So you’ve been meaning to purchase property for some time and now that you are ready to take the leap, you have started asking around for offers and leafing through advertisements. You finally find a piece of real estate that interests you, but the asking price is too high. Since you are really keen on acquiring the property, you decide to try and negotiate the price with seller or his agents.
Mr Martin Cheboror, a registered valuer at Icon Valuers who has participated in many such negotiations, describes the sittings as “charged meetings where the representatives from both sides work hard to unnerve each other.”
Negotiation skills, Mr Cheboror says, are perhaps the most important skills in the entire buying process. “Developing strong negotiation skills will help you buy the property for far much less than what was advertised, saving you money that could add up to millions of shillings,” he adds.
Meanwhile, Mr Charles Kibura, a seasoned property marketer who has closed numerous real estate deals, likens buying property to purchasing mitumba (second-hand clothes) at Nairobi’s Gikomba open-air market.
“The seller always expects you to negotiate, and it is, therefore, an absolute must,” says Mr Kibura, a trained accountant with a career spanning more than two decades who is currently selling the Mt Kenya Kenya Holiday Homes in Nanyuki.
Both Mr Cheboror and Mr Kibura agree that before one commits to buying property, they should arm themselves with loads of information, not only about the property they are interested in buying, but of the entire property market as well.
“Information is power,” Cheboror asserts, adding that in any negotiation, the party with the most information will always walk away with the better result.
AVOID URBAN MARKET
Noting that the property scene is constantly changing, Mr Kibura points out that buyers looking for the best deals should learn to gauge the market and determine whether it is a buyer’s market or a seller’s market. A buyer’s market is one that benefits buyers because at this time, they are spoilt for choice since the property supply exceeds the number of willing buyers. Meanwhile, a seller’s market, drives up prices because property is scarce but there are many buyers.
“For good deals, buyers should learn to avoid markets in urban areas and try to get property in areas that are deemed less favourable. This automatically gives them huge leverage to negotiate for prices that are way below the advertised price,” says Mr Kibura.
“The ability of a buyer to identify a good deal all boils down to doing their homework,” Mr Cheboror says, adding that buyers should endeavour to find out the prices of similar property in the neighbourhood as part of their due diligence. When looking for property to buy, knowing how similar property transacted in, say the past year, will give you an idea of how much you should pay for the property in question. A good way of identifying the average sales prices is to visit and inspect as many houses as you can before you make your offer. Having this knowledge at your fingertips, Cheboror says, will not only give you an upper hand during the negotiation, but will also enable you to feel more confident throughout the entire process.
“Never base your offer on the asking price,” he cautions. Instead, once you identify a property you are interested in, get a professional real estate valuer, who will accurately determine the property’s true market value. Mr Cheboror says that many sellers usually exaggerate the prices of their property when making an offer, hoping to land gullible buyers.
When a buyer involves an independent valuer, the valuer usually carries out a comparative market analysis to deduce the property’s market value since they have access to detailed sales data in your chosen area. “While negotiating, take care not to promise to pay more than 10 per cent of the property value,” he adds. Allowing the valuer to negotiate on your behalf can also help you avoid spending too much.
Putting your finances in order before embarking on a property search will benefit you a great deal. Mr Kibura reveals that sellers react more favourably to clients who show signs of sealing the deal immediately the terms are agreed on. “If you have the ability to buy cash, you can use that to negotiate for huge discount margins. Sellers are weary of dealing with customers who promise to pay in instalments as these deals have a way of falling through before the seller has recovered all their money,” the marketer says.
He gives as an example a scenario in which a seller who has just put his property in the market for Sh30 million. If the seller gets two offers, one for 27 million in cash and another one for Sh30 million in instalments, he or she will most likely go for the cash offer. ‘A bird in hand’, it is said, ‘is worth two in the bush’”.
URGE TO UNLOCK
If you are planning to get mortgage or secured financing to fund the purchase, you would be advised to consult the bank before beginning the negotiations. The bank will advise you on your upper credit limit, which will help you determine your budget.
And if you’re a seller, your offer is much less persuasive if it doesn’t include a mortgage pre approval. “When customers come to buy a house from me and their financing is already pre approved, I tend to sell to them at comparatively lower prices because I am assured they will be able to get the purchase through smoothly and swiftly. Some clients have committed to buying homes, only to pull out later because their banks denied them financing,” narrates Mr Kibura.
Though Mr Cheboror supports the idea of finding out your mortgage limit before beginning negotiations, the valuer cautions against disclosing your borrowing capacity to the seller.
“If someone is selling a house for Sh10 million and you naïvely reveal to them that your bank can lend you only Sh8 million, they will certainly insist on selling you the home at no less than Sh8 million. However, if you keep them guessing, you will be in a position to negotiate the price downwards, possibly to Sh7 million shillings or even less,” he offers.
Saying that buying a house off-plan offers the best value for money, Mr Kibura has some tips for home-buyers who want to buy from companies that undertake large housing projects featuring multiple homes: “Your capacity to negotiate depends on the stage that the project is in,” he offers, adding that during the early stages of a project, developers are usually driven by an ‘urge to unlock’ capital to finance the rest of the development”.
This “urge to unlock” makes them willing to sell their property for less than the asking price in order to attract many initial buyers. A buyer has more leeway to negotiate for low prices during the early stages of the project’s development since the seller is desperate to repay the loans he or she took so that he or she can begin the project on time as well as raise cash for the continuation of the project.
It is important to note that the ability to separate your emotions from the property during the negotiation will go a long way in ensuring that you are less susceptible to being coerced to pay more than the property is actually worth.
“If you fall in love with a property, keep your feelings in check and do not let the seller know that your heart is stolen. If you are over-eager and even start making plans how you will use the property, the seller will interpret it as a sign that you are willing to pay more,” observes Mr Cheboror. Therefore, it is prudent to play it cool and give the seller the impression that you are considering several other properties too.
ART OF THE DEAL
“Once you have settled on the ideal property, you should endeavour to know all you can about the seller as this information will help you when tailoring your offer,” says Mr Kibura. Understanding the owner’s reason for selling will help you put together a better negotiation strategy. Are they selling because they have just acquired a Green Card and need to relocate abroad by the end of the month? Is there a divorce involved? Or is the seller a seasoned developer who trades in property for a living?
When making your initial offer, it might be tempting to quote a ridiculously low price and hope the seller will be desperate enough to seal the deal. While this strategy might work, Mr Kibura strongly discourages using it. “No developer reacts favourably when a potential buyer opens the negotiation by quoting an unrealistically low figure. People with a habit of making very low offers usually learn their lesson after they discover they’ve missed out on several good deals. If you want to be treated with the respect accorded to serious buyers, it is best to start by quoting about 15 per cent below the property’s market value,” the s marketer says.
When presenting your offer, Mr Cheboror advises, you should avoid presenting neatly rounded figures such as Sh500,000, Sh2,000,000 or Sh100,000. An offer of a number such as Sh2,005,700 or Sh555,000 looks more thought-out and conveys the message to seller that you have pushed yourself to the limit.
Keep your pride at bay during negotiations and avoid hard-line stances. In most cases, Mr Cheboror notes, the seller’s sense of pride will also be high and refusing to meet him at-least halfway will only leave you aggravated.
“While negotiating, it is a good idea to always keep the process moving, even if you’re offering only Sh10,000 more. I have seen multi-million-shilling deals collapse just because the buyer could not swallow their pride and add an extra Sh100,000. Declaring that you won’t adjust your offer will only put your purchase at risk,” the valuer explains. Mr Cheboror likens property owners to potential dating partners, who just want to make you feel like you’ve worked hard to acquire the property.
Even if you and the seller do not see eye to eye at the end of the day, all is not lost and the deal can still be saved. Suggest to the seller that you might consider putting up more money if they are willing to include house appliances (such as a cooker or fridge) and fixtures (carpets and curtains) in the deal.
Mr Kibura suggests that you get a registered professional to carry out an inspection of the property so that they can identify any defects within the structure. You can then use these defects to demand a lower price, saying that the additional costs would have gone towards renovation. Another gambit would be to ask the seller to include a home warranty into the deal such that, if any damages were to occur within, say three years from the sale, the seller would be liable to replace or repair them.
Mr Cheboror says that, from his many years’ experience, he has seen that sometimes tensions pile up on both parties and emotions can get high during the negotiation.
“Remain polite and calm at all times,” he advises, explaining that getting irritated will only alienate you further. At the end of the day, negotiation is a two-way street and both the buyer and the seller need to come out of the transaction feeling happy with the outcome,” he adds.
In the end some deals may fall through. “Not every deal is worth trying to save,” Mr Cheboror says from his office at Fortis Towers in Westlands.
But just as important as learning how to negotiate is knowing when to walk away from a deal and continuing the hunt for property elsewhere.
Tips to help you avoid burning your fingers
Familiarise yourself with the property market
Find out whether it is a buyer’s or seller’s market
Avoid urban markets, if possible
Find out the prices of similar property in the area
Don’t base your offer on the asking price
Get a professional to help you determine the real value of the property