Real Estate Negotiation and Pricing: How to Tell When You Have A Good Deal and Should Close!

“Real estate is an imperishable asset, ever-increasing in value. It is the most solid security that human ingenuity has devised. It is the basis of all security and about the only indestructible security.” -Russell Sage

A deal is simply an agreement, usually commercial, entered into by two or more persons for the benefits of all the persons or parties to the agreement.  A deal is closed when the agreement is “signed and sealed”. A deal is also colloquially used to mean options of properties or other types of deals available for closure. Millions of property and other types of deals worth trillions of dollars are closed every day all around the world, oftentimes electronically, at the speed of light without parties even knowing each other or having any physical contact or signing or sealing any physical document. A transaction is deemed concluded when a deal is closed.

What is a Real Estate Deal?

“If you don’t own a home, buy one. If you own a home, buy another one. If you own two homes, buy a third.” -John Paulson

A property or real estate deal is a deal for the purchase or sale or lease or exchange or other forms of the transfer of interest in a piece of property or real estate. A property deal happens when the parties involved mutually consent, either in writing or otherwise, to the terms of the real estate deal. Usually, a real estate deal is closed by the physical meeting, signing and exchanges of documents. However, depending on the peculiar nature and dynamics of the specific real estate deal and the parties involved, it is also possible to close a real estate transaction electronically without any physical meeting of the parties or the signing of any physical document.

How to Make a Real Estate Deal?

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” -Franklin D. Roosevelt

To make a real estate deal, you must find one. You must be in the market for a deal to do a deal. The first step towards making a real estate deal is to decide what type of real estate or property you want to close a deal on. Even if you do not think about this in details, you must have a broad overview of the type of property you are in the market for. The more specific you are with this, the easier it is to find a deal and close one. If you have a broad non-specific range, you will spend a long time shopping for properties within that broad range without making up your mind on which to close on. Are you in the market for a commercial or residential or mixed-use property?  What is the purpose you want the property to serve? What type? What size? Where should it be located? What is the price range? What kind of title does it have? What should the physical state of the property be? Etc?

Once you have found a property that meets most of the parameters set for your decision (it may be impossible to find a property which meets the entirety of the details of your parameters. If it is close enough, move on to the next step), the next step is to engage the required professionals to carry out the required due diligence to certify the genuineness of the sale and the title of the seller of the property.

You will also need to negotiate the price of the property, make a deposit, if required, draw up necessary agreements, execute the agreements, make full payment, usually contemporaneously with the signing of the agreement; take possession, and apply it to the purpose for which the property was bought.

This is quite simple right? Not really!

What is a Bad Property Deal?

“The problem with real estate is that it’s local. You have to understand the local market.” -Robert Kiyosaki, founder of the Rich Dad Company

Oftentimes, it is not one particular factor that makes a property deal a bad one. It is usually a combination of factors such as the location of the property, the price paid for it, the physical situation of the property, the legal status of the property, the source and type of property advisories used, etc. All of the stated factors and more, either alone or in combination with one or more of them, could result in getting a bad property deal.

The first factor that people think about when the issue of a bad property deal arises is price. Price has been accorded the highest or the most important factor to consider in reaching the conclusion on whether a property deal is good or bad. Is price that important? While price is very important, it is not as important as location and title and sometimes even the physical state of the property and the suitability for purpose. The question of price should arise, but not as the first factor. So what is the order of importance in making a good property deal? Let’s look at it.

How to Make a Good Deal?

“Location, location, location.” -Bruce Ailion, Broker, Attorney RE/MAX Town and Country

The first point of call is purpose. Why am I buying this property?  Is it as investment or as a residence or as both?  Once you have answered this question, the next major factor to consider is the location of the property that is most suitable for the purpose of the property.

The location of a property is so important that it cannot be over emphasized. It affects everything else. No matter how beautiful a house is, and whatever the price may be, if the location is bad, nothing can be done about it. You can over pay for a house in a fantastic location and yet, it will appreciate and catch up with the price and even exceed it. You can buy a house in a totally run down state, but in a great location and then spend money to do it up to taste and class, you will still not lose money. You can even buy a house with an imperfect title and then proceed to perfect or cure the imperfection in the title of the house. What you cannot however do is to change the location of a house. You can’t move your house from a poor or bad location to a great one.

The next check is of course the title of the house. Does it belong to the person who has put it up for sale? Is there any problem with his title? Can the problem be solved? What is the cost implication of solving the problem? For more information on types of title, read up this write up on types of property titles in Lagos.

The last but not the least factor is price. After you have ticked off on the first three items, is the price of the property the going rate for similar properties in the same location?  To determine whether the price of a property in a particular location is high or not, you need to compare it with the SAME OR SIMILAR PROPERTY in the SAME LOCATION.  It is will be unfair to either the buyer or the seller to compare properties that are not of the same class or properties that are not in the same location. After a bit of haggling, a reasonable deal should be struck at the right time. This leads directly to the question: When is the right time to close?

Closure, When and How to Make it.

“The house you looked at today and wanted to think about until tomorrow may be the same house someone looked at yesterday and will buy today.” -Koki Adasi, Koki & Associates, Inc.

If you don’t close it, you don’t own it. Once you have negotiated a deal that meets most of the vital criteria set by you which include the purpose, the location, the title, and the price, the next step is to close.

Ignore your doubts. Ignore naysayers. Don’t get cold feet! Don’t second guess yourself. Move immediately to closure. It is when you close a deal that you own that precious piece of real estate.

You can barely go wrong if the purpose, location and title are right but the price is not. It is real estate! Once the location is right, the price can barely be wrong.  It goes without saying that properties in prime locations are usually “more expensive” than the same or similar properties in poor, bad or less-premium location. Price is often a function of the location of the property. If you are able to lock down a premium deal in a fantastic location, you are way better off than someone who buys the same or similar property at a far lower price in a bad, poor or less-premium location. If the location is wrong, the price cannot be right. But if the location is right, the price can hardly be wrong.   Even if you feel you “overpaid”, once you have done your price checks right and paid, it will always catch up and exceed the price paid.  Remember; only compare SAME class or type of PROPERTY and SAME LOCATION.  The location has to be right for this to happen. So what are you waiting for? Move in for the kill already!!!

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