The art of negotiation – 4 strategies for making an offer they can’t refuse
We negotiate in a myriad of ways everyday within our personal and work lives, and yet due to the importance, the emotion and the value involved, the lessons we learn from these situations often don’t prepare us for the experience of negotiating to buy a home.
Understanding the process can demystify the experience so here are some simple strategies that will have you negotiating like a Corleone in no time.
Determine what you are prepared to offer and why
To negotiate effectively, you need to know exactly what it is you are trying to achieve. That means asking yourself a few questions:
- What price are you willing to pay?
- Can you afford to own a property?
- What settlement terms are you looking for?
- Is it a good business decision?
Before you start hitting open homes, it’s a good idea to determine your price range. That will help you focus on properties that meet your criteria. Speaking with a financial advisor or a mortgage broker will help you to gain a better understanding of your personal financial situation, along with how much you can afford to spend on a property and what your ongoing mortgage obligations are likely to be.
Knowing what you are comfortable spending and being prepared to walk away if the price is too high will allow you to negotiate much more confidently. That being said, you also need to be flexible. The last thing you want is to miss out on a home you really love, just because you weren’t willing to offer a couple of thousand dollars over the limit you set yourself.
Before you enter any negotiations is always a good idea to do as much research into the real estate market as possible. Check out the local neighbourhood and inspect as many properties as you can. Look at similar homes that have sold recently or are currently available on the market. Look at their average sale prices. This should help you to determine how much the property is worth.
Of course, at the end of the day, the true value of a property is determined by what a buyer is willing to pay for it. That being said, having a good idea of the value of a home will help you determine what to offer and allow you to negotiate more effectively.
Keep in mind though, asking “What will the seller take?” is not the route to the best result. The agent is working for the seller and it is their job to find a win/win solution. To negotiate from strength you need to ensure that any offer you make is compelling.
Make sure you are ready to buy – mentally, financially and unconditionally
You’ll be in a much stronger position to negotiate if you are ready, willing and able to buy the property.
That means getting pre-approval on your finances, having your deposit or a bank guarantee ready to go, ensuring you are legally able to buy the property, and making sure you are mentally prepared for the responsibilities of home ownership.
Having everything you need in place will help to establish you as a serious buyer and give you stronger position when negotiating the sale. You can also use your readiness to your advantage during negotiations. Sellers will view a reasonable offer from a buyer who is ready to purchase much more favourably.
Being in a position where you can offer an unconditional exchange is a great way to get a seller’s attention. On the other hand, an offer from a buyer who hasn’t organised finance, seems hesitant to buy, or isn’t sure if they can even afford the property will not be regarded as a real offer. It’s an expression of interest at best.
Make sure your offer is compelling
Some home buyers will go into negotiations thinking that if they make a really low offer, it will give them more room to negotiate and they will end up buying the property at a lower price. Unfortunately, it doesn’t really work like that.
You need to ask yourself “why will the seller value my offer?” Try putting yourself in the seller’s shoes. If you wouldn’t sell the property under the conditions you are offering, you should probably offer a more realistic price or better settlement terms. It’s also a good idea to remember that if you love the property, chances are other potential buyers will love it too (although maybe for different reasons). Part of making your offer compelling means making sure it is competitive when compared to what other buyers may offer.
Some people get carried away trying to win the “negotiation game”, but the temptation to engage in hard-nosed negotiations rarely pays off. We’ve seen people miss out on owning their dream home because they got caught up arguing over a few thousand dollars, trying to beat the seller. In the long run, a couple of thousand dollars are not going to be anywhere near as important as owning a home you love.
A negotiation shouldn’t be a gladiatorial match. The most effective way to negotiate is to create a win/win situation where both you and the seller feel like you are getting a good deal. If you want a lower price, try giving the seller something in return. Offer a shorter settlement time, waive your cooling off period, pay a larger deposit upfront or offer an unconditional exchange.
If your offer isn’t compelling, there is a chance it will do more harm than good. It can damage your relationship with the seller, making them hesitant to sell to you, and it can make the agent think you’re not serious about the property. That can be a big problem if other interested buyers are making compelling offers. You might find yourself left out of the negotiations and not get a chance to make a counter-offer.
Negotiate with your head, not your heart and be prepared to walk away.
When you fall in love with a property, it’s easy to get caught up in the moment and start dreaming of the great life you will have in your new home, but once you start negotiating, try not to let your emotions get in the way or cloud your judgement.
You don’t want to get carried away with your desire to own the home and offer more than you can afford. You need to be prepared to walk away if the property isn’t in your price range or the settlement terms are not suitable. To help with this it can be a good idea to find a few potential homes that you really like. That way, if you don’t get one, you won’t feel too let down and you can treat the experience as good practice for your next negotiation.
If a property you are interested in is going up for auction, make sure you check out these auction strategies. If you’d like more tips and strategies to make finding your next home easier, contact your local Independent office.