How to Use Time to Your Favour When Negotiating

The heat has absolutely come out of the Melbourne housing market.

Dynamics between Sellers and Buyers have changed dramatically over the last 12 months. For much of the five years between 2012-2017, the dominant, underlying emotion at auctions and during private sale negotiations was one of fear - Buyers feared missing out. With price growth flat, and auction clearance rates lower than they have been for years, the tables have turned, and now it's the Sellers who are feeling a bit of fear.

For those who study and understand Melbourne real estate, these market dynamics will deliver great buying opportunities. Savvy developers with strong balance sheets are already capitalising...

I first saw this property when it hit the market in November 2017.

At first glance, an asking price of $3.0m for 3,057 square meters was about right for the suburb, but a closer look showed otherwise - awkward shape and slopes, potentially unusable portions of land, main road location, restrictive zoning, trees, etc. I saved it as a future prospect, but didn't spend any more time on it.

Fast forward 6 months to April this year, and I noticed that it had been re-advertised with a different agent. Interesting. I booked a private inspection with the new guy, walked the block, and talked a bit about real estate in general and the block specifically. As you'd expect, I broke the agent's balls a bit about price, with reference to all the issues listed above.

It was clear that the vendors hadn't yet moderated their price expectations much, but the agent was genuinely keen to get feedback with the aim of educating them. He wrote down my comments, and didn't baulk at my estimation of value around low $2m.

Do I want the Contract and Vendor Statement?

No thanks, not until the vendors show a genuine willingness to drop their price.

Well, what about putting in an offer and going from there?

No, I don't make offers lightly, and at this point, it's a waste of time really. Call me if it's still on the market in 4-6 weeks.

Time and Silence are important - but often overlooked - factors in effective negotiation.

After meeting the agent on-site, I rang the previous listing agent to get the low-down on his 6month campaign. Turns out there was a conditional offer accepted on the property at about $2.7m, but just before it became legally-binding, the Council applied a strict Vegetation Protection Overlay to the site which impacted potential design and yield. That offer was withdrawn, but not long after another buyer emerged at $2.4m. As a Deceased Estate sale, the beneficiaries didn't all agree, and after a few weeks of indecision, the offer was withdrawn. The agent departed shortly after.

With all this knowledge, and an intuition that a great deal could be on the cards, I ran the property through a preliminary feasibility, and saw good profits at a purchase price of $2.2m - $2.3m. Apart from making a couple of my clients aware of the property, I kept my counsel and refrained from future contact with the agent.

Five weeks to the day that I inspected, I got a text from the agent. Massive price price reduction! Vendors now asking $2.25m for all properties combined. Am I interested? Bloody oath!

Time cuts both ways in negotiations. A strategy to keep silent has to be coupled with a capacity to move very quickly when needed.

I quickly took measures of all significant trees and calculated their associated Protection Zones. I mocked up the below mud map to help confirm potential yield (e.g. number of properties that we could put on the site). I asked my Town Planner for advice. I met with Council to get their impression. I had my Arborist out to assess retention values of all trees. I spoke to a couple local agents to confirm estimated resale values. Etc. Etc.

The client I had in mind for this project had asked me to be a Joint Venture partner in any subsequent project he did (we've known each other for a while, and we have runs on the board together), and we were intending to purchase another property at auction in the coming weekend. Once I collated all info and advice, I sent him the final project feasibility, and we agreed it was a ripper.

Up to this point, I had a) used time to my advantage by waiting for the vendor to drop his price without my urging, and b) powered through a mountain of feasibility work in a very short period of time so that we were in a position to jump on a great opportunity before anyone else had a chance to.

Finally, I used time to apply maximum pressure in an aggressive negotiating strategy.

I wrote up an unconditional offer of $2.125m at 5pm on a Friday, with the following nasties:

We'd settle on the smaller of the 3 blocks in 60 days for $0.65m, but we'd need a 12-month settlement on the other 2 blocks for the remainder $1.475m.

The offer must be accepted in writing by 10am the following day, as we intended to bid at auction for another property.

The offer was accepted that same evening (we were ready to up it to $2.185m but didn't have to). In the week following, I've organised a land survey, an arborist report, and we're near to appointing a design team and town planner.

By capitalising on the changing market dynamics, and by using time to our advantage, we secured a property at a price 29% lower than the $3m price initially advertised, 21% lower than the first accepted offer, and 13% lower than the $2.4m the vendors should have agreed to just 3 months before. Several local agents I've since spoken to have confirmed that we got a tremendous deal.