How to Negotiate
When you buy real estate overseas, it's a lot like buying souvenirs at a local market;
negotiating is expected. The property price will go up if you appear too eager…unwittingly insult the vendor, and
the whole deal may be off.
I was reminded of this when I
was in Romania a few weeks ago. A developer I work with told me about a deal he helped put together…which he had to
watch fall apart. An Irish developer, the story goes, planning a project near Bucharest, was in the market for a
type of property (had been in the market for two years, in fact). My Romanian contact had found a suitable
property, and the price was right.
Since Romania became an EU
member, it has become an attractive market for real estate and property
Everything was set.
The Irish developer’s local contacts lined up a meeting between him and the land owner. Big mistake. I'm told the
"lieutenants" do the deals in Romania. Bringing in the final decision maker to meet the land owner wasn’t a good
Irish developers do
business in a different way to Romanian land owners.
This Irish developer
sat at the table, and said “I want the property and I’ll give you 30 million euro for it”. After all, that was the
asking price. But when he saw how eager our Irish friend was, the Romanian gentleman decided that 30 million euro
was no longer the price. The price, he calmly informed the room, was now higher. The Irish developer told the
Romanian land owner what to do with his higher price (in language nowhere near as polite as that) and stormed out
of the room.
Too much interest
inflates property price
Months of work went out the window in a matter of seconds
because of cultural differences. The Irish developer showed too much interest, and his normal business manner
caused him to lose the deal.
|In a hot market even
old houses can suddenly gain in selling price
if you show too much interest in the
property (Image by
The same thing can happen with
properties that cost far less than 30 million euro … especially in a hot market. You show too much interest and the
asking price can go up right in front of your eyes. Don’t show enough interest or try to keep the seller on the
hook, and someone else (with less sense) can come along and buy the property at an inflated
Whether or not you
pay an inflated price to make the deal will mostly depend on what the purpose of the purchase is--where does it
fall on the primary residence to pure investment continuum? Paying a premium for a property you like, a possible
primary residence, can make sense. But the closer it is to being a pure investment, the more you must assess
whether the appreciation will continue…or will the bubble burst.
negotiation on local property prices
Many buyers from
wealthy Western countries think property is cheap when they go into Third-World markets. They compare local prices
to Hometown, USA prices, and like the difference. What you should be thinking is how the local property price
compares to other local prices, and negotiate from there.
|When buying a property
overseas, check the local pricing competition first, even if all you're buying is an old country
house on a farm property
You should take the
time to do your due diligence on local pricing. There is nothing more irritating than to see a bunch of amateurs
coming into a market, bidding up prices because they have money and think they know what they are doing. With the
U.S. market looking a bit thin, developers are bouncing down to Latin America looking for land to develop. Many are
acting like the Irish guy did in Romania, i.e. coming down with a big ego and lots of cash. That is the worst
combination. Although they are professionals in their home state, they usually don’t know anything about the
country they land in. They are amateurs in a marketplace new to them.
Don’t act like an
amateur. Do your due diligence, pay attention, and don’t overpay just because the property price seems cheap to
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