By Rich Harvey, CEO & Founder, propertybuyer.com.au
Negotiation and property go hand in hand. Real estate is a free market, so transacting a home means finding agreement between two parties based on supply and demand.
Of course, this oversimplifies things because effective negotiation is a skill. Those who get to practice it constantly within their specialist field have the advantage.
But understanding the mechanics of the process, and some tactics that can be employed, could go a long way toward helping you secure your next home at a reasonable price.
The basic process
Let’s break this down to its rudimentary components.
When buying real estate, there’s two obvious sides of the equation – the buyer and the seller. There are others who influence the process too of course such as the lender, local council, the ATO, tenants etc., but the parties most invested in the outcome are the buyer and seller, and their agents.
In Australia most sellers are represented by selling agents while buyers have tended to look after themselves. I’m pleased to say this is changing with more and more smart purchasers seeking help from a buyers’ agent.
The procedure involves a seller listing their property for sale via an agent. The agent will co-ordinate a marketing program that attracts buyers. In NSW, there may or may not be a price guide. In QLD price guides are often absent and in VIC, price guides are given, but it doesn’t mean that’s the final sales price!
Based on all the criteria (including information gathered at an inspection), an interested buyer will engage with the selling agent by putting forward an offer on the home.
What follows is a to and fro between the agent and buyer around price and contract conditions until either agreement is reached, or negotiations end without a deal.
Getting the best outcome as a buyer
Of course, negotiating over property is not an everyday event for most people. This means buyers are at an immediate disadvantage because sellers are represented by agents who are professional negotiators.
Given this imbalance, what are some the steps that can be taken to improve a buyer’s chances of the best possible negotiated outcome?
1 – Preparation
Preparation is, of course, essential. You can’t undertake a successful negotiation without it.
For example, trying a to seal the deal by offering to waive a finance clause, without having lined up a pre-approved loan, is a disaster waiting to happen.
You should also understand all other contract elements around settlement, building and pest inspections, as well as town planning, potential environmental issues, and existing lease terms.
Understanding all these facets before you start negotiating allows you to know when to be flexible, and when to hold firm. Knowing when to push for an extended cooling off period or whether to provide an unconditional contract can mean the difference between winning and losing a deal.
2 – Know your line in the sand
Hand in hand with preparation is understanding your absolute limit on price and terms.
You must know at what figure you are going to walk away. A property will have a market value, so calculate that first using comparable sales.
Next, decide whether you’re happy to pay (or even exceed) that figure. At which point does the property become too expensive for you? Be prepared to walk away if you can’t secure a contract for that price or less because, trust me, other listings will come along.
Also, understand your parameters around contract terms and conditions. For example, if it’s crucial you move in as soon as possible, there’s no point discussing an extended settlement as part of the deal.
You must be practically and psychologically prepared to miss out when your cut-off lines are crossed.
3 – Keep hunting for property
Feeling ‘forced’ into a decision during a negotiation is the quickest path to giving away too much. The remedy is to have other options in place.
I highly recommend continuing to inspect other listings while still negotiating. The reason is two-fold.
Firstly, it keeps you aware of other options available in the market. Who knows, a suitable property at a more reasonable price might come along.
Secondly, it removes pressure on you to make a deal – and the other party will pick up on that. You lose any air of desperation, which puts a selling agent keen to reach agreement on the back foot.
4 – Make contingencies
Another way to boost your confidence in a negotiation is to make sure you have contingency plans in place for other important elements.
For example, arrange alternate accommodation as a backup in advance just in case negotiations get bogged down. If you find yourself potentially homeless while negotiating, you may end up accepting terms you shouldn’t have.
Similarly, if you are selling a home while trying to buy another, check on whether a bridging loan is possible. That will give you breathing room if unmatched settlement dates look like being an issue.
5 – Negotiate terms, not just price
Ask the agent what settlement terms would suit the seller and see if you can comfortably meet those.
The seller may need to stay in the home and lease it back for a few months after settlement. Can you accommodate that as the buyer? It could mean the difference between winning or losing the property.
Also, if you’re going to demolish the home and rebuild, perhaps waiving the building and pest clause is an easy way to seal the deal.
See if you can make your offer more attractive than the competition via terms and conditions.
6 – Be polite
This tip is often overlooked but is key to negotiation success.
Be polite and reasonable when dealing with the agent. They are your connection to the owner. While they’re duty bound to present the best possible offer to the seller, trying to purposefully ‘butt heads’ with the agent will get you nowhere. It can make them think you’ll be a nightmare during settlement, and they will communicate that to their client.
In addition, if you miss out on this deal, you will undoubtedly meet the same agent again at future listings. Don’t be locked out of potential buys by being disrespectful during a negotiation.
Negotiation is an important part of buying property, but being an expert takes time, experience and the right attitude. This is why many people now use a buyers’ agent to represent them. Buyers’ agents bring a cool head and even temperament to a negotiation on your behalf. The result is often that you’ll secure the right property at an appropriate price – sometimes before anyone else even knows it’s on the market.
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