› Articles › Real Estate › Cross Price Cultural Anomalies in the Prague Residential Real Estate Market
Cross Price Cultural Anomalies in the Prague Residential Real Estate MarketWhat a foreign buyer should know about Czech negotiation tactics on the residential property market
|
||||||
|
The Czech residential property market dates back to a time before many Western nations were even formed, meaning that the market here has been influenced by a far wider range of political regimes than most Western ones. That long history has also influenced Prague's diverse and evolving architecture, creating a cityscape that will inspire awe in most Western visitors, and giving each neighborhood its own unique character and identity. In 1989, the Velvet Revolution helped bring in a new political economy that changed the property market significantly. The fall of communism led to a free market economy, which the Czechs were quick to adapt to. What may not seem obvious to foreign investors, however, is that significant cultural differences exist between foreign investors and Czech citizens. One significant difference is between the investment tactics that a foreign buyer would typically use and those of a Czech seller. The offer price that a Czech seller expects from a buyer, for instance, may be a non-negotiable final realization price. This can be attributed to lack of experience under this new political economy. The differences between Czech nationals and foreign investors may not be obvious to the foreign investor. In an immature free market, a variety of undesirable outcomes could spoil a well prepared deal. In many cases, Czechs are selling their property in a free market for the first time, and without a frame of reference or familiar historical experience. As such, foreign investment tactics may result in less desirable outcomes. Czechs, for instance, may have significantly different expectations about the asking price to that of foreign investors. How mature property markets work: Table 1 In developed property markets, the early stages of purchasing a property usually involve buyers offering a price well within the market trading range but below the asking price (in Table 1, this point would be A). It's typical in many mature property markets for buyers to put in an offer price that is below the asking price in order to negotiate a deal with the seller and come to an agreed, perhaps, middle realization price (in Table 1, this is point C). For instance, Table 1 represents a residential property transaction between a seller and a buyer in a foreign developed property market, where a mature free market is common. Points A and B are the initial communication points, either through an agent or on a one-to-one basis. Point B is the seller's asking price for a property. Point A is the buyer's offer price. After negotiation and investing tactics both the seller and buyer come to a realization point, C. The realization line is at 45 degrees and assumes neither a buyers' nor a sellers' market. Point C is merely a point of arbitration that is solely dependent on the buyer's and seller's negotiation tactics and knowledge of the market. In some instances, of course, it may not be a perfectly equal relationship, perhaps because a buyers' or a sellers' market exists. How the Czech property market works: Table 2 Generally speaking, Czechs who are selling their apartments for the first time may not be accustomed to traditional Western negotiation tactics, nor even a domestic market where negotiation is common, and may be offended that their asking price isn't accepted. They could even be insulted when a lower offer price is stipulated. One advantage that a Czech seller in Prague has had for a number of years is that the demand for private ownership in housing has been increasing since 1989, thereby creating a sellers' market. In some instances a Czech seller may verbally accept an offer from a foreign buyer without any intention of following through with the deal, using foreign interest as leverage with other interested parties. In this instance the Czech seller can likely "gazump" the foreign buyer or accept an alternative offer. "Gazumping" is charging a property buyer more than the originally negotiated price, usually after receiving a better offer from someone else. This results in either a failed deal, acceptance of the third party's offer, or a skewed outcome whereby the foreign buyer will increase their bid (point C in Table 2). In the instance where a Czech seller is an inexperienced first-time seller, the Czech seller will agree to the original offer price put forward by the foreign buyer but not change their original asking price. As a result, the foreign buyer is "gazumped" or the deal fails. Point C in Table 2 is a graphical representation of the point where a Czech seller's initial asking price is also their expected non-negotiable realization price. Table 2 shows a Czech seller who is selling for the first time and isn't familiar with foreign buyers' negotiation tactics. Point C is the Czech seller's initial and final asking price. Point A is the foreign buyer's initial offer price. B is the potential realization point if the Czech seller was willing to negotiate and come to terms with the foreign investor's negotiation tactics. Due to a lack of selling experience and a relatively new political economy the Czech seller will reject the offer or accept the offer with no intention of moving to realization point B. If the Czech seller accepts the offer, the foreign buyer will be "gazumped," resulting in a situation where each party loses out, a failed deal, or the Czech seller accepting a higher bid from another interested party. The only possible successful solution in this case would be if the foreign buyer accepts the Czech seller's non-negotiable price, point C, thereby reach a realization point, C, that skews away from the equilibrium of the 45-degree line. A foreign investor should be aware that the Czech property and financial markets are not as mature as many Western nations with developed property markets, and certain negotiation and investment tactics may lead to different results than they would in their home country. Cultural difference between Czechs and other nations exist for many reasons but in this instance it is the immaturity of the free-capital property market that creates the most problems for a foreign buyer. The lack of experience in selling a property, lack of historical references to selling property, and a relatively young free market can all lead to different outcomes. Foreign strategies used in this cultural environment may fail in the short term, with deals struck at below-market prices ruining potential deals that would result in above-market prices being paid. Table 1 This trading box is a residential property transaction between a seller and buyer. Points A and B are the initial communication points. Point B is the seller's asking price for a property. Point A is the buyer's offer price. After negotiation they both reach realization point C. The realization line is at 45 degrees, assuming neither a buyers' nor a sellers' market. Point C is merely a point of arbitration solely dependent on the buyer's and seller's negotiation tactics and their knowledge of the market. Open Table 1 in a new window Table 2 This example is based on the situation described above, where a Czech seller is selling for the first time and isn't familiar with foreign buyers' negotiation tactics. Point C is the Czech seller's initial - and final - asking price. Point A is the foreign buyer's initial offer price. B is the potential realization point if the Czech seller were willing to negotiate and come to terms with foreign investor tactics. Due to lack of selling experience and a lack of familiarity with the new political economy, the Czech seller will reject the offer or will accept the offer with no intention of moving to realization Point B. If they accept the offer the deal the foreign buyer will be "gazumped," or an imbalance will occure where each party loses out. A possible solution would be if the foreign buyer accepts the Czech seller's non-negotiable price, point C, leading to a realization point, C, that is skews away from the 45-degree line. Open Table 2 in a new window Marcus Fuchs is the senior economist at Property in Prague, s.r.o. |
Article added on Wed 2nd Mar, 2005 [last updated Thu 14th Dec, 2006]Share this page 
|
| COMMENT ON THIS ARTICLE | ||
| READ ALL REAL ESTATE ARTICLES MORE REAL ESTATE ARTICLES |
|
Affordability of Prague Flats Reasonable for Locals - Study by Nathan Brown Property Prices/Average Salary Comparison Added on Thu 15th Jul, 2010 (Last updated Thu 15th Jul, 2010) |
|
Five Vitals to Execute a Maximum-Value Resale in the Czech Republic by Nathan Brown Get the Most for Your Property Added on Tue 13th Apr, 2010 (Last updated Tue 13th Apr, 2010) |
|
Investing in Real Estate Investment Funds by Martin Kolmhofer, Lifestyles Magazine® Lifestyle Magazine Added on Wed 9th Jul, 2008 (Last updated Wed 9th Jul, 2008) |
|
Property Negotiation in the Czech Republic - Four Critical Points by Nathan Brown The 'Must Know' Factors Added on Tue 12th Jun, 2007 (Last updated Tue 12th Jun, 2007) |
|
Czech Property Purchase Process and Timeline by Nathan Brown How Long Until Handover? Added on Tue 5th Jun, 2007 (Last updated Tue 5th Jun, 2007) |
|
Ownership of Czech Property by Nathan Brown Dealing With the Cadastral Register Added on Thu 24th May, 2007 (Last updated Thu 24th May, 2007) |
|
Czech Mortgage Guide by Prague TV Buy a House in Prague Added on Thu 10th May, 2007 (Last updated Thu 10th May, 2007) |
|
Property Purchase for EU Citizens: SRO or Czech Residency Permit? by Nathan Brown Which Route is Best? Added on Tue 27th Feb, 2007 (Last updated Tue 27th Feb, 2007) |
|
Czech Ski Cottages and Other Recreational Properties by Nathan Brown, Czech Point 101 Winter Getaway Buying Guide Added on Thu 8th Feb, 2007 (Last updated Tue 13th Feb, 2007) |
|
Property Taxes in the Czech Republic by Renée LeMoine, BlueQ Advice for Homeowners Added on Wed 7th Feb, 2007 (Last updated Wed 7th Feb, 2007) |
|
Czech Real Estate Market Overview and Forecast 2007 by Marcus Fuchs Prague Property Investment Guide Added on Tue 9th Jan, 2007 (Last updated Thu 11th Jan, 2007) |
|
The Prague Real Estate Market - Part 1 by Erik Webb Dempsey An overview of the residential property market Added on Mon 18th Dec, 2006 (Last updated Mon 18th Dec, 2006) |
|
The Prague Real Estate Market - Part 2 by Erik Webb Dempsey The EU and the effect of foreign interests in the Czech market Added on Mon 18th Dec, 2006 (Last updated Wed 18th Apr, 2007) |
|
Prague Neighborhoods by PTV PTV's at-a-glance city district guide Added on Mon 18th Dec, 2006 (Last updated Mon 18th Dec, 2006) |
|
Prague Docklands by David Friday Riverside Developments in Libeò and Karlín Added on Thu 9th Nov, 2006 (Last updated Thu 9th Nov, 2006) |
| READ ALL REAL ESTATE ARTICLES |
Visit the Real Estate main page
Find listings, help forums, tips and more
Albion Reality
Specialist in assisting local and foreign clients.
Simply Mortgages
Simply mortgage for you!
Crestyl Group
High-quality modern projects, stylish design and a customer service...
Baarova Residential Park
New residential project on Prague 4.
MORE ARTICLES
Prague TV Home | Contact | About | FAQ | Site Map | Search | Advertise | Privacy | Terms of Service
Prague TV is a Real Time Production. ©2012 All rights reserved.
