter by another $50 up. The 3rd reduction from the seller would be another $25. This is the limit the seller will go. You can never cross this 3rd time. If you try, you will sound unreasonable. It is better to just accept this 3rd reduction and give the seller face so that he can complete the deal. If you push further, you will lose the deal permanently. Even if you are willing to pay the full original asking price later, you will not get the deal. You have bruised the seller's ego. Selling land is a very emotional affair for the seller. If not for his desperation, he wouldn't have sold. So work hard but only for 3 reductions in total. Every time you are returning the new offer price, always quote reliable information for your continual low price. One possible way is to claim that you are a poor bastard.
Double agent - This is one of the most brilliant idea yet. The agent collects the commission from the seller. Hence, it is imperative for her to align her interest with that of the seller. She will be extremely rude to you. Be nice, don't fight back. Because you didn't engage any buyer agent, the commission she will get is double-strength. So it is in her interest to try to close the gap and hence, the deal. But, you are all reasonable and humble. You raised the buying price just little by little claiming that you are a poor bastard and the selling price is way too high compared to his neighbours and valuation. Since you have limited resources, you simply can't raise the bar too high, else the deal will be off. Soon enough in order to close the deal, the agent will double herself up as your buying agent and push all buttons to close the deal. She will sweet-talk or half-force the seller to be more "reasonable" with his selling price. She must feel that you had been extremely reasonable in your approach as you have supported each and every offer-price by physical evidence (Of cos choose those evidence that are extremely damning to the seller's unreasonable expectations). She has been marketing the land for more than 6 months already. She simply needs to get food into her own mouth. It is hard for her to get another cute guy like you for the deal. You have then successfully turned her into a turn-coat without her knowing.
Close case - Don't play with fire. Close the deal at the 3rd reduction from the seller.
Result - Typically I can achieve up to 10%-20% off the selling price. For land deals, this is big.
The Middle Rule - If the initial asking price is $X and your bidding price is $Y, then it is likely that you will close the deal at ($X+$Y)/2 if you press all the right buttons. So get the $Y as low as possible, you will get an even lower closing price. But, do be warned, you must support all offer-prices with physical evidence which is super easy to do. Communicate that to the agent, you will see magic on display.
NEVER - Always drag out the bargaining and/or buying process. Otherwise, you will face seller's remorse issue, i.e., the seller will back out of the deal half way through. Make the seller feels that he has struck a good bargain.
Good deal - Frankly the fact that you start the negotiation process is indication enough that the selling price is already super nice and reasonable, i.e., you can just take the asking price immediately. But, you can't do that due to possible seller's remorse. So be happy for any form of discount, you have already made your day by buying cheapest among all the lands for sale.
Backing off! - If you find the deal not to be too sweet, just back off gently. Remember always: It is better to lose opportunities than capital. Don't know who said that but it is an important guiding light when all deals are dim. Then restart by looking at other deals. As long as the capital stays with you, you are her ultimate sexy guy. Remember always: She can't eat without you.
Timing - Always pace the seller agent, if she answers in 1 day, do the same answer in 1 day. If she answers in a week, do the same answer in a week. Remember you are allowing the gal to chase you. You cannot apply haste.
Worked Example - As mentioned before, I have a guy trying his luck with native agent. The native agent was so nasty and warned the guy not to bargain too much. The guy just offered 10% down from the asking price. He got the deal after the seller returned with a 5% discount. The property market then went in for a further drop. He could have gotten the same deal but cheaper from the seller's other neighbours.
Caveat Emptor - For lowly priced land, this bargaining style may not worked so well. 50-50. But, since it is lowly priced, the possible error is also smaller.
Too many buyers - This is the same as "Backing off" option. Just back off, don't need to rush. There is always another land that has rivers, hills, waterfalls and birds. For those who has been to bank auctions, you would know that by having too many buyers, the auction bids become irrational. So be cunning and stay the fuck out.
To sum: It is important to close the case nicely by taking the price offered by the seller. That way the seller will not feel so bad. The deal will go through the legal process without him coming back to stop the case. To bargain is easy, but to bargain well without any backlash from the seller requires training. So practise hard.