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Negotiation 101

International Living Postcards--Saturday Edition

Saturday, Feb. 17, 2007
Paris, France

When you buy real estate overseas, it's a lot like buying souvenirs at a local market; negotiating is expected. The 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.

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 move.

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.

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.

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 price.

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.

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 compares to other local prices, and negotiate from there.

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 price seems cheap to you.

Lief Simon
For International Living

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