How to negotiate the best deal when buying a house
When you’re buying your dream home, these tactics can help you score the best deal.
Buying or selling a property is one of the biggest financial transactions you’ll ever be a part of, regardless of whether you’re a first-time buyer or a property investor. When you’re talking about spending a few hundred thousand dollars or more, getting the best possible deal is crucial.
So you need tactics. Once you understand the psychology of negotiating and the motivations of all parties involved in the property sale, you’ll be in a better position to negotiate favourable terms.
Negotiating a good deal when buying a property
7 steps to negotiate
You’ve finally found a property that meets all your requirements – it’s in the right location and it has all the right features. You’re ready to make an offer, but you don’t want to pay a cent more than you have to.
Generally, negotiation is about understanding the market, finding out which experts can help you, and sticking to a budget. If you negotiate well, you can enjoy savings not only on the purchase price, but also on stamp duty and home loan interest.
Research the market
It’s impossible to work out how much a property is worth if you haven’t done your research. Inspect similar properties in the area to see how they compare to one another. What price have similar properties sold for nearby in the past few months? Which way is the property market trending in your suburb? Working out the true value of the property will give you more bargaining power when it’s time to negotiate.
Dealing with real estate agents
Remember that a real estate agent is working for the vendor, not for you. It’s the agent’s job to get the best deal for the seller, so they might use tricky tactics to get you to up your offer. Don’t feel pressured into offering more than you’re comfortable with, and don’t over-disclose when it comes to your budget or your emotional attachment to the property.
At the same time, it’s important to be upfront and open with the agent. Communicate clearly with the agent, put all offers in writing, and make yourself as easy to deal with as possible – this can help your chances if the seller is considering your offer alongside other interested buyers.
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Use a buyer's agent
A buyer's agent or a buyer’s advocate can help you find the right property and then represent you throughout the negotiation process. A buyer's agent will assess different properties and negotiate the purchase of properties on your behalf.
Using a buyer’s agent also gives you the advantage of being able to access off-the-market properties which can be achieved through their industry networks.
Research the property
To work out exactly how much you should offer for a property, it’s important to take a closer look at the features and drawbacks of the property and why the vendor is selling.
Questions you should ask include:
- Why is the vendor selling?
- Are they looking for a quick sale?
- How long has the property been on the market?
- How much is the vendor expecting to sell the property for? Is that price flexible or is there room to negotiate?
- Does the property have any known issues, such as building defects or pest problems?
The answers to all of these questions will impact upon the motivation of the seller. For example, a vendor who wants a quick sale may be more likely to accept an offer below their asking price than one who is happy to wait for the right buyer to come along.
Stick to your budget
Before you start house hunting, you need to sit down with an accountant and a financial planner to work out your budget. It’s also a good idea to speak with a mortgage broker to understand your borrowing capacity.
Make sure that you stick to that limit no matter what sort of pressures you face. Whether it’s competition from other buyers or simply the fear of missing out on your dream property, don’t sway from your budget. If the price of a property is taken out of your reach, walk away.
It’s a good idea to offer an amount less than your maximum limit. This gives you some room if the seller wants to negotiate, while it could also end up saving you a significant amount of money on the property purchase. On the other hand, if you make an offer at the upper end of your price limit, the seller may think you have room to move and you could be priced out.
Avoid offering an amount lower than the asking price. This will insult the seller and make them less likely to consider any future offers you make.
Finally, make sure you have home loan pre-approval before you make an offer.
Take emotion out of the equation
To remain cool, calm and collected during the negotiations, try to remove emotion from your decision making. Keep in mind that if you don’t secure this property, there will be many similar properties around the corner that will fit your buying criteria.
Fear of missing out (FOMO) can be a powerful motivator, especially in the excitement of an auction, so don’t let it overpower your plans or budget.
A good tactic in your negotiations is to include special conditions in your offer which can make you stand out from the crowd.
For example, if the vendor is keen for a quick settlement, you could indicate to their real estate agent that you are willing to finalise settlement within a reduced time frame, such as 30-40 days. Similarly, showing that you have home loan pre-approval and that you are willing to pay a large deposit can also increase your bargaining power. Of course, you’ll need to be ready to pay a deposit straight away if your offer is accepted.
Negotiating tips for both buyers and sellers
- Set a goal. Set a clear goal of what you want to achieve before you begin negotiating. Knowing what you want in terms of purchase price, contractual terms, and budget will ensure that you’re properly prepared to negotiate the best deal.
- Understand vendor motivations. Knowing a seller’s psyche can help you decide how much to offer, how to negotiate and what terms to include prior to settlement.
- Find a middle ground. Negotiating is all about give and take. While there may be some aspects of a deal you’re not willing to compromise on, refusing to budge at all may not lead to a desirable outcome.
- Be prepared to walk away. If negotiations fall apart or if the other party isn’t willing to see your side of the equation, cut your losses and walk away. Don’t fall into the trap of believing in the "perfect" property, instead know that if things don’t work out, there will be another suitable property around the corner.
- Listen. Listen carefully to what the other party is saying — as well as what they’re not saying. Once you understand where the other person is coming from, it’s much easier to work out an arrangement that benefits both of you.
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