One of things I love about the real estate game is that it is all about people. Sure, bricks and mortar are involved, but it is people who build, sell and buy property. Try as they might to remain unemotional, the fact is that very few people can be clear-headed, particularly when it comes to buying or selling their own home. This personal involvement intensifies if the property for sale has been lovingly renovated by its owners. Even investors can get very personal when it comes to choosing a property to add to their portfolio and selling it down the track.

So one thing to never lose sight of when negotiating on a property is that the owners are human beings with very real emotions and sometimes very irrational ideas on what their property is worth. Everybody loves a bargain when they buy but nobody wants to “give their property away”. Even in a forced sale situation, there is a difference between the seller walking away feeling resolved about taking a loss over them leaving the deal feeling fleeced.

It is crucial when negotiating to understand the concept of win-win. This means that both parties come away from the negotiating table with the feeling that they have achieved something. If a deal is struck, the buyer gets to buy the property, which is an obvious win for them. Ideally the purchaser feels like they paid a fair price and the seller feels like they achieved a fair price. But is is not always possible, particularly if the vendor’s expectations are too high or if the market has dropped since they purchased the property.

In a sellers market, the buyer may be the one to feel remorse after paying “too much”. But in a buyers market the person who takes the hit is the owner. And if you expect somebody to take less than they want for their home, you will be more likely to achieve a favourable outcome if you haven’t insulted the vendor during the negotiation process.

There are so many ways to deliver an offer and buyers often forget life’s little niceties in this situation. How often have we met sellers who have been put offside by the manner in which the buyer has wielded their market power? And then they dig their heels in and refuse to negotiate further with that particular buyer. Or they drop their asking price to a more realistic level and find another buyer, who they favour over the first one, sometimes even at a lesser price.

I love the saying “honey attracts more flies than vinegar” and it certainly applies to property negotiation. How you deliver your offer can make the difference between acceptance and refusal. Show empathy for the owner who needs to take less if they want to sell, don’t be arrogant. Work with the selling agent to get them to prepare the vendor before delivering a low offer, give them some sort of advance notice so that the offer isn’t a rude shock. And if your offer is at market value, you will no doubt be able to get the agent on side. But if you insist on making an offer that is way below market value you run the risk of alienating both the agent and the seller, which greatly reduces your chance of getting any subsequent offers accepted even if you reach a fair price.

Regular readers of my blog will now that I often talk about getting the “ducks lined up” before making an offer on a property. We often see buyers making bids far to early in the process and long before they are in a position to sign a contract. But in the time it takes to complete the due diligence, it is important to employ some “pre-negotiation” tactics. Communicate with the agent and keep them posted on where you are up to in your own process. Don’t just go silent then turn up with a signed contract and expect everybody to jump for joy.

Just remember that you are dealing with people who have feelings and probably take the sale of their home very personally. Even if they have to take a dive on the eventual sale price, their half of the win-win equation will be knowing they got the best price that market was likely to offer, that their agent worked hard for them and that they can now move on with their lives.

I have a real issue with property spruikers claiming to know the next hot spot, the inference being that if you buy in these areas you will automatically be making a great investment decision. Particularly as there are so many would-be investors who are trying to identify the next big location in their hopes of striking real estate gold.

The thing that is so rarely talked about is risk. Now don’t get me wrong, there is a time and a place for taking risks in the hope of big capital gains. But this is the realm of serious investors who are educated and experienced (or pay for advice) and who already have substantial equity to back them up. It is not an investment strategy that we advise for first time investors or those with a large debt to equity ratio.

There are two main elements to capital growth. There is the location and there is the individual property. Many people providing property investment advice will focus on buying in the next hotspot to the point where the actual piece of real estate becomes secondary. In fact many of their clients purchase property sight unseen, with decisions made solely based on “the numbers”. We believe that this is the riskiest strategy of all as every suburb and town has a median growth rate, which means that 50% of properties in that area will under-perform. If you are not focused on the actual property and it’s attributes then you run a very real risk of missing out on the opportunity for good capital growth, let alone maximum returns.

The thing that I love about buying real estate is that on one hand it is so simple, the fundamental principals are pretty basic. But on the other hand it is a very complex game, largely because human beings are involved and we often have to be lay psychologists to make sense of it.

One of these fundamental principals applies to capital growth. It is this simple: for a property to grow in value above the median rate for the area it needs to appeal to buyers. So the key to capital growth is understanding what sells well. Brooke and I spent many years as selling agents, and we have stood at the front door of open houses and dealt with often brutal buyer feedback, or lack of feedback as the case may be. As a result we know what sort of property sells well. And we can see when there are simple ways to create buyer appeal as opposed to features that cannot be changed. And we can also see when buyers are being seduced by great presentation and overlook a property’s down-sides.

For this reason, when we are providing property investment advice to our clients, we firstly cast a fairly wide net in terms of location (within our preferred 10km radius of the CBD) and then actively seek the best opportunities within that area. And what makes a good opportunity comes down to the actual property and it’s future saleability.

There is little benefit in filling your head with statistics about projected population growth, infrastructure development, job creation projections etc in order to determine WHERE to buy if you make mistakes in choosing WHAT to buy.

Know your price before the auction. Don’t wait until the stress and pressure of the auction before making your mind up on what your bottom sale price or top dollar is.

If you are selling your property it is vital that you understand what it is worth. Sounds pretty basic, doesn’t it? But this is actually quite hard to do, especially as so many property owners get quite emotional when it comes to selling their home sweet home.

So how do you do it? Firstly, most people get a few agents in to give an appraisal. Each state has its own rules about the process the agent must go through to arrive at a suggested sale price. Fundamentally you can expect the agents to return with a list of comparable sales that demonstrate what they think your home is worth. But you need to remember that there is often an element of flattery in these comparisons, as the agent at this stage of the game is pitching for your business. So try to remain level headed as you consider these recent sales and whether you can truly expect something similar or better.

If you watch Selling Houses Australia, you will see that Andrew Winter takes his difficult vendors through a property that is currently for sale and competing with their home. This is an important part of understanding value as this is shining a spotlight on what buyers today are looking at right now, instead of concentrating on history. Most markets are pretty dynamic, so you need to get an understanding of the situation at the time you are planning to sell. Buyers usually have choice. Based on what else is available for them to buy, would they choose your home at that price?

Lastly, when determining what your property is worth, you need to listen to the feedback from buyers that are inspecting your property. Now, hopefully you have appointed a gun agent who has been able to attract a lot of buyers to the viewings. And this gun agent should have been able to press these people for their thoughts and also be able to read and interpret the non verbal communication. And then this gun agent should be communicating with through throughout the sales campaign so that you truly understand the positives and negatives of your property and how they impact on price. And through this process they should have been able to gain your trust and faith so that, come to the crunch, you will seek and heed their advice. Lastly, the gun agent will have been able to convert some of these buyers into red hot prospects, who are prepared to register and bid at your auction.

Now, whether you have twenty prospective bidders or only one, the principal is the same. Your clear understanding of what the property is worth will give you the confidence to know when you have achieved a good price or whether to pass it in and hold out for more dollars.

Where sellers often go wrong is when they set the reserve too high and they take too long to decide whether they will move from this figure. A successful auction relies on momentum and the decision on a bottom line sale price needs to be made ahead of time with a clear head, not in the middle of a stressful auction. Too often we see what could be a competitive auction stalls as the agent wrangles with the vendor to get the property put on the market. Which is great for us as buyers!

Likewise, when you go to bid at auction, you need to set your top dollar (or maximum bid) beforehand, with a clear head. You also need to know where this property sits in relation to the rest of the market. When you understand value, along with a premium that you are prepared to pay if this home uniquely suits your needs, you are less likely to get drawn into a foolish competition. We ask our clients to consider the level at which they are prepared to let another buyer have it. It is crucial that you know this figure ahead of time and make a commitment to yourself to stick to it!

On the flipside, if you are the only bidder prepared to make a bid, or the highest bidder on a property that has passed in, by understanding value you can confidently continue negotiations and know when a fair price has been reached, or when the vendor simply wants too much. Increasing your bid after an auction isn’t always a silly thing to do, particularly if you know that you are still way short of a fair price. By all means try for a bargain and take advantage of being in the box seat. But keep in mind that if you are way off the mark, and the owner does have a realistic price expectation, in all likelihood they will find another buyer before too long.

Whether you are a buyer or a seller, knowing the value of the property in question will enable you to confidently agree on a price, or know when it is wiser to let it go.