How to Negotiate the Best Property Deal You Can
Knowledge is power. Why? Because you need to understand property pricing before you can put in a realistic offer.
Off-plan and new builds
Land, build costs and profit margin are the main elements that go into the pricing of a development and determine the cost of off-plan and new builds.
Build costs can fluctuate dramatically, influenced by the price of raw materials such as bricks, roof tiles, timber, insulation – the list goes on. When the cost of these products is high, then so are building costs.
Then there’s labour. As the demand for skilled labour increases, so do wages. Therefore, the cost of employing building workers gets higher. Developers have to take labour and material expenditure into consideration when calculating the value of finished properties.
As a property investor, you should know why pricing is set at a certain level and how much scope there is for negotiation.
Don’t make an offer that’s too low
You need to be realistic about the price you offer. A low offer is usually anything that’s 25% less than the asking price.
But if you’re looking at off-plan and new build properties, a developer’s profit margin is often around a third of the price of the home. You should factor this in when negotiating as the developer needs to make a profit.
However, developers will want to sell their properties promptly, and if there’s little demand, you could negotiate a good deal. But if there’s plenty of interest, you’re going to have to put in a realistic offer to secure the property.
A random low offer is not going to be taken seriously. There has to be a valid reason for the advertised price to be reduced.
Planning and land prices
If you’re looking at negotiating a deal on land, then there are other factors that will come into play during negotiations. Chiefly, does the land have planning permission?
Sometimes hurdles such as the re-designation of industrial land must be overcome and, depending on the type of land, the process of gaining planning permission can be expensive.
Land without planning permission can stay unused for years, effectively nullifying any worth. But once planning permission has been granted, the land suddenly becomes a valuable asset.
Once you’re in possession of land that can be developed, you need to look at property prices in the area. How do these stack up against labour and material costs for building a new property?
When negotiating a price for a piece of land, the above factors are key to your profitability calculations.
Supply and demand
How much demand is there for property in the area you’re looking to buy or develop? Do people want to live there because of transport links, good schools or universities, or plenty of large businesses with good employment opportunities?
If there’s regeneration planned in the area and new investment in infrastructure, bringing with it the prospect of improved transport links or employment, then demand for property will start to rise.
Do your homework on current and potential future value before deciding on the price you feel comfortable offering.
Would you like to learn more about property investment?
At PMA we run a Mentoring Programme to show you how to invest in property as well as a range of courses aimed at beginners and seasoned property investors.
Keen to discover new property investment strategies?
Then register for our Introductory Property Foundations Course
3 Days and 12 Strategies
The Property Foundations course will help you understand the different property investment strategies you can use in today’s property market.
Dates: 20, 21 & 22 July 2018
Venue: Park Inn Hotel, Heathrow
Pre-register for your early-bird ticket here and receive up to 30% off