Chapter 7: Successfully negotiating a dealApril 16, 2019 . Home buyer's education series . 10 min read
Scope for negotiation
The developers are experiencing a liquidity crunch. They are bending by accommodating customers with more discounts and attractive offers for negotiating a home deal. In the current market scenario, where there is more inventory than buyers, there is a room for more innovative negotiations such as flexible payment plans and freebies such as club memberships. Before starting a successful negotiation, it is advisable to do a background check on the developer. If the developer has enough number of buyers for his new project, then you can negotiate but up to a certain limit. The final discount, which you get might not be up to your expectations.
In order to successfully negotiate with the developer, our HomeCapital experts have put together a guide to help you with the process:
Thoroughly research the market
Knowledge of the local market will help you in negotiating with the developer in a smart manner. In order to successfully strike a deal, you should know the prices of similar properties in the area. You can gauge the property prices prevailing in the area of your interest through online property portals such as MagicBricks.com, Housing.com and CommonFloor.com among other portals. You should try to find out for how long the property has been up for sale. In case of a property that has been unsold for a long time, the developer will like to liquidate the property at terms that are favourable for you. In such a scenario, the two things that work in your favour are long unsold inventory and the developer’s level of indebtedness.
Understand price trends
To get a realistic picture of how much discount you can get, it is necessary to understand the price trends prevailing locally. You should compare the price of the property now to the price of the property during launch. Local brokers can also help you in understanding how the property prices have moved in the market and how much discount on the quote you can get. Anyone who has already purchased a house in the same project/area will tell you how much the property has appreciated and how much discount you can expect. You should be extra cautious in case of heavily discounted properties.
Place your offer
Now that you understand the prevailing market conditions and price trends, it is time for you to make an offer. Contact the developers of all the properties you are interested in and ask for a quote. You should let them know that you are a serious buyer and want to buy a home at the earliest. Let them know that you are looking for the best possible deals and discounts and are exploring all possible options with different builders. Once you have the quote, make an offer supportive of your market and price research. Liquidating inventory even at lesser prices helps them to save funding costs and get the much-needed cash. You can make an offer at a price that is 15% lower than the quoted price so that you can get a practical discount of 7% to 8%, which is a win-win situation for all.
Be cash ready for negotiating your home deal
Developers wish to sell their inventories as soon as possible. So, if you are cash- ready to make an ‘Advance Payment’ or pay the ‘Application Fee’, you can strike a good deal. For serious buyers, developers sometimes offer irresistible deals. You should keep your cheque book and/or pre-approved home loan documents ready in such a situation, as you will not be able to get the same deal again.
You should adopt a rational approach while negotiating with developers. You should understand that the developers might not lower prices below certain levels due to the costs involved and their own expectations of margins. Developers will also be mindful of their code of ethics as they do not want to give an impression that some customers are paying more and some are paying less. They are also averse to continuous bargaining. So, the buyers must consolidate all the negotiating points into a single offer.
Approach brokers/ agents
It is sometimes likely that some real estate brokers/agents might bring you excellent deals and discounts given their experience, knowledge and network in real estate. In such a case, the amount they charge as brokerage will make economic sense. Even if you decide to go with a broker you should do your own thorough research. If you do not do your research, it is likely that you will end up paying a higher commission in the form of a higher quote of the property. You should also only go with reputed and RERA compliant brokers.
Perform SWOT analysis
SWOT stands for Strength, Weakness, Opportunities & Threats. Before buying any property, you should analyse and note down, the Strengths, Weakness, Opportunities & Threats associated with any property. Such an analysis will help you in making your buying decision and enhance your negotiation skills especially while negotiating for the price. SWOT is an all-round analysis and will help you in making a particle decision.
Finally, you should understand that negotiating a home deal is different from bargaining and is intended to benefit both- the buyer and the seller of the property. In a successful negotiation, the buyer will be able to get the best price within his budget and seller would be able to make decent profits after all the deals and discounts in the favour of the buyer. To summarise, in order to successfully negotiate the deal, you should do your groundwork about the project, its developer, his overall credibility and track record of previous projects, the location and property prices in the vicinity and lastly the overall trends in the property market.
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