Whether you are looking at purchasing your forever home or adding a property to your investment portfolio, it is important to go into the purchase negotiations informed. Chances are, there are other people also considering purchasing the property, so making sure you are prepared may give you that competitive edge. Here are our top tips to help give you the best chance of successfully securing a property for a fair price.
Research the market
Are prices going up (seller’s market) or down (buyer’s market)? This determines the balance between the buyer’s and seller’s negotiating power. For example, in a seller’s market, submitting a low offer will get you nowhere. Develop some knowledge of the local market you intend to buy in. Observe local listings to look at how quickly homes are selling in the area and check the prices of recent sales. If prices are going down, and the market is favouring buyers, there may be more room for negotiating the price of a property.
Know the value of the property
Understanding the property’s value will help you decide how much you are prepared to spend on it. Compare properties that have recently sold with the same characteristics as the one you are looking at, such as the number of bedrooms and the size of the land. Also consider the age, structure and condition of the property, proximity to services, shops and public transport. Having an educated opinion on the value of the property will help you to negotiate more confidently. For example, if the agent is asking more than what the property is worth, you may be able to bring the price down with evidence of recent comparable sales. It will also prevent you from having to rely on the agent’s guidance of what the property is worth.
Have your finances in order
Speak with your lender to obtain a pre-approval before you start looking for a property. This will ensure you are clear about what you can afford when entering into purchase negotiations. Having a pre-approval will increase your chances of becoming a buyer and not just a browser and demonstrate to the agent you are a motivated buyer ready to purchase.
Submit your offer in writing
It is important that you submit your offer in writing to the agent and request a written response from the seller. This demonstrates your commitment to the offer to the agent. It also ensures the vendor receives your offer as any written offer submitted to the agent must be provided to the vendor by law. It is also wise to include in your written offer a last right of reply into the offer so that if a higher offer is received you will have the opportunity to beat that offer.
Understand the seller’s motivation
Every sale is unique, and it can be beneficial in the negotiations to understand the vendor’s motivation to sell. You can then tailor your offer to their needs. Has the seller already bought another property and moved out so a shorter settlement period will be attractive to them? Or is the seller in no rush and more interested in securing a price close to their asking price? The agent may not be willing to disclose information about this if it means a lower price for the property, so you may need to use your own investigative skills. For example, is the seller an older person? They may be more motivated by a longer settlement to allow them more time to pack and move and arrange new accommodation.
Respect the vendor and offer your own story
Sellers often find the sale process quite stressful, and it can take them out of their comfort zone. Additionally, many sellers have an emotional attachment to the property. For example, if they have lived there for 50 years and raised their children in the home.
It may be beneficial to provide your own story when submitting your offer. For this particular seller for example, a young couple just married looking to buy their first home who love the property may well motivate the seller more than an investor looking to purchase their third investment property to put tenants in for the life of the property.
Take the emotion out of the transaction
It is vital to do your best to leave your emotions out of the negotiation process. You need to be able to have a clear picture of what the property is worth and be able to remain within your budget. Buying your home should be somewhat emotional, but it also needs to be a sound financial decision. Always remember that the home may be perfect, but if it doesn’t work out, it just wasn’t meant to be and there will be another one for sale soon within your budget.
Talk to the agent
It may not be in your best interests to reveal all your cards to the agent during the negotiation process. An agent who is aware you have not looked at many other properties may be less likely to budge much on the price. Talk to the agent about one or two other properties you are looking at in the area. Talk to them about why you think they may be a better fit for you and what the agent can offer on the property they are selling. Make the agent aware that you like the property but if your negotiations don’t align with your requirements, you will be making offers on the other properties.
Agents often use the fear of missing out or create a sense of urgency about the sale as a marketing strategy. Be calm and use clear communication to state your intentions. Stick to your plan, and your budget, and try to determine whether the seller has a genuine urgency about the sale or if it is just a marketing strategy.
It may be wise not to reveal your walk-away price to the agent. If you have been open about this there may be little room for negotiation. The agent may ask you to reveal your budget. Rather than disclosing this information, it may be preferable to advise you have adequate finance and instead discuss the value of the property based on your research.
Be prepared to negotiate on the details
Negotiating on a property purchase is all about give and take. For example, you may be happy to negotiate a longer settlement in return for a lower purchase price. Items up for discussion often include the contract period, the sum of the deposit paid, buying the property subject to completion of the sale of your existing property, whether the property is sold with vacant possession or with existing tenants, and which fixtures and fittings you do or don’t want. Be prepared to be flexible about these things to secure the purchase while also being clear about what your “deal breakers” are.
When you enter into negotiations with a solid understanding of the market, you are better equipped to make strategic decisions. By being prepared and well-informed, you can confidently navigate the negotiation process, increase your chances of securing a favorable deal, and avoid potential pitfalls or overpaying for a property.
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Your comprehensive insights and expert advice provide a much-needed compass for navigating the exciting yet often overwhelming journey of acquiring a property.