Negotiating the price of commercial property can be a difficult and drawn out process, especially to first-time commercial real estate investors. Here are a few tips to follow:
Deciding on a Price
One tip to consider is that asking prices don’t necessarily reflect value. It is all about what someone is willing to pay. A prospective buyer may desire a property more than another would-be investor. This could motivate the more interested buyer to offer more than the asking price, in the case of a bidding war.
What is the ideal price to offer? For example, if the asking price of a property is $1 million, how should the buyer respond? The buyer should offer their best price – whatever amount they feel comfortable proposing should it be accepted the same day.
Expect Lots of “Back & Forth”
As a potential buyer of a property, you should be able to place yourself in the seller’s shoes. Establishing that an investor is serious, qualified and has the funds is a serious undertaking by the seller and agent. It takes time, patience and communication on behalf on every party involved. The buyer (and seller) must be prepared for the “back and forth” involved in acquiring a property. Buyers should be able to supply proof of funds to the seller. They should also be ready to hand over “good faith money,” a deposit to prove they are serious prospects. Buyers should conduct their due diligence, but must be realistic about how long it’s going to take.
Ask for Concessions when Necessary
You should ask for concessions when a property’s characteristics are not as advertised. The subject property’s HVAC system may not be working properly, or it may need an earthquake retrofit. Because the lack of such features has a negative effect on a property, you should expect to receive the concession or else, walk away from the deal.
Communication is Key
The mode of communication depends on what is being done. For instance, all contractual dealings should be done via email, as it is an easy way to record dialogue. Save or archive all emails of a property you are dealing with in a specially made folder. It will be a breeze to retrieve written communication if and when an issue comes up.
Know the Seller’s Motivations
As a potential buyer, you must know what is motivating the seller to say goodbye to their property. Speaking with the seller is a good start. By knowing what the rationale is to selling, you may gain an advantage when it comes to negotiating. If a seller appears to be desperate and wants to close ASAP, you may offer a lower price than you otherwise might have given.