Inexperience as a first time buyer could cost you thousands! The art of negotiating with real estate agents or vendors is vital for getting the best deal.
You could consider a buyer’s advocate or a buyer’s agent. However, if you choose to negotiate on your own, research is the key.
Here are seven steps to get you started:
- 1. Know your market inside out. Ignorance of the property’s value runs the risk of overpaying. Or, if demand for the property is high, you potentially could annoy the vendor who will seek another buyer. Negotiate hard in softer markets where buyer interest is low; but bargain quickly when properties are moving fast. Be realistic about the market. Research statistics such as vendor discounting and days on market and understand the area you plan to buy in. Remember, the real estate agents sole purpose is to assist the vendor. Do not trust them to provide reliable comparables or data. Do your own research!
- 2. Know how much you can afford. Arrange pre-approval finance. It is essential to have a clear understanding of your financial capacity as well as how much you can borrow. Don’t stretch to more than you can afford. You do not have to divulge your true borrowing capacity. However, you could use this to your advantage – by divulging your borrowing capacity to the real estate agent; they may be less likely to be pushy.
- 3. Don’t put all your cards on the table. If you’re willing to go higher, but feel that the vendor is close to breaking point, stick to your price. You may want to push the “This is my limit – I can’t go any higher” line, or use the borrowing capacity suggestion above. A good example would be buyers at an auction who play quite hard to not increase their offer by saying “this is our final amount”. You can note how skillfully the agent convinces them into revealing their intentions, and how the agent presents the vendors thoughts in a positive way.Befriend silence, be patient, and do not reveal more than you should.
- 4. Do not assume that price is everything to everyone. Find out what the vendor wants, apart from price (it may be a short or a long settlement period). Offer terms and conditions that will encourage the vendor to lower the price. You can Google or do an RP Data search that may reveal what is important to the vendor. A property that has been on the market for a long time doesn’t always mean that the vendor is desperate to sell. Try to find out whether the property’s price has already been discounted and how much the vendor actually wants for it. For instance, you can agree to the asking price, but with terms and conditions that are favorable to you, or alternatively, offer less for the settlement period that the vendor wants.
- 5. Provide reasons for lower offers. Justifying a lower offer may result in a positive response. Again research is the key! Use convincing comparables rather than those presented by the agent. Anything that needs fixing or replacement on the property can arguably be deducted from the price or you can ask for the property to be in a better condition when you purchase it.
- 6. Put time limits on your offers. A time limit on your offer shows that you are serious about the offer, but also ensures a quick decision and/or begins the negotiation phase. Use the responses from the real estate agent to guide your actions. For instance, if the agent is not hounding you for the next offer, there may be other potential buyers willing to pay more. However, you may also want to adopt a similar approach and let the agent know that you have other properties you are pursuing.
- 7. Have the team behind you to act fast. If the vendor counter-offers or another offer the vendor had accepted falls through and they approach you with a time limit, you’ll need a professional team to start the paperwork as soon as possible. As a first time buyer, Optima Partners can assist you to build your team. Develop your investment network so that you can instruct your team as quickly as possible. It is important to assess the situation carefully. While you may show a negative or disinterested streak while negotiating a property you really want, the agent may assume you are not serious about the property and will pursue other interested buyers.Another option is to contact the seller yourself or ask for a meeting with the seller. While it may work for the confident and competent property buyers, those who are uncertain may be leading themselves astray.