Once you have found a property that meets your investment goals, it’s time to begin the negotiation process.
As with most things in life, there is no magic formula to follow. For example, you shouldn’t always start X% below the asking price and meet in the middle.
How you negotiate and how far below the asking price you end up paying will depend on a set of factors unique to each situation. And that’s where a set of strategies comes in handy.
1. Don’t think of negotiation as a zero-sum game
Like most other negotiations, bargaining to buy a property is not a zero sum game. It’s best not to start a negotiation process with a goal to “win” or “come out on top.” You’ll be more successful treating the process as a problem solving exercise. Take the emotion out of it and start by identifying the full range of items that can be negotiated. Your needs must be met for the transaction to move forward, but so do the sellers.
This doesn’t mean that you can’t get a great deal. You can. The trick is getting your great deal at the same time the seller is meeting his or her objective.
2. Make an offer based on fair value rather than the asking price
Most negotiations follow an offer / counter offer pattern. But the aim is not to meet at the middle. It’s not about splitting the difference. It’s to meet at, or ideally below, market value. Buying with a good level of discount means you are essentially securing equity on the purchase at the outset.
When you present your offer, don’t say that it is open to counter. But also don’t present it as your final offer. The first opens a door that may not need to be opened, and the second slams the door shut. Far better to say; “I’m prepared to pay X.”
If the seller responds to your initial offer with even a single change to the terms, this constitutes a counter-offer. Unless you are willing to accept all the terms of the counter-offer, you will need to respond with a counter-offer of your own. If you get to this point, things are going well, because the seller apparently considers you a viable prospective buyer.
If you don’t receive a counter offer, consider saying “I’m not that far from my top dollar.” This still leaves the amount you could move by unclear, but it’s a good way to encourage the seller to counter.
3. Negotiate in small steps
If your seller genuinely wishes to sell (and it’s no point working with a seller who doesn’t) it’s common for them to take less than what they think they will at the outset of the negotiation. They may not immediately meet your lower offer, but can be worked down slowly.
Your goal is to be the one who makes the final bid. So raise your offer in small steps. A helpful strategy is to raise your offer by smaller increments each time. Your tapering bids will train the vendor into realizing that you are coming closer to the end of your capacity to increase your offer.
Be prepared to make a considerable number of bids if the vendor is a long way from fair value. But know your maximum and don’t go over it.
4. Attach and then remove the “extras”
A useful strategy is to attach additional items to your offer that you can later release during the negotiation. Examples of items you could include in your offer at the outset could be a furniture package, a solar panel package, or home improvements such as a pool or repairs on the house if it is an older home. Choose items that it would be nice to get as part of the deal, but that you are prepared to give up.
This sets you up to be able to drop the items off the list as part of the negotiation, instead of having to move up in price.
5. Don’t give anything away for free
This is negotiation 101. The classic negotiation construction is to use an “If…Then” then statement.
- “If we close quickly then what is the least you will take”
- “If we take the property as-is then….”
- “If we pay all closing costs then…”
The terms of the closing are all negotiable, but in our experience a good way to get the best deal on a property is to put down a 10% deposit within 7 days of contract signing and offer a fast closing (e.g. 30 days).
If you are able to satisfy one of the seller’s secondary needs, this will give you additional leverage. Even if buying a property “as-is” is the standard approach – and it is the standard approach in Nicaragua – you can still make a point of mentioning it as part of your offer, and presenting it so that you can get something in return.
6. Include contingencies
A contingency is a provision written into a sales contract that allows you to keep your deposit and get out of purchasing the property if the contingency is not met. The most important contingency to include with purchasing property in Nicaragua is confirmation of good title by your real estate attorney. Your real estate agent should include this contingency as standard in all contracts of purchase and sale. Contingencies vary from sale to sale but other standard contingencies are payment of property taxes and utility costs by seller to date. Review all contingencies with your local real estate attorney.
If you are buying an off-plan property, where progressive payments are made to the seller against a construction schedule, the contract will need to include a series of additional clauses that protect you from project delays or disagreements about construction standards. Define exactly what will be completed at each payment phase. You’ll also want the contract written so that you can hold back some amount until the property is delivered in move in condition.
For more on contingencies and the legal aspects of buying property in Nicaragua have a listen to this interview with Eduardo Cabrales, real estate attorney with Garcia and Bodan.
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