Home buying negotiation tips
Whether you’re a novice home buyer or seasoned pro, investing in property can be a perplexing time and sometimes confusing. When is the best time to buy anyway? There’s a buying trend we need to follow, right?
But if you’re hankering to close a deal and get that deed in your name and pocket (or locked in a safe) then you’re probably prepared to pull out the handy negotiation tools to invest when you want to, not when the market says to.
I’m good at haggling
Umm...Someone said it was a buyer’s market. Wait, what?! Are you sure about that? Because if you take a closer look around, it’s more like a seller’s market. What does that mean to you, the buyer? It means that haggling the price may not be an option, or at least, you’ll probably have little room to work with. Why? Because there are a trillion buyers who are willing to pay what you can afford, and more.
So in the end, it’s all about timing. Timing that you inspect the property first - before the family with $200k more. Get to it! Bargain as much as you think you should, maintaining a realistic expectation on how low the seller will go. Haggle too much and watch your phone enquiries go unanswered. Remember, the agent wants a good deal too. Commission pays for their fancy cars, dontcha know.
Time is of the essence, and research is the name of the game.
Obviously the concept of bargaining down a property’s price is when it’s for sale, not auction. You can however make an offer before auction date. Not every agent or seller is into that, especially if the market is hot and both parties think they’ll get more dollars from the outcome.
But for properties that are listed for sale, the timing of your offer means everything to the vendor. Things you need to consider while researching the property you’re interested in:
- How long has it been on the market for?
- How much have similar properties in the same area sold for recently?
- When did the seller originally purchase the property?
- How much for?
- If an investment, is it currently tenanted?
By knowing the answers to these questions will better guide you on the position of the seller and how desperate they are in selling it. Sure this is all an assumption, but it’s a guided assumption as opposed to making an offer straight out cold without any background knowledge.
I’ve done my research on the property I like. Now what?
Well that’s good. Pat on the back. Not easy finding the time, is it? But when you're investing a big chunk of your money into something, you ought to make the time. Speaking of which, this isn't the only property you’ve enquired about, right?
You’re going to need to compare at least 30-50 different properties (of similar types if you can) to understand the kind of prices and comparisons you’re up against. Well not against, but having all the information in your hands in the direct area you want to invest in means that you're potentially well-versed and know exactly what to expect when it comes to prices and how much sellers are willing to accept.
And it’s not just the immediate area. It’s neighbouring suburbs too. The more you research, the more you pick up on trends and understand exactly what you’re getting yourself into. Also the more prepared you seem when you make your enquiry.
Remember the old saying: that agents lie through their teeth, just to get a sale? Well, sure, you may not be able to see through all their dialogue, but by combing through the sale and auctions statistics in the immediate and surrounding areas means that you at least appear to be articulate in what you’re looking for. With sound knowledge, no one can pull the wool over your eyes. Not even a crafty real estate agent! (No offence agent buddies.)
Next steps: only if you’re genuinely serious about a particular property
- Pest inspection - you may think there are no white ants about, but WHAT IF THERE ARE? <End shouting> You really can’t simply guess or predict the outcome. There’s no magic spell to cast them away if you suddenly discover them gnawing at your porch one day either. Unless you live in a concrete jungle, you must pay a reputable professional to make an inspection on the property you’re interested in before making your offer to ensure the place you want to buy is good to go.
- Property inspection - is there are a wobbly indoor staircase? Is there a distinct mouldy smell disguised by a white wash of paint? Will the current owner fix the root of the problem before selling it or will they deduct the cost or repair from the sale? Seeing property after property, you could become two things: 1. Complacent or 2. Extra picky. We prefer the extra picky outcome. Why? Because identifying a few faults here and there can give you more bargaining power. Cool, huh?
Now that I’ve researched the property and area thoroughly, how do I haggle?
Since you’ve asked politely, we’ll let you in on a secret - although you've done a thorough comb-through the immediate and surrounding areas, and have compared recent successful sales and auction prices, you need to understand this: not every property is the same.
What are the benefits to surrounding properties being similar, but just not the same? You can make fair comparisons that may influence the direction of the price. Here are some factors that can push the price of the property up or down, depending on your mojo and your finer observation skills:
- The year the property was built. 1960s gaudy? 1970s chic? 1940s charm? 2016 edgy? The period it was built is a great starting point as to the value it brings along with it.
- Is it a single owner, deceased estate? Or is it a few decades old that has been newly renovated? Whichever it is, if it’s a sturdy property in a great location that just needs a wall knocked down to open the living space a little and good lick of paint, then expect to pay a handsome price for both land and home. That’s a neat package.
- Is it a knock down? Then you’re looking at purchasing the property for its land value alone, so forget about passing judgment on the dwelling itself.
What haggling dialogue should I use?
Positive language. ALWAYS. Using a negative tone will make you seem like an annoying handful who wants something for nothing. You have to understand that buying and selling is a relationship between two parties. And it needs to be a win-win. A win for you and a win for the seller. Remember: The agent representing the property is the intermediate party. Be nice to them, because they may have a larger influence over the lucky one who gets in.
Here’s an example of what not to say:
"This place is a wreck. It’s just not worth the asking price. I’m going to offer $XX"
Instead, you could say:
"I’m really interested in this property. I can see it’s in good condition but needs a little work here and there. Is the owner prepared to come down a little in price?'
Can you see the difference between the two sentences? You’re virtually saying the same sort of thing just posed in a different way. The latter is certainly more polite and shows that you're a serious contender, not some jovial has-been who's walking around with a chip on their shoulder.
How much should I bargain down?
There’s no real right or wrong answer here, but you don’t expect to be taken seriously if your offer is way too low. What’s too low? Mozo advises that you don’t go below 30% of the asking price. In some cases, even that’s considered too low.
After your first offer, if half decent, the vendor will likely come back to you with a counter offer. Unless you’re on the money. Otherwise expect to play a little tug-o-war for a bit until a price is agreed on.
However, don’t expect to be the winning party, just because you’ve made an offer! There could well and truly be a few other interested parties making offers at the same time, so be prepared to raise the bar where it’s needed. If you can.
Can you afford what you’re offering?
Hang on to your wallet! Are you making an offer with your heart or your head? If you’ve been playing hard to get with the vendor, or vice versa, the agent may push you over your limits. You really want that house, don’t you? Well just because you really, really want it, doesn't mean you necessarily can have it. Check before you leap.
Negotiating checklist and tips:
- Check with your lender to see how much you can afford to spend and stick to your budget. Remember that admin costs are on top of sale price.
- Never reveal all your playing cards. If you can spend up to $1.5m and the house is on the market for $1.2m, and you’ve noted a few minor and major repairs that need to be carried out and want to make an offer of $1.1m, then that’s all they need to know.
Note: The agent or vendor does not need to know your exact buying power. After all, you may decide to put the balance on a renovation or a separate apartment altogether for investment. Choice is yours.
- Place an offer that wasn’t accepted? After you receive a counter offer, don’t respond straight away. Give it anywhere between 3-6 hours before countering their offer. It makes you look less desperate and shows that although you’re keen, you may be looking at other properties at the same time.
- A clever way to illustrate your seriousness and that you’ve done your research, after receiving your first counter offer you can say, "Thanks, I’ll consider the offer and talk it over with my partner and finance advisor. In the meantime, I’ll do a bit more research and see what similar places are going for nearby."
Note: This usually makes vendors a little desperate themselves and super eager to close the deal. By remaining calm and realistic with your offerings, you’re likely to secure the deal with the next offer you make. Cross fingers some other party doesn't outbid you!