We were recently helping a developer purchase a 4 townhouse development project in Melbourne that was half-way through construction. The builder of the project had gone into liquidation leaving the vendor without a builder. Without a builder and the funds to complete the project he had the build up on the market for a developer to take over. The project was priced at $2.0M.
Our client had gone and done his due diligence and only put an offer of $1.7M on the project – significantly lower than the asking price. Neither myself or my client had any intention that this offer would be accepted by the vendor. The crazy part – the vendor came back. It turns out that other offers were made at the price of $1.9M – $2.0M but on a 12 month settlement period whereas out client could settle within 1 month.
Thinking from the vendor’s point of view he would need to consider
- Holding cost to keep the property for an extra 12 months
- Risk of the deal not settling in 12 months
- Opportunity cost for not having the funds from the sale of the property to put towards other investment properties
All things considered, an offer of $1.7M with a 1 month settlement period is still better than an offer of $2.0M on a 12 month settlement period.
Our client did have to enter a negotiation phase but it goes to show that it is not always the highest price that wins. It always pays to find out why the vendor is selling the property and to see if, in your offer, you can provide a solution to why they are selling the property which would help your offer stand out.
