Property Price is a bit subjective in nature. In the saturated markets, the property price band is very narrow for a particular area. On the other hand, in the upcoming areas the property price band is as wide as 25%. In most of the cases, a buyer is not able to judge correctly thus end up taking the wrong decision. In my opinion, it is more to do with perceived value. In Mumbai, the “West” side of western suburbs command a premium compared to the “East” Side. For example, The property price in Andheri (West) is high compared to Andheri (East). On the contrary, the rates in “East” side of Eastern Suburbs is higher compared to the “West” side. The rates in Chembur (East) command premium compared to Chembur (West).
To negotiate a property deal, It is imp to fix the floor price of the property. In layman term, the floor price is the lowest perceived price that a seller can accept. For good negotiations, keep in mind that any amount paid over and above floor price is the premium. For example, i concluded that floor price for a particular project is Rs 5000 psf. Finally, i closed the deal at Rs 5300 psf. It means i am paying a premium of Rs 300 psf for the property. Though there can be multiple reasons for this premium. My general observation is that people who are buying for self-occupancy tend to pay a high premium. On the other hand, property investor, buy near floor price :). In short, Floor price helps in informed decision making. As a thumb rule, you should always buy as an investor rather end user and overcome the fear of missing the bus.
As i shared in my previous post on property price trends that you cannot rely on online portals for floor price. It is advisable that a potential buyer should do a property search on his own. It helps him to know the ground realities thus better price negotiation. The people who buy after thorough research, their property price is near to floor price. On the other hand, NRI’s end up paying a heavy premium. NRI buyers are the darling of the builders. A builder knows that NRI buyers are not aware of the ground realities. With more spending power, they end up paying high property price as demanded by the builder. Typically, you can get a discount of up to 20% against the builder’s price if you buy resale under construction property.
Property Price – How to find out the Right Price of the Property
A million dollar question is how to find the right property price. The answer is situational in nature. I am listing down some of the tips and tricks that i suggest to my clients. Let’s check out
1. Pose as a Buyer and the Seller:
As i shared my previous posts that in most of the cases, real estate agents and brokers are channel partners of builders. Though they are best placed to provide correct info on property price but you cannot rely on them. Therefore to fix this problem, a potential buyer can do an independent research as a buyer and the seller. You can identify 10 brokers in a particular area and do a little survey. In front of 5 brokers, you should pose as a buyer and check the property price for purchase. Now approach rest 5 brokers as a dummy seller and check out how much price you will get for a similar property. Through this exercise, You will get Avg buying and Avg selling property price.
If the difference between average buying and average selling price is less than 5% then it means brokers are providing the right information to you. In case, the deviation is high then it means prices are skewed and you cannot trust the info shared by the brokers. Typically, brokers have the tendency to quote lower price to the seller and higher price to the buyer. Therefore, in this case, the average selling price will be a floor price for a potential buyer.
A word of caution on this point. The success of this exercise depends on the fact that brokers should perceive you as a serious buyer and a serious seller. These guys meet a lot of buyers/sellers daily. From body language, they can make out whether you are a serious buyer/seller. To arrive at logical and rational property price, it is imp to pose as a real buyer/seller.
2. Apartment Association Office:
Another reliable source of information on property price can be the office of apartment association. The office assistant knows in and out about the prevailing property price. In one of the instance, one of my clients was about to close a property deal for 75L. I suggested him to check with Apartment Association office. Though you will not get information easily from office assistant and need to find some trick. When my client checked, he was shocked to know that the last few transactions were closed at around 69L. Thus, my client renegotiated the deal with another seller and saved 6L.
It is advisable to find some reference/acquaintance in the same apartment and take internal help to complete this exercise.
3. Hit and Trial Methods:
There are some tried and tested hit and trial methods to check the property price. One of the methods is to quote unexpectedly low property price. In one of the case, a particular client was searching for property. He set his floor price at 52L. None of the above mentioned two techniques worked in his case. Secondly, the project was not so popular. Therefore, i suggested him to tell his broker that his friend bought a flat for 44L in the same apartment. It was sort of shock therapy for the broker. In the spur of the moment, the broker told that 44L is impossible. He further added that a deal at 48L is possible. Our job was done and i suggested my client to set the floor price at 48L. Finally, he closed the deal at 49L. The premium of 1L was paid for floor rise. He was happy to save 3L.
Another trick to know floor price is to play trump card of postponing the purchase decision. After doing initial research, you can tell a broker that you are postponing the decision. The reason being high price and you will wait for prices to cool down. At this point, broker/agent will tell you the floor price. For example, if you are getting quotes in the range of 75L to 80L. He will tell you that price cannot go below say 71L. Therefore, 71L will become a floor price for you.
4. Online Forums:
You may find a lot of online forums with discussion around a specific project or area. You should avoid forums specific to projects as those are dominated by agents and channel partners of builders. I found some selective forum discussions on specific areas rational and genuine. Though presence of agents cannot be ruled out from such forums. Area specific discussions take into account all the projects. The members share property price of various projects in the area. It also discusses the pros and cons of the area and projects in that area.
To get any valuable information from a forum, you need a lot of patience as most of the discussion is repetitive. You may need to go through 400-500 comments to get a single but useful piece of information. These forums are user driven therefore may not be 100% reliable but you can cherry pick the useful information. For example, on one of the forum, i found a dummy buyer who bought a property in a particular project at Rs 5000. Now he was trying to influence and convince potential buyers to buy at Rs 5000. After going through a couple of comments from this dummy buyer, i could make out that he is either an agent or employee of the builder. Therefore, you should go through these forums rationally and without any bias.
Words of Wisdom: To find a right floor price is an important step to initiate property negotiation. As i keep highlighting that if you are expecting good returns from property then property price point (purchase) is crucial. Similar to the stock market, the greed and fear play an imp role in a property transaction. If buyer fears missing the bus then he will pay a hefty premium on floor price. On the other hand, if the seller is under the influence of greed and keep property price unrealistically high then he may not be able to sell. It all depends on what is playing in the mind of a buyer and the seller. Property purchase is a mind game. Let me conclude with following four possible scenarios
(a) A fear in the mind of a buyer of losing out the deal and greed of a seller is the best scenario for a seller. The seller can fetch max property price in this case.
(b) The greed of a buyer to purchase at the lowest price and the fear of a seller to miss out the opportunity to sell is the best scenario for a buyer. The buyer can negotiate property price near floor price.
(c) If both the buyer and the seller are under fear of missing out the deal then whosoever hold the nerves WIN. In other words, the party with patience gets a good deal.
(d) If both are under greed i..e. the buyer want lowest purchase price and the seller want to sell at the highest price then the deal will never materialize.
As a buyer or seller, you may decide the applicable scenario in your case.
Copyright © Nitin Bhatia. All Rights Reserved.
Share this Post: