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The art of negotiation

John McGrath
Tuesday, September 22, 2009

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Many of us feel at a loss when it comes to negotiation, an important skill when buying by private treaty.  This is because we buy property so rarely in our lifetime that it’s virtually impossible to have gained the experience necessary to become a skilful negotiator.

While a vendor has their selling agent to negotiate for them, buyers are on their own unless they have a buyers’ agent to act on their behalf. So here are my top tips for negotiating.

Decide your walk-away price

Buying real estate can be an extremely emotionally charged process. If your heart takes over your head and you offer more than you can afford it can be financially disastrous. You need to be very clear about your walk-away price.

Care – but not that much

Tell the agent you’re interested but don’t let on that you’re committed. If you appear emotionally attached the agent will push for a better price. However, don’t play it so cool that the agent thinks you’re not interested – they’ll go ahead and sell to someone else!

Respect the vendor and seek a win-win

You catch more flies with honey than you do with vinegar, so it’s important to maintain a good rapport with the other side.  Look for common ground and give the vendor an incentive to accept your offer. You can often trade off terms favourable to the vendor, such as a shorter settlement, for a reduction in price.

When your offers are rejected, don’t take it personally, and don’t make negative comments about the property as this will only offend the vendor. Remember, they are influenced by their emotions too – especially when selling their own home.

Show you’re serious

Before making an offer, get your finance pre-approved as this is a very powerful demonstration of your commitment to buy.

The best way of showing you’re serious is by signing the contract and attaching a cheque for the deposit. This makes your offer a lot more seductive to the vendor. Alternatively, put your offer in writing and mention you have your finance approved.

Offers and counter offers

Don’t start negotiations with your best offer as vendors always assume your first offer will not be your last.

If the property is over-priced, it’s okay to start with a cheeky offer as long as you’ve done your research and can justify it using market information and comparable sales. A professional valuer’s appraisal that is much lower than the asking price is also great ammunition.

Offering odd amounts is a great tactic especially after making a couple of lower offers. I’ve done this myself with great success. For example, rather than offering $460,000 or $465,000, I’ll offer $463,500. I’ll tell the agent, “I’ve looked at the comparable sales as well as my finances and costs and I can offer $463,500.” An odd amount suggests there’s some logic to your offer and it also implies that you’re at your financial limit.

Get time on your side – give your offers a deadline

Do this to encourage a decision. Give the vendor enough time to contemplate it – 5pm the next day is fair – and be aware that the agent will use this time to encourage other buyers to make higher offers. You can always extend the deadline if the vendor hasn’t reached a decision by then.  

If you can’t get your price, get your conditions

Conditions are powerful bargaining chips – you can negotiate the length of settlement, inclusions (such as furniture), an early release of the deposit and/or offering to rent the property to the vendors after settlement if they haven’t yet bought a new home.

The key to being a successful negotiator is acquiring knowledge, both about negotiating in general, the vendor’s circumstances and the state of the market. Most importantly, remember to stay calm.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice

Published: Tuesday, September 22, 2009

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