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Clinching The Deal

Ritchie Clapson, co-founder of propertyCEO, comments

Why do some people struggle to find property development deals? It’s a question I hear from numerous new and aspiring developers, yet the reality is that it’s not particularly difficult, just laborious. You need to learn where to look and how to systemise your deal search. You also need to know how to work out your numbers accurately. Then, you simply rinse and repeat the process. Will you need to kiss a lot of frogs? Yes.

Will your prince or princess arrive one day? Absolutely. It’s a numbers game, but if it were easy, everyone would be a successful property developer. The reality is that too many people either ‘give development a go’ without bothering to get trained first (which is a bit like Russian roulette, except with more bullets) and/or they simply give up when the first few deals they look at online don’t seem to work out.

However, it’s often the back end of a deal where people miss the biggest trick. They may have found a deal, done their due diligence, and crunched some numbers. But the wheels come off the bus when they try and make an offer. So, what can be done to enhance your chances of getting an offer accepted, assuming you’re up against some healthy competition?

The first thing to recognise is that there are three ingredients to the cake when it comes to the anatomy of an offer, and they can apply whether you’re buying as a developer or simply purchasing your next home.

The first and most obvious of these is price. Money talks, and vendors will always be more inclined towards accepting a higher offer for obvious reasons. Yet there are situations where the highest offer doesn’t always win, which is where we come to the second ingredient, namely proceedability. No one can predict the future, but a vendor’s worst nightmare is when their flaky purchaser pulls out months down the line because they weren’t serious enough or didn’t know what they were doing. This is because they must then go right back to square one, put the property back on the market, and start the sales process all over again. So, a high offer from a flaky-looking buyer can often be trumped by a lower offer from a buyer who inspires greater confidence.

The third ingredient is rapport. This is the weakest element of the three, but buyers ignore it at their peril. The vendor ultimately chooses who they sell to, and property is very much a people business. So if you can make the vendor or their agent fall in love with you (ok, that may be a bit strong, but you know what I mean), you could still be the preferred bidder even if you haven’t made the highest offer.

Let’s now look at how you could influence the outcome in your favour, and we’ll start with price because it’s the most influential. It’s also a definitive yardstick; your proceedability will likely be a subjective assessment by the agent, but there’s no subjectivity when it comes to an offer; either you’re the highest bidder or you’re not. So, how do you get to offer the most cash? When it comes to development, the answer lies in what we call ‘sweating the asset’. 

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