How to negotiate buying an apartment in this market

What’s the right time to buy? As the proverbial Wall Street saying goes: “when blood is in the streets.”
by Dan Azzi

4 November 2018 | 18:56

Source: by Annahar

  • by Dan Azzi
  • Source: Annahar
  • Last update: 4 November 2018 | 18:56

Demand for real estate can be split into three categories: foreign investors, Lebanese expatriates residing in the Gulf and across Africa, and locals. (Annahar Photo)

BEIRUT: Real estate today is a buyer’s market but many say they haven't witnessed major discounts. Let me start by saying that even though I am aware of massive reductions, especially for a sophisticated, informed cash buyer, I do NOT recommend that you buy yet. The market will drop relentlessly for years, while more shiny new towers are completed, adding to the excess vacant supply, forcing them to puke discounts.

What’s the right time to buy? As the proverbial Wall Street saying goes: “when blood is in the streets.” In other words, when every last one of your friends, who is now saying that this is the best time to buy, switches and advises you not to buy.

Sellers haven't been readily unveiling discounts because this was their modus operandi for years, and every now and then, it works. Let’s say Moussa, living and working in Dubai, shows up. The seller conveys his price of $300,000 with a straight face, almost a bored expression, like he doesn’t care whether Moussa buys or not. Over the years, they have perfected this act to the point of being Oscar-worthy, if Hollywood had one in the category “Chicanery” and, occasionally, the theatrics work. Meanwhile, Moussa is “helped” by his family, because they believe the nonsense about prices in Lebanon never dropping and other similar myths, so they encourage him to take the plunge. Even his 99-year-old, senile grandfather jumps on the bandwagon and croaks the silly cliché “Lucky is he who owns a Goat’s shrine (mar2ad 3anzi) in Mount Lebanon.” People who know better may have paid $200,000 for the same apartment, but between the lack of transparency, the counterproductive family pressure, and the seller’s expertise at bluffing, poor Moussa gets bamboozled into dishing out 50% more than he should have.

The closest market to real estate is taxis. When you hail one, he looks you over from top to bottom. If you’re a Gulf Arab, the fare might be the same as a flight to Cyprus. If you look European, it’s a slightly less outrageous price. Lebanese expats slightly less, and so on. Of course, after you’ve negotiated 12,000 Lira for the ride, have you ever noticed that he never has change for a twenty? And then Uber struck and decimated this racket.

The developer has negotiated prices on dozens of apartments, while this might be your first purchase. There is no published reliable data on prices here and collusion further weakens your negotiating stance. Therefore, the starting point for any negotiation is the asking price, which is basically the seller’s word. In short, it’s like playing poker with someone who can see your cards, but you can’t see his.

As George Costanza once maintained, "remember, if you believe it, it's not a lie."

Now, that being said, if you absolutely insist on buying, here are some tips:

1. Don't fall in love with the place you want to buy! Fall in love with your soulmate, not an apartment. There are many others to choose from.

2. If you love it, don't show that you love it. Keep a poker face. If the developer senses weakness in your conviction on discounts, he certainly won't give them. If you have a very "expressive" wife (or husband), don't take her (or him) to the negotiations. During the showing, don't state how beautiful the apartment is, or call the interior decorator, or measure the window for curtain sizes. That won’t help you get a discount. Keep comments like that for when you leave.

3. Present yourself as a cash buyer even if you're not, in order to decouple the price negotiation from the source of financing, otherwise he will inflate the price. When he asks how you'll pay, tell him your parents are buying you the place or you have savings. After you've agreed on the final price, say, "actually, I need a bank loan because my parents prefer another apartment." This would scare him because it shows you have another option; however, it will cause him to back down from the agreed price, but at least it gives you a good indication of where he's willing to get to in price. In other words, you’ve just pierced the veil of secrecy and extracted transparency. Some might have a problem with the morality of this approach, but if you knew the scam job they’ve conducted on the Lebanese public over the last few years, trust me, your conscience would be clear.

4. BE PREPARED TO WALK AWAY at any point when he's not being cooperative. Say, "look there are other people who are being more flexible on price, and although I like your apartment, I'll go back there." When he asks who they are (so he can rip into the quality of their work), just tell him it doesn't matter and bring it back to the price negotiation.

5. If he says you'd better buy now because prices will go up soon (“when the government is formed” or whatever the next savior is), and that this is the best time to buy, ask him this: “If this is the best time to buy, then this is the worst time for you to sell. So why are you selling?” And watch him stutter (unless he reads Nahar English).

6. Don’t feel you must reach a final price in the first meeting. There’s nothing wrong with you ending the session by saying, “Look, I’m not really willing to pay more than X.” Then, excuse yourself and leave. Wait for him to call! Don’t call him! Chances are that he will make the first overture and concession. He wouldn’t want to lose this rare lead. Don’t forget that time is on your side. You’re not the one with banks breathing down your neck. And don’t believe the lies that he’s not in debt and doesn’t need to sell. He’s starving for liquidity.

7. Don't be afraid to say that this is your "best and final offer" or "take it or leave it" just like he did in the good times. Be polite, but firm. If he senses weakness in your conviction on discounts, he certainly won't give them.

8. Shop around and negotiate with several sellers at the same time. This isn't marriage. You don't have to be faithful. Always negotiate face to face. This not only shows that you’re a serious buyer, but also allows you to read his body language, which says much more than his words. Don’t believe many of the pat lines, like “I’ve sold 70%, so I don’t need money” or “I can sell this, but I don’t want to sell to X religious sect. I want to sell to one of us.” Pretty much all of them use some variant of this hogwash, but would sell to Oussama Bin Laden if he made an offer.

9. If you’re getting anything less than a 40-50% discount from the high, you're probably not there yet. Just walk away. If you negotiate a payment plan with him, and if your salary is in Lira, make sure the payment is in Lira. If you don’t understand why, google “Polish mortgages in Swiss Francs.”

10. Don’t buy anything “on the map” unless you’re certain the developer is solid, otherwise he’s using your money to finance his catastrophic misadventure and might go bust before he delivers your apartment.

Good Luck!

Dan Azzi is a regular contributor to Annahar. He has recently been invited to be an Advanced Leadership Initiative Fellow at Harvard University, a program for senior executives to leverage their experience and apply it to a problem with social impact. Dan’s research focus at Harvard will be economic and political reform in a hypothetical small country riddled with corruption and negligence. Previously, he was the Chairman and CEO of Standard Chartered Bank Lebanon.

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