Learning how to negotiate while buying and selling real estate is a tricky business. The process can be full of traps that you can’t be expected to know about as most people only enter the market every 5-7 years. If you only rode a bike, drove a car or swung a golf club every 7 years you would be pretty rusty at that too.
My goal is to save you some heartache and potentially save you some money by shortening your learning curve. This way you can avoid the mistakes I have seen so many people make over the years (myself included).
For most people, their personal home will be the most valuable asset they ever own.
Most Kiwis have 90 – 100% of their personal net worth tied up in real estate. Buying the right home at the right price can change your life for the better, and when it comes to selling – you only get one chance to do it right and maximise your equity.
Most of us will buy and sell 4 -5 times in our lifetimes and most people will go about it the wrong way, losing money in the process. But not you, you are going to be one of the smart ones 🙂
The key piece of information that will totally change how you negotiate is:
Are you the only offer?
Or are you in competition with other buyers?
You should tackle these 2 situations very differently. This article covers how to negotiate in both scenarios.
Selling rather than buying? Click here to read negotiation tips for sellers.
How to negotiate part 1: You are the only offer, congratulations!
If you have recently made an offer on a home in a hot market, you might be asking, “One offer, seriously? That actually happens?”. It does and it could happen to you so be ready to make the most of this fortuitous situation with these tips:
TIP: Negotiate the price but don’t be a dick about it.
Don’t come in $80k below what you think the property is worth. It is very tempting to get greedy at the moment of truth when you are about to make an offer and try to ‘steal’ the property. Owners are clued up these days and they have looked at what other houses in their area have sold for. All you do by coming in low is piss people off.
My suggestion would be you offer $20 – 45k below the max figure you would pay for the home, showing that you are serious but leaving some room to move. If you feel you would be wasting your time with the offer you have in mind then you could tell the salesperson verbally what you think the property is worth. This sort of feedback can really help owners become more realistic over time.
Not sure what the property is worth? Then you aren’t ready to offer yet. You need to do more research. Look at other properties in the area, drive past recent sales. Learn your market before you jump in! Here are 6 tips to help you decide on a price.
TIP: Use un-even numbers and cross-outs.
If you have read my blog for a while you will be familiar with this suggestion but it works so well it’s worth repeating. Whatever number you settle on, make sure it’s an uneven number. Instead of offering $400k, offer $401,350. In addition, write a few lower numbers down and cross them out too, so it looks like this:
$390,000 $400,000 $401,350
Un-even numbers look more considered, as though you are putting every last cent into your offer. The cross-outs make it look like you have already negotiated with yourself and you are at the top of your range (which most people usually are). When I recommend this sort of thing buyers usually look at me very strangely but I assure you owners love this stuff and it seriously helps.
TIP: Fill in the contract yourself.
I suggest you fill in the contract yourself and deliver it to the real estate office at an unexpected time for 2 reasons:
1. Keep the salesperson on their toes.
If you announce you are going to offer at 5 pm tomorrow night, guess what the agent is going to spend the next 24 hours doing? Yes, that’s right, trying to rustle up other offers! If you deliver it un-announced then the agent is obliged to act quickly on it. They may still want to call a deadline (to check for other interest) but at least you didn’t give them a major head start by announcing your intentions before you needed to.
2. Don’t subject yourself to high-pressure sales tactics.
Save yourself the drama of an awkward late night home visit from that overbearing salesperson who doesn’t take off their shoes. Fill the contract in yourself with your solicitor. Seriously, in what other industry does the salesperson come round to your house at 9 pm at night? I know many salespeople who have negotiated contracts well past midnight!
It’s really not that hard to fill in the contract yourself (or with your solicitor) and you should be getting their advice before you submit your offer anyway. When I started working in real estate (in 2007) we used to drive all over town picking up offers but now that is extremely rare.
Most buyers email their signed offer, or sometimes they visit the salesperson at their office for a 10-15 minute strategy meeting to go over the contract, before taking the agreement away to sign and return at a later date.
TIP: Don’t let pride get in the way of securing your dream home.
One of the most dangerous emotions, when you are buying, is good old fashioned pride. As Kiwi’s we love to put our foot down and say “NO! I will not pay more than $X! They can take their house and shove it if they think I am going to move anymore!”
This happens at some point in nearly every negotiation. We all chase some mythical middle ground that never really existed in the first place “I’ve moved 30k and they’ve only moved $10k! I’m not going another cent until they come down! They should meet me in the middle!”
If you come in $100k lower than what the owner wants, should they automatically have to move $50k so you can ‘meet in the middle’? Would that make you a good negotiator? It simply doesn’t work like that. Winning at negotiating should be defined as getting the house you want at a reasonable price. Not finding some owner you can brow-beat into ‘meeting you in the middle’.
I strongly urge you to remember that the owners’ sense of pride will be just as strong as yours and rather than playing the ‘let’s see who cracks first’ game, why don’t you instead try to find some way to give them a small win to keep things moving. Thereby getting you closer to moving into your new home. Keep your eyes on the prize.
For example: Let’s say you are $20k apart and negotiations have stalled. Both you and the seller are sticking your heads in the sand and refusing to move. Rather than waiting for days for someone to come to their senses (and risk another buyer swooping in) try the following:
Move a small amount.
What is $1,00 or $2,000 in the scheme of things? You are buying a house here, the biggest purchase of your lives so far. Don’t nickel & dime your way into continued homelessness.
Always try to keep a negotiation moving. No matter how small the change. You are not wasting your time moving a small amount (even if the gap is $10 – 20k). It all helps more than you could possibly imagine. Owners are like potential dating partners – they want to know you’ve had to work hard to seal the deal.
Offer something else instead of more money.
If you are absolutely stretched and can’t find another cent then give the owners another small win. Offer them whatever settlement date they need. I have had properties settle in 3 days before (sometimes 6 months too). Solicitors don’t like it but it is possible. 4-6 weeks has historically been the norm but every owner is different and negotiating a settlement date that suits them could help you win them over if your price isn’t up to their expectations.
Another option is to shorten your conditions (eg. change them from 10 working days to 5 working days or 5 working days to 3). It doesn’t really matter what you do, just change something. Most owners just need to feel like they have negotiated before they sign their life away. Saying no to movement of any sort is a sure fire way to slow things down which could put your whole purchase at risk.
I have personally missed out on 2 properties which I would have secured for an extra $1 or 2k if pride hadn’t gotten in the way. In both circumstances, another buyer came in soon after and paid significantly more than me to secure the home. So I am speaking from experience here. Don’t make the same mistakes I did.
How to negotiate part 2: When you are in competition.
Firstly, how do you know you are in competition? Are agents full of B.S when they tell you there is another offer? In my experience no, they are not. I’m sure it has happened in the past – where agents fabricated the idea of another offer to get the buyer to up their price, but in this day and age, it seems to be extremely rare.
Salespeople know that with strict REA guidelines in place, they risk losing their licence and destroying their reputation if they engage in any sort of misconduct.
If the agent is telling you there is another buyer interested, then here are the questions I would ask that salesperson to accurately gauge the situation:
Has the other buyer provided you with a signed offer yet?
If the other offer isn’t signed then their interest doesn’t mean jack.
How many times have they looked at the property?
Eg. Did the agent just take them through earlier this afternoon and they seemed a bit keen? As Kiwi’s we are terrible at being honest and we hate offending people. We walk through every home we visit saying “Oh this is nice” knowing full well we have no interest whatsoever. We suck at being honest about houses (myself included).
Have these other buyers offered on the property before?
If they offered more than 2 weeks ago and got rejected then you shouldn’t be overly concerned. But take it as a promising sign that someone else also wanted to buy the same house.
What sort of deadline do you intend to set now that you have my signed offer?
Once you give the salesperson your offer they will usually set a deadline for other offers to come in by (if they have interest from other buyers). Every office is different but in my humble opinion if the property has been on the market for a few weeks then 24 hours is a reasonable deadline for any other offers to come in, except for in these 2 circumstances:
1. If you make your offer on a Friday…
As an agent, I didn’t work Saturdays (family day) and Sundays were usually ridiculously busy with open homes. I often had to tell clients not to expect anything to happen until Monday. Other agents might be different though. Also, owners who have open homes scheduled for the Sunday will often want to see how the viewing goes before deciding on your offer. Better to make your offer on a Wednesday or Thursday and request a deadline of Friday afternoon at the latest.
2. If the property has only just gone on the market…
Most owners will want to have at least 1 open home before reviewing any offers and some companies have a ‘7-day rule’ where a property has to be on the market for a week before being sold so bear in mind you could be waiting a few days.
If the agent is pushing for a longer deadline in any other situation it is worth pushing back and strongly encouraging them to present your offer asap, as long as it’s a reasonable one and you are not trying to buy it for $100k less than what it’s worth.
Note: Auctions & Tenders work to a fixed deadline, although Auctions will sometimes be brought forward if an acceptable offer is received prior to the advertised Auction day.
How to decide on your price? Put your best foot forward.
If there is more than 1 offer then, unfortunately, your chance to negotiate has gone. If there are multiple offers being presented at the same time there are usually 4 possible outcomes:
1. The owner rejects all offers. You can then decide if you want to give it another go at a higher price.
2. The owner accepts one of the offers.
3. The owner negotiates with one of the offers
4. The owner goes back to a select few (say the top 2 or 3) if they are very close.
If you really want the property then you are going to need to give it your best shot to stand a chance of achieving outcomes 2, 3 or 4.
When you sit down to decide your price the question you need to ask yourself is:
“If someone paid $10k more than us and we missed out, would we be really upset?”
If you could take it or leave it then just stay where you are and see what happens. However, if you really like the home and can picture your future offspring playing on the front lawn then maybe it’s time to put your shoulders back and reconsider your price.
When you are offering on your first home every $5k seems like a huge amount of money (and it is) but if it’s the right home for you then it’s worth remembering you are talking about less than 1% of the overall value of the property.
$5,000 = 0.7% of the value of a $700k home.
Many years ago, I bought my first home in Johnsonville for $416k. If you asked me now, would I care if I had paid $420k for it? or $410k, or $415? The answer is absolutely not. If it’s the house you like then get into it. The interest rate you pay on your mortgage will have a much bigger effect on your weekly repayments than an extra few thousand dollars on the purchase price.
As mentioned above, go in with an uneven number (eg. $416,750). I have seen countless people miss out on houses they loved by only a few hundred dollars.
If the owner negotiates with just your offer…
Congratulations! You are super close to owning your own home and you are back to scenario 1 above. At this stage try above all else to keep things moving. Don’t be a stick in the mud or you run the risk that the owners might change their mind and go back to one of the other offers instead.
Make whatever move you can, even if only a small amount to keep them onside.
If the owner goes back to the top 2 or 3 offers…
This can happen quite a lot. It’s common to see 2 or 3 offers that are extremely close (within $5 – 10k of each other). The owner will sometimes ask salespeople to go back to multiple buyers to see if there is anything they can do to improve their offer. Essentially giving you one last chance to put your nose in front. For your info, most people don’t move a huge amount in this situation, the average buyer would up their offer anywhere between $1 – 10k in my experience and sometimes won’t move at all.
It is likely a mistake to stay put and go back with the same offer as usually 1 of the interested parties will move, putting that buyer into pole position with the owner. If you can move, you should. Even if it’s only a small amount. Adding as little as $500 or $1,00 could make all the difference.
If you are absolutely stretched on price then don’t forget you can also adjust your settlement date. Or the length of your conditions. Look for anything you can do to make your offer stand out.
Keep these tips in mind and you will be well ahead of the curve when it comes time to negotiate your next property purchase.
Do you still have questions?
Check out my book, ‘Winning the real estate game’ for more tips to help you make smart real estate decisions.