Negotiating a reduction after contract
When you place a property under contract subject to conditions, such as a ‘building and pest’ clause, most investors must be aware that should those investigations identify any problems, that you can renegotiate the price of your contract.
However, many who find themselves in this position have no idea of the best way to go about it.
The process itself is actually fairly straight forward and effectively involves two (and a half!) steps, although, there are a number of ‘tricks’ as well as ‘traps’ to each step. They could be the difference between a getting a reduction or no change in price.
So what are the two and a half steps?
The first step, once you've decided on how much of a reduction you want, is to make the written or verbal request along with a full explanation to the selling agent or seller (if buying direct).
You are telling them the discount that you are asking for, and providing an explanation as to why that discount is warranted.
For example, your building inspector has found costly faults with the building that weren't obvious at time of contract, this obviously has a financial effect on the price, which applied before this information was available.
The second step is to ask your solicitor to make the request formal, via a facsimile, to the seller's solicitor.
Step #2 ½:
The final half a step is to receive confirmation of acceptance or otherwise back from the seller's solicitor. This step may also involve a bit of negotiating back and forth.
There is no need to redraft the contract or insert anything new into the contract - the solicitors take care of ensuring the renegotiation is
You may be wondering why we bother with Step #1 if Step #2 is required to make it 'official'?
The answer is simple: your back story that you tell the selling agent gets conveyed to the seller, and hopefully makes your request justifiable, believable and acceptable.
Your solicitor, on the other hand, tends not to provide an explanation (and if they do it may not be passed onto the seller via their solicitor). Rather it is a simple one line letter that says something along the lines of "The buyer requests a discount of $5,000 under the terms of the building and pest clause of the contract".
All of this is important to be able to do yourself and is discussed in depth at our upcoming intimate workshop 'Contracts: Tips, Tricks and Traps'.
You can save thousands of dollars with this technique and knowledge.