You’ve found the perfect property, but can you get your perfect price?
Here are six tips for negotiating a purchase price.
- Know that negotiation is a process
Acknowledging the reality that negotiation is a two-way street can help make the process less daunting.
Each party – the buyer and the seller – need to gain something from the transaction and feel happy with the outcome. So expect some give and take.
Putting yourself in the seller’s shoes can help you work out how to best play your hand. For example, why is the vendor selling? And how can you present the case around your offer, and best time it for a successful outcome?
Placing yourself in the seller’s shoes can help you formulate your offer.
- Know the market
What you’re willing to pay for the property is only part of the equation.
Sale and auction prices are determined by demand, and how much others in the market are willing to pay. Make sure you research current, comparable sale prices for similar homes in the same area before putting in an offer or bidding at auction.
Make sure you research current, comparable sale prices for similar homes in the same area or you can use a property valuer to guide you on the value of the property.
- Be confident
Put any fears and any negativity to the side. A confident, positive attitude is key in any kind of negotiation.
- Use the buyer’s agent
In most cases, the seller will be using a real estate agent. So avoid the temptation of negotiating directly with the property’s seller, and always redirect back to the agent even if the seller contacts you directly.
The agent is an integral player in the negotiation process so make sure you are polite, professional, respectful and make a good first impression.
Open, clear communication is vital. Resist too much game playing. For instance, hiding your interest in a property can sometimes backfire, with an agent not taking you seriously as a buyer; conversely, don’t put all your cards on the table at once without thinking it through.
- Know your limits
Real estate can be a very emotional purchase for many people. Always be aware of your upper purchase limit and stick to it. Never allow yourself to be caught up in emotion – at sale or at auction.
Always be aware of your upper purchase limit and stick to it.
Think carefully about how to present your offer – should you go in with your highest, best and final offer first up or present a lower offer allowing yourself room to negotiate up?
And in the fever pitch of an auction, always have a price limit fixed firmly in your mind and do not exceed that limit. Some people even ask others to bid on their behalf to avoid making hasty, emotional decisions.
Getting carried away at auction could get you into trouble.
- Think through low offers
You could make a ridiculously low offer for a property in the hope that the seller may be naïve, desperate or not know the true value of their property.
However, if you are genuine about the property, for the sake of saving time and potential heartache, it’s best to offer close to your expectations. The seller will either be interested in your offer or not and negotiations will conclude, or you will have the opportunity to move away before any emotional attachment overwhelms you.
If you make a legitimate low offer, inform the agent why your offer is low so they can communicate this to the seller. Reasons for making genuine low offers might be because some aspect of the property requires repair or renovation in order to make it more liveable for you.
Private sale: The to & fro
If you want to make an offer (either as a private treaty sale or before auction), the agent will put the offer in writing – signed by you – and will present the offer to the vendor.
The seller may then either:
- Accept your offer.
- Reject your offer.
- Counter offer back to you at a price they find acceptable.
If the seller counter offers back to you, your options are to:
- Accept their counter offer.
- Reject their counter offer and walk away.
- Continue to negotiate.
It’s in the seller’s interest to accept your offer as soon as possible. And at any time prior to their acceptance, you can withdraw your offer. If the seller accepts your offer, you will be asked to sign a contract agreeing to the purchase.
If you make an offer prior to auction it will be presented to the vendor in writing.
Auctions: Preparation is key
You can usually make an offer on a house before its auction date, but it may not be accepted. The agent will generally tell you the price the property is expected to reach at auction, but keep in mind that the agent is likely to lower the reserve figure somewhat in an effort to get you to the auction.
Auctions remove a lot of the usual negotiation process associated with a sale, so it’s important to be prepared and to attend several auctions before taking part in one.
Contract conditions are generally set at the time of auction.
Before an auction, you should get all the relevant documents from the agent, ensure you understand the conditions in the contract and have it assessed by your solicitor or conveyancer.
At auction, you cannot stipulate any conditions on the purchase of the property, for example:
- Buying the property subject to a building inspection.
- Buying the property subject to the sale of your own property.
- Buying the property subject to arranging finance.
This is because the contract conditions are generally set at the time of auction.
If your bid at auction is successful, you will sign the contract immediately after the auction and won’t be given the opportunity to formally review the terms and conditions. The only area for negotiation may be the settlement date.
If the final bid falls short of the reserve, the property may be passed in. The highest bidder may then enter into negotiations with the agent, immediately following the auction. Alternatively, the vendor may agree to sell at this lower price, at which time the property is said to be ‘on the market’ and the auctioneer may attempt to extract more bids prior to making the sale.
Don’t forget conveyancing
Negotiating a purchase price naturally runs into the conveyancing process – after all, the conveyancing process often digs up facts that will affect the amount you wish to pay for a property. So it’s best to only make an offer once you have your conveyancing in progress.
Conveyancing involves the transfer of property ownership from one party to another and the conveyancing process begins with your lawyer or conveyancer examining the contract for sale prepared by the vendor’s representative. This is best done before the sale or auction takes place.
Once your advisor is satisfied with the contract, you’ll be ready to close the deal.