Now that you have negotiated the best possible deal on your mortgage, it"s time to look at the ins and outs of getting the best deal when buying a property. Rich Harvey, managing director of propertybuyer™, reveals his top negotiation secrets.
The first thing homebuyers need to know about negotiation is that it is a process. It can happen quickly or slowly. One of the best pieces of advice I can give when conducting negotiations to buy a property is to adopt some simple negotiation principles.
I adopt a 'win-win" attitude because I feel it works best for my clients and for the vendors of the properties. If you take a 'win or lose" attitude and try and squeeze the vendor right down to the last dollar, your approach will not win the property.
At the end of the day there has to be a 'win-win" approach. This means that each party involved in the sale of the property needs to feel as though they have won something.
It never hurts to ask for discounts. By this I mean that if you can get a property at a $20,000 discount and you have spent 10 hours of your time getting that property for that discount, your return on that time is $2,000 an hour - not a bad return on your time.
This also provides you with some instant equity in the property and also means you"re taking a smaller mortgage.
This is not often highlighted enough for homebuyers.
Negotiation starts from the word 'go"
Negotiation starts from the moment you make contact with an agent. They form an impression of you and how you will behave in the future. First impressions are critical. It takes about seven seconds for them to make that initial assessment.
Be professional and honest with the agent. You don"t want to play all of your trump cards upfront. If you are friendly, your agent will treat you with respect.
For example, if you turn up to an open inspection and don"t make eye contact with the agent, they"re unlikely to call you if you request information about what happens with the property. But if you look them in the eye, shake their hand, give them your mobile phone number and say that you"re interested in the property and would like a contract, they"re going to call you.
Five critical success factors
1. Positive mindset
Approach the negotiation with a 'win-win" and 'abundance" mindset, believing that everyone can profit from the transaction.
Be clear, concise and straightforward with your agent. Conduct your offers in writing and don"t try to put a negative spin on the property.
3. Research extensively
To be a successful property buyer you have to look at 50-100 properties in order to get a sense of the market. You should know what similar properties have recently sold for (going back at least two months) as this knowledge will give you a distinct advantage and allow you to quickly determine whether the property is worth pursuing or not.
You can buy data from companies such as Residex to find comparable sales and statistical data on the property market in your area. You can also get photos of the property from RP Data, which gives you a good indication of what they"re like. A drive-by search is also essential.
It takes a considerable amount of time to look at comparable sales and do the proper due diligence. Be warned that when agents offer you a list of comparable sales for free they will often pick out the highest selling properties to drag the price of your sale up.
4. Understanding the vendor"s motivation for selling
Ask the agent as many questions about the property as you can, to determine how strong the vendor"s motivation is to sell. Is it that they need to get a particular price for the property or settle by a certain date? Or do they need the deposit released before settlement?
Finding out the factors that make the transaction attractive to the vendor can help in your negotiation, and if the vendor wants you to meet these sorts of conditions, you might be able to negotiate further on the price of the property. A motivated seller will be someone who has already purchased another property, is in financial stress, divorced/separated, moving overseas/interstate/job transfer or selling to collect their inheritance. If you know about these factors it will help you.
5. Timing of offers
This is critical to how successful you"re going to be. In saying this, there"s no absolute guide and it will be a case-by-case arrangement.
If you like the property you can put your offer in straight away or you can wait to see if anyone has made an offer. The time you leave between your offers all comes down to reading the negotiation and how keen the agent seems to hear your next offer. Preferably, you want the agent to be chasing you for your next offer, not the other way around. If the agent is chasing you. it can be an indicator that the vendor wants to sell quickly or that there are no other interested parties. If you are continuously chasing the agent, there may be a more desirable bidder on the cards.
Comparing elements during negotiation
If you plan to begin negotiations for a specific property it"s best to compare like with like to get the right idea of how far you are willing to take the price. Remember to compare the property"s unique features with the features you have seen in other properties both currently on the market and those recently sold.
By doing this you can determine whether you"re prepared to pay more for a property with character detail, or a balcony and garage for instance. You might find that it will cost an extra $20,000 or $30,000 to secure the property with the balcony and garage.
Once you have determined how much the features of the property are worth to you, start factoring in any possible repairs or renovations into the price. If need be, get some figures as to how much these renovations might cost and use this in your negotiations to reach a fair price for the property.
When you are giving your offer to the real estate agent, either over the phone or in writing (nothing is legal until contracts are signed and exchanged) explain why you think the property is worth what you are offering.
Again, try to adopt the 'win-win" approach and make sure you have offered to meet some of the vendor"s requests.
Commmmon mistakeses to avoid whenen negotiating
There are four major mistakes that homebuyers tend to make when negotiating on a property.
1 Acting disinterested if you"re interested: this is the biggest mistake buyers make. The agent won"t call you back if they don"t feel you"re keen for the property.
Acting as though you are interested does not mean that you are giving away your secrets upfront, or affecting your chances of a good negotiation.
2 Trying to put negative spin on the property: the typical scenario is that the purchaser talks the property down and points out everything that is negative. The agent will wonder why you want to buy it.
My approach is to highlight how perfect the property is for one of my clients. I usually say: "Yes, it may have a few faults, but it is the right property, and I"m willing to offer $X".
3 Starting high with your offers: if it is a private treaty don"t start at your maximum or the asking price - you have nowhere to move and the vendors will think you have deep pockets and can spend more.
4 Not checking comparable sales: going into a negotiation without the proper research is the worst mistake a buyer could make.
Negotiating in the current climate
It always depends on the property, its position and its qualities but it"s very possible to negotiate in the current market. It"s a buyers" market, and there are opportunities to buy in below market value prices in 2009. If you feel you have entered into a competitive bidding situation with another buyer, or your particular price bracket is flooded with buyers - such as in the current first homebuyers market - it can be a good strategy to make your offer with a signed contract and a 5% deposit cheque attached.
This is a very strong and definite method of making an offer, as it means you"re very serious about securing the property - and agents love it. It also proves the offer is absolutely genuine and you are serious about proceeding with the purchase.
You would only take this sort of action, however, after you"ve done your strata report, your pest and building inspections, carried out your due diligence and had your solicitor or conveyancer look at the contract. This way you are convinced in your own mind that it is a worthwhile purchase, making the process a lot easier.
This may sound like a risky negotiation tactic, but you will have a very good chance of success if your offer is close to the asking price. But keep in mind that if your offer is 30% below the asking price you might have very little chance of securing the property.
With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now