Teaching notes
This exercise involves hard bargaining and linking of issues and compromises through email. The e-negotiation requires the participation of three parties. The scenario involves geographical boundaries, temporal flexibility and foreign language challenges. The objective of this exercise is to train those negotiators wanting to develop insight into online hard bargaining, using email transactions and writing effective emails. The goal is for three parties to reach a mutually satisfactory agreement. The agent takes a middle position and the buyer and seller may not directly communicate.
This negotiation emphasizes efficient and effective communication in the face of complexity. Additionally, the participants must plan their communications to carry the right information at the right time. At the same, participants must remain flexible and reactive.
The negotiation is limited to five days to reflect the time pressures common in the real world. Real estate transactions are often subject to competition and require quick action in order to complete before other buyers present new offers.
Please share the section on designing good emails after the confidential information with students.
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The buyer: confidential information for Mr. and Mrs. Pim
You are Mr. and Mrs. Pim, a Thai couple in your mid-thirties. You are planning on raising a family together. The husband (Mr. Pim) has elderly parents who moved to Singapore to retire. For the past three years, Mr. Pim has divided his time between working and entertaining his parents while in Singapore and commuting to Malaysia to spend time with his wife. Mrs. Pim has been working a full-time position in Kuala Lumpur, Malaysia. Recently, she secured a tenured position, which requires her to commit to living in Kuala Lumpur long term. Both of you need to be working full-time. For the foreseeable future, your husband will continue working in Singapore, as the neither Mr. nor Mrs. Pim earns sufficient money to be able to support a family on a single income.
The housing market in both Singapore and Malaysia indicates it is a seller’s market and house prices are likely to increase along with mortgage rates. It is in your family’s interests to secure a house deal at this time before you are priced out of the market.
However, you have no prior experience in buying property, and as such are classified by the bank as first-time buyers. You have set aside a modest budget of 55,000 MYR for the down payment in order to secure a competitive mortgage rate. You have shopped around and have visited several regional banks in Singapore as well as in Kuala Lumpur. Your collective pre-tax income is in the region of 55,000 MYR per year, excluding bonuses. In the past three years, your combined pre-tax bonuses were 6,000 MYR on average.
Based on your joint income, the most competitive mortgage rate you have been offered is a fixed term mortgage, set at 3.25% per year, plus an additional compulsory insurance rate of 0.54%. The duration of the loan will be 20 years. Also, the bank will charge a one-time handling fee of around 200 MYR for setting-up the loan. You were told that you may borrow up to 250,000 MYR for the house. This sum would also include the cost of the agent’s fee, relocation, renovation, legal fees, furniture, etc. You are inexperienced, know little about the cost of legal fees, and expect to consult with your real estate agent for general knowledge. The real estate agent has agreed to help you clarify the cost of your legal fees which will be payable to your solicitor.
You want to purchase a townhouse that has a minimum of three large bedrooms and is located in a secure area in which to raise a family. You both currently rent apartments in Ampang, as well as a modest apartment in Singapore near Mr. Pim’s retired parents.
You would prefer your future home to have double-glazed windows throughout and original oak flooring is something you are keen on. Fully installed air conditioning is also important to you. The ideal size of the property surface should be over 360 ft2. You would also prefer to purchase a home that already has a fully fitted kitchen and comes with a new-ish boiler, as you have limited capital. Financially speaking, you would prefer to allocate as much of your budget toward the down payment as you wish to reduce the term of your loan. You have been attracted to specific properties that feature small back gardens, something rare in townhouses in the areas you are interested in. You believe having access to a back garden is important as you wish to start having children. However, such properties offer a reduction in living space. Neither of you have access to a car. The house should offer easy access to the train, as well as links to the metro or bus.
Over the past three months, you have spent a great deal of time viewing properties and have focused your search in Kuala Lumpur, although you have seen flats close by Mr. Pim’s parents in Singapore. After viewing several properties, you have short-listed two houses you are seriously interested in from Wang Homes (brochure: Ref. KLA03A) and KLP Agency (brochure: Ref. HASQ141). Your preference is for the house promoted by Wang Homes, as the property requires little renovation, and the cost of the house appears fair. You will only negotiate with KLP Agency should you fail to reach an agreement with Wang Homes. Should you fail to reach an agreement with both Malaysia real estate agents, then you always have the option of buying a home in Singapore, but living close to your parents is a less desirable option as Malaysia has more to offer.
The house promoted by Wang Homes is ready to move into, and you have clear ideas on how to renovate that property: new windows with UV protection, insect window screens, attic conversion and a small library. The agent estimates the total cost to renovate to your standard would be around 9,000 MYR. Your second option, the house promoted by KLP Agency, requires more renovation work before you could move in. The total cost has been estimated at around 12,000 MYR.
Moreover, you would have to pay an additional month on your apartment in Kuala Lumpur while the house is being renovated. The cost of your monthly rental would be an additional 900 MYR. You estimate that you will need 1000 MYR at least for moving your property from the rental to the new house; therefore, you have little money for furniture and white goods. However, you may consider making an offer on the homeowner’s existing furniture as the quality appears good.
Ref. HASQ141
KLP Agency
House in Ampang
Spacious townhouse built in 1930, situated in a secure district of Ampang. The house is in a calm residential suburb and has several shops nearby with access to a small supermarket.
The property includes 4 bedrooms, an office and spacious living room, as well as a fully-fitted kitchen and a full bath. Total living space is 120m2. A small garden (50m2) is toward the rear. The house faces southwest and has a cellar (8m2). The property is only a 450m walk from a metro station and bus station. Energy performance certificate is rated at the level of Standard.
299,000 MYR INC.
Year
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1930 established
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Garage
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No, but driveway parking
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Type
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Terraced house
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Kitchen
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Separate kitchen
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Interior
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Excellent
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Transport
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Metro and bus
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Energy
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8 year-old boiler
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Window
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UV protection, PVC
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Flooring
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Laminate flooring
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Garden
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With a hut/shed
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House tax
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800 MYR / year
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Cellar
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Dry
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Community charge
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No
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Bathroom
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1 bath/shower room
2 toilets
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Ground floor:
Entrance: 2m2
Living room and dining space: 36m2
Separate kitchen: 14m2
Toilet: 4m2
Garden toward rear: 110m2
First floor:
Landing and hallway: 5m2
Living room: 36m2
2 bedrooms: 12/16m2
Bathroom: 6m2 including wash basin, toilet, bathtub/shower
Second floor (attic):
Landing and hallway: 5m2
Living room: 36m2
2 bedrooms: 10/11m2
Office: 6m2
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Real estate agent: confidential information for Wang Homes
As an agent, your responsibilities are primarily to join a seller of a property with a potential buyer. Although your fees are dependent on the sale of the property, you are required to link the interests of both parties. Your salary is a modest one, and the majority of your income is generated through property sales and in bonuses.
You are responsible for advertising the properties that you are promoting. You are the negotiator and the one who persuades potential property buyers. Without a sale, you generate no additional income, so satisfying the buyer and seller is important to you.
When promoting a property to a potential buyer, you will need to make the buyer aware of what assets the seller is offering as a part of the sale, such as furniture. You should be very aware of your inventory and use anything unique to distinguish this home from the competition. It may be useful for the buyer to know the potential cost of legal fees to help them set a realistic budget. Your agency’s fee will be related to the price of the house when sold. The legal expenses are separate to this.
Agent’s fee
The agent’s fee is a maximum of 3% of the sale price of the property. Generally a real estate agent’s fee is negotiable and set from 1%–3%, which is included in the house sale price (as indicated by “Inc.” in the brochure). Generally it is the buyer who pays the agent’s fee. Your agency’s rates are listed below:
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2.75% of the sale price for houses up to 500,000 MYR in value
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3% of the sale price for houses over 500,000 MYR
Solicitor’s fee
The solicitor’s role is to legally transfer ownership of a property. For an existing property, the buyer needs to set aside approximately 0.7% (for a house valued at 150,000 MYR to one million MYR, also abbreviated RM) of the purchase price of the house to cover the cost of solicitor’s fee. Be aware: the money spent on purchasing a property does not include the solicitor’s fee. The value of the house sold will dictate the amount of the cost of solicitor’s fees. Hence, the solicitor’s legal fee is 0.7% of the cost of the house, which excludes the agent’s fee.
Stamp duty fee3
The prescribed rate of duty is as shown below:
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The first RM100,000. Up to 100,000 charges 1%.
RM1.00 for every RM100 or fractional part of RM100.
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Any amount in excess of RM100,000 but not exceeding RM500,000. Between 100,000-500,000 charges 2%.
RM2.00 for every RM100 or fractional part of RM100.
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Any amount in excess of RM500,000. Above 500,000 charges 3%.
RM3.00 for every RM100 or fractional part of RM100.
House gain tax for seller
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30% on profit made on sale within two years of purchase
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20% on profit made on sale in the third year after purchase
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10% on profit made on sale in the fourth year after purchase
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5% on profit made on sale in the fifth year after purchase
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During the sixth year after purchase and thereafter, individual tax is 0%
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Citizens or permanent residents are entitled to an exemption of RM5,000 or 10% of the gains
It is important to be aware of these additional costs and a successful agent will remind both the buyer and seller of what is expected of them.
Just three days ago, you managed to find an apartment that suits Mr. and Mrs. Lee. Since then, the couple has made a successful offer of 465,000 MYR. Selling Mrs. Lee’s house in Sri Hartamas is your new project. Finding a buyer for her house will enable her to finance the down payment on her new property. The house in Sri Hartamas has been advertised for offer in the region of 275,000 MYR. This figure would provide Mrs. Lee with enough capital to finance her new apartment in Kuala Lumpur.
Mrs. Lee is eager to move out of her existing property, having recently remarried. She originally wanted to sell her house for close to 282,000 MYR, but in the hopes of attracting a quick sale, and being aware of her costs, you advised her after some debate to set the house price in the region of 275,000 MYR. This would enable her to make the down payment and move into her new house quickly. As teachers, it would be of great benefit to both her and her husband to be able to move in before the new term starts.
It may be an idea to encourage Mrs. Lee to leave any large or unwanted items such as bulky furniture. Additionally, it may be worthwhile to persuade Mrs. Lee to see the benefit of striking a deal with a first-time buyer, as such a buyer would enable her to move quickly into her desirable new home and avoid the hassle of a more time-consuming move.
You have supplied the potential buyer (Mr. and Mrs. Pim) with a brochure that promotes Mrs. Lee’s property. You believe the couple is interested in viewing the property for a second time and have supplied the couple with estimated renovation costs. The cost of renovation (9,000 MYR) has been supplied by your agency’s business partners who are specialists in home improvement
Through asking questions, you are hoping to prompt Mr. and Mrs. Pim into making a genuine offer on the property. You may consider informing your buyers about any of the property’s distinguishing features and give details about room sizes, house tax, local facilities and the properties fixtures and fittings (i.e., curtains, white goods and furniture). These details can be overlooked and often help stimulate an offer. It is worth mentioning to future buyers that Mrs. Lee’s house comes with a fitted kitchen, valued at 5,000 MYR.
You are hoping to meet the expectations of both the seller and the buyer, and you will do what you can to push the sale forward so that you can secure a bonus!
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The Seller: confidential information for Mrs. Lee
You are Mrs. Lee, a Malay teacher in your mid-fifties. You have two children from a previous marriage. Having recently remarried, you have decided, along with your children, to move in with your husband and relocate to Kuala Lumpur. The property you currently own is a pleasant period, semi-detached townhouse situated in the leafy district of Sri Hartamas – about seven kilometres to the downtown of Kuala Lumpur.
Built in 1900, your property has several original and interesting features that enticed you to purchase the property 18 months ago. You bought this four-story building for 220,000 MYR. This sum included all legal and agent’s fees.
You originally wanted to advertise the property for 282,000 MYR, but your house agency, Wang Homes, suggested lowering your original figure to a figure in the region of 275,000 MYR (see house brochure) in the hopes of generating a quick sale.
Since moving in, a great deal of your free time has been spent tastefully renovating the property. This has been a time-consuming and costly process. Tasks undertaken include:
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re-wiring all of the house’s electrical circuits (3,000 MYR)
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installing two modern fully equipped bathrooms (8,000 MYR)
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new front door (500 MYR)
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new roof (7,500 MYR)
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house removal (1,000 MYR)
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re-painting the house (1,000 MYR)
You have tried to maintain the property’s original style, Art Nouveau, an international philosophy and style that was most popular around 1890–1910. In addition to renovating, you have paid several designers to help you plan the house’s interior and acquired a selection of furniture worth 7,000 MYR, including a dining table, sofa, shelves, etc. Just six months ago, you spent around 3,000 MYR on white goods. You are happy with the style you have chosen. You estimate the cost of moving all the furniture to the new apartment to be around 2,000 MYR.
You believe what you have done should generate value in the property and intend to remind your real estate agent of this. You believe if your real estate agent promotes the house effectively, then no further concession to the house’s sale price should be necessary. Hence, the real estate agent can negotiate a better price on your behalf.
You feel disappointed to be selling your home even though it is for a good cause – to move in with your husband. All of your children adore the property, and in the short time that you have lived there, you have collected nothing but fond memories. Despite this, you believe your love and care coupled with the property’s excellent transport links and unique Art Nouveau features should all be helpful in selling the property for a figure close to your asking price.
Not being especially wealthy, you consider the money spent on repairs and modernization to be a small fortune. After all, you believe that expenditures should have bearing on the true value of the property. You believe it is a seller’s market and have already shown several interested parties around the property, but as of yet, you have received no serious offers.
Three days ago, you and your husband found and have made a successful offer on a large apartment in the city of Kuala Lumpur, priced at 465,000 MYR. Your real estate agent at Wang Homes was responsible for helping you find this spacious apartment (210m2). All you need now is for a buyer to pay you sufficient money to enable you to make the down payment on your new property so you, your new husband and your children can move in before the start of the new term.
Wang Homes is a resourceful company. They have various business partners in moving, decoration, and renovation, as well as mortgage information. Having bought and hopefully soon sold your existing property with the same agency, you believe you ought to be entitled to a reduction to the agent’s fee. You have not mentioned this to your agent as yet, but will do so during your email negotiation. He should after all, appreciate the additional business.
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