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Top 5 Tips on Negotiating Your Commercial Real Estate Purchase

Most people consider commercial real estate investments and negotiating for property to be tricky business.

So you’ve started your own business and are looking to buy a decent office space at a reasonable price?

I’m sure you would agree if I said that there are very few things that feel better than earning a great bargain. And if that bargain involves landing a hot piece of real estate at a posh location at rock-bottom price, you’ll surely be in seventh heaven.

The trick to bagging a great deal lies in the art of negotiating. Of course, there is a world of a difference between negotiation and effective negotiation.

Most people consider real estate investments and negotiating for property, especially a commercial one, to be tricky business. That’s usually because there is so much to consider.

Factors such as the selling and the market price of the asset, the tenancy, the leasing terms and so on, would make anyone nervous about proceeding ahead. However, you can turn all these elements into opportunities to negotiate a better deal.

This post presents a few tips on the things to consider when working through the complicated web of negotiations and using them to achieve not only a lower price, but also better purchase terms.

  1. Be Aware of the Current Market Trends

Staying abreast of the current local market will make you confident when meeting with the seller/developer. Before you take him to the negotiating table, do a thorough research of the market trends by scanning through similar properties in the area and finding out their prices.

You should also be aware of the period for which the property has been up for sale. If office spaces within a commercial project have remained unsold for a prolonged period of time, the builder will be keen to strike a deal.

Do not be in a hurry and analyze the prices well. Find out what the initial price was and enquire about the current price trends from local brokers, who will be able to give you an idea of how much you can get knocked off. Getting in touch with an existing customer of the builder should get you the real picture of what you can expect from the builder.

Remember, knowledge of the cash-flow situation of the builder as well as the numbers of pending units are the two factors that can play a major role in the negotiation process. Developers who are cash-strapped and have a large unsold inventory will prefer to make the sale to generate cash.

  1. Making an Offer

Developers tend to offer discounts only when they feel that the buyer is serious. Hence, once you get an idea of the discount, make an offer and let him know that you’re looking to buy quickly.

Spare some time to check out other similar properties in the locality and let their developers know you’re looking to buy and will close if you get a good deal so they can offer you their best prices.

Once you’re equipped with the quotes, let the developers know your offer. Make it known to them even if you aren’t sure of its acceptance. Some developers refrain from beginning the negotiation till customers give an offer.

If the sales figures in the area have been heading south and there are large number of available and unsold properties, bring it to the developer’s notice. Selling at lower prices can work in his favor as it will save him the funding cost and procure cash for new projects.

  1. Money Talks

Developers are more responsive to those who can convince them that the cash to buy the property is ready and an upfront payment can be expected.

It makes sense to go for a pre-approved loan and show the related documents to the developer to prove that you’re serious about the deal, which will make him pro-negotiation.

Additionally, if you have excess funds to make a down payment, you can do so and negotiate for further price reductions.

  1. Using Arbitrators

If you feel you haven’t been able to do enough research, or are not sure about the trends in the property market and the projects in your preferred area, you can take the help of a real estate broker. A good broker can crack the deal for you, but his services will come at a cost, which makes it all the more important for him to add value to the buying process.

However, even when approaching developers through brokers, do make it a point to do your homework and price enquiries. This way you can be sure that the broker is working with your best interests in mind, instead of trying to earn a fat commission by quoting higher.

You can also look up a few property websites and check out the packages on offer by several builders, which may include a discount. However, more often than not, such packages do not offer room for further negotiation.

You could also consider combining forces with other prospective buyers as that will help you negotiate better.

  1. Offer a Realistic Price

Whichever method you choose to bring the seller to the table, do negotiate for a rational and realistic price. While they will be willing to negotiate with you, they will not reduce the prices below a certain point. In fact, they’re more likely to offer incentives such as free club memberships, or family trips, etc.

Most developers do not like to bargain, so be prepared to put forth all your points in a single offer and place the ball in their court. If they do not reduce the prices, let them know you will take some time to evaluate their offer and then decide.

Do not rush into the best deal offered to you. Wait for a week or two and don’t be surprised if you hear from developers keen on closing the deal at your price or a mutually agreed-upon lower price.

Conclusion

Buying real estate may be one of the biggest financial commitments you will make. It is, therefore, important for you to fortify your position and have the upper hand in the buying process. This can be done through negotiation. Having strong negotiation skills and using them tactfully can go a long way in helping you secure a property in a way that is more feasible for you, which will not only save you money upfront, but the consequent interest payments as well.

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