By Frank Newman on 25th January 2017
Buying a property is a big deal. A significant amount of money can be gained by learning the art of negotiation.
It’s fair to say that most people don’t like negotiating and don’t like haggling over price but its worth remembering that no one is being held to ransom and all parties are free to walk away if the deal that is finally negotiated is not in their best interest. Don’t feel bad or guilty about offering a price substantially lower than the asking price. If the seller does not want to accept, they won’t.
The other thing to remember is that you as a buyer, without professional experience as a negotiator, will be starting at a disadvantage. Most sellers list their property through an agent. They do have experience in negotiation and it’s their job to get the best price for their client – the seller, the person paying for their service. To level the playing field a little here are a few tips and thoughts that might help you, the buyer, when negotiating a deal.
• Be nice. This is not a win-lose game. It’s about navigating a deal that suits you as the buyer, and one that is acceptable to the seller. If the vendor thinks you are trying to screw them, then you are unlikely to get a result.
• Don’t assume there is a connection between the asking price and the offer price. Ignore the asking price – it’s simply the maximum price you will pay. The only price that matters is the price that makes it a worthwhile investment for you (and even property bought as a home should be treated as an investment decision).
• Sites like homes.co.nz have make it very easy to access invaluable information, like: An estimated market value, how much the current owners paid for the property(!), how long they have owned it, and how much properties in the neighbourhood have sold for recently.
• As a general rule the longer the seller has owned the property more likely they are to take a lower price – sellers quite often, and incorrectly, compare the offer price against what they paid.
• Don’t fall into the trap of being the first person to put a price on the property – it may be substantially more than the seller had in mind. It’s up to the seller, not you as the buyer, to say how much they want.
• Counter-offer with “odd” numbers (eg $322,000 or $324,000 instead of $325,000) to give the impression you are getting near the end of your limit. When moving on price, move in small increments.
• Don’t miss out on a deal for the sake of a few thousand dollars. In hindsight a few thousand dollars will be insignificant.
• Take attention away from price by including other points for negotiation. For example, have a long due diligence period. That leaves something (unimportant to you) available to concede.
• Find out why the house is being sold. If it’s a matrimonial split or the owner has gone overseas then price may be less of an issue because they have “moved on”. Having said that, matrimonial matters can also be complicated as the property transaction becomes part of a post-matrimonial tug-of-war!
• Seize a strong negotiating position by going in as a cash buyer, (pre-arrange finance if necessary) but have other clauses that offer an escape or an opportunity to talk price. Use clauses like subject to an acceptable valuation report, review by a solicitor or accountant, builders report, Land Information Memorandum report, and so on. Any issues that arise in these reports become a reason to go back and talk price. It is fair and reasonable that any previously unknown items that will cost money to rectify should be reflected in a reduction in purchase price.
• The LIM report will show if there has been any unauthorised work done on the property. If this is the case then the cost to make the work comply is a negotiating point.
• Be flexible on the settlement date. The actual date is likely to be of more importance to the seller than you as the buyer, and they may well be more inclined towards your offer if the timing suits them.
• Talk to the vendor directly to identify what is important to them in the sale. What they say and what the agent says is important to the vendor, may differ.
Those are a few tips to help level the negotiation playing field but there will be those who really don’t feel confident negotiating and that’s fair enough, but they should recognise that and pay someone else to negotiate on their behalf – it could save tens of thousands of dollars and well and truly cover the costs of the negotiator.