This article was first published in Australian Property Investor Magazine and is copyright and reproduced with their permission.
Frustrated with the lean pickings of suitable properties in the suburbs surrounding Brisbane, an investor decided to try his luck in some of the country areas in regions past Beaudesert.
He was surprised to find that owners of properties in these areas were becoming more accustomed to approaches from city buyers and were “playing hard to get”.
He found that after a number of attempts to buy properties in this country town, subject to due diligence or development application approval, he was unsuccessful.
He decided to take a more commercial approach and maximise his chances at securing the properties by offering to buy them on the basis of unconditional contracts. This would necessitate him making enquiries with the town planners at the local council to assess his prospects of attaining the development approval later.
He asked me whether I had any practical tips for him. I suggested he make a personal appointment to see the most senior town planner he could at the council, rather than make his enquiries over the phone.
In country areas a lot of decisions are made by the council officers (town planners) rather than the Councillors and it was important, I told him, that he got the most reliable advice on the day. I suggested he say something like this:
“I’m just a beginner and so that I don’t misunderstand you or misquote you, do you mind if I make notes of our meeting?”
When the meeting finished, I suggested he say “Now, I just want to check that I’ve got this right” and then read back the notes he’d taken to the town planner.
This simple procedure, I believe, reduces the risk of misinterpretation, or to put it politely, a “rubbery” interpretation by that officer later (or their manager) of what they’ve told you.
As I’ve said before, it isn’t the macro skills in life that are the most important for investors; it’s the micro skills.
Negotiating with people who aren’t sellers
A local solicitor (who wasn’t a property lawyer) approached me for some guidance about how to deal with a difficult situation.
He was attempting to buy a property in a country town with a seller who didn’t have the property listed for sale but was prepared to entertain an offer.
He’d submitted an offer of $220,000 and the owner told the real estate agent this was “not enough”.
The agent then suggested the owner make a counter offer and sign the contract for a higher price that would be acceptable to him.
“No way”, the seller said, “he’s come to me with this offer and it’s up to him to increase the offer. Just tell your buyer client that”, said the owner. “Come back with a higher offer and I’ll consider that.”
What should the prospective buyer do now?
Classic negotiating theory will tell you that he shouldn’t make another offer following a previous offer unless the other party has made some concession or counter offer.
My friend was prepared to make a small increase to his offer but didn’t want to fall into the ever increasing spiral downwards of making offer after offer without acceptance or counter offer by the seller, only to find that he eventually paid far too much for the property and gave away most of his profit.
My advice to him was that when he made his second offer, presuming the seller rejected it without making a counter offer, he should tell the agent to go back with his second offer and do his job. He should get the seller to make a counter offer, or otherwise withdraw his offer. To do anything else would see the seller eventually take advantage of him.
The only alternative was (if the agent was again unsuccessful in getting the seller to counter sign the contract) to withdraw from the process because while he was a “buyer”, the owner wasn’t yet a “seller”.
The owner hadn’t really decided to sell and was just playing around with him.
You’re wasting your time dealing with someone who isn’t a “seller”.
Vendor staying on in the property after settlement
An investor client called me after signing a contract to buy a residential investment property. After formation of the contract the seller had asked that the contract be varied to allow him to stay on for another four weeks (as a paying tenant) as he wanted to enjoy Christmas in what had been his family home for the past 20 years.
My client was inclined to agree to the request but sought my advice about the risk of doing so and how to document it.
The seller suggested there just be a swap of letters between the solicitors confirming that settlement would take place on the due date, but the seller would give vacant possession on the property to the buyer four weeks later.
The agent suggested they simply arrange for the seller to sign up under a standard residential tenancy lease (to commence on the date of settlement) for a period of four weeks at a weekly rental and without a bond.
My advice to my client was that the Residential Tenancies Act didn’t apply to an arrangement for a tenancy entered into as a term of a contract for the sale of residential property (this would be the effect of the exchange of letters between the solicitors).
In these circumstances, then, the transaction couldn’t be documented as a standard residential lease (and therefore be protected by all of the provisions of the Residential Tenancies Act). The parties therefore had to rely on the terms of the agreement between themselves evidenced by the exchange of letters between the solicitors.
In all of these circumstances I advised my client that it was an acceptable commercial risk to agree to the seller’s request as firstly, the arrangement was only for four weeks (and not months or years), and secondly, the reality was that the seller would be unlikely to damage the property during the four weeks as it had been his home for 20 years.
However, the swap of letters should still, I recommended, cover some important basic items, for example:
1) The seller was responsible to maintain and repair the property during his occupation, at his expense.
2) On vacating the premises the seller would, at his expense, have the property professionally cleaned, including a professional clean of the carpets.
3)All rent was to be paid in advance, that is, on settlement.
Should the seller pay a bond? Taking the circumstances into account, I believe this would be an insult to the seller, but this was another commercial decision for my investor client to make.
Rob Balanda is a partner in the Gold Coast based law firm MBA Lawyers. He is a highly regarded educator of property investors and estate agents and the author of the “Made Simple” series of books and Cd’s. www.mba-lawyers.com.au
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