Getting into the psyche of a motivated seller is an important skill for property buyers. Find out how you can gauge a vendor’s motivation and how to use this knowledge to negotiate a fair deal.
Knowing how motivated a vendor is to sell a property is an important piece of information you can use as leverage. The more motivated they are, the better your odds of securing a lower price.
If you discover that the vendor is eager to sell, perhaps due to debt stress or due to a lifestyle change, you can use this knowledge to negotiate an agreeable price.
However, keep in mind that properties should be selected based on a range of merits, including location and capital growth potential, and not just price alone.
Learn more about the risks of stigmatised properties.
What are the types of motivated sellers?
There are two types of highly motivated sellers: the ‘must-sell’ vendor and the ‘will sell’ vendor. Both have a keen interest to sell an asset quickly.
The ‘must-sell’ vendor may be eager to sell quickly due to financial hardship (such as defaulting on their mortgage), an interstate/overseas job transfer or a deceased estate. These vendors are most likely to sell even if the price is low, but they may prefer a shorter settlement.
On the other hand, the ‘will sell’ vendor may need to sell due to a lifestyle change, such as accommodating an extended family or to move to a school catchment zone area. They are not as driven by a short settlement period. These vendors will sell if the price offered is a fair price, but they are unlikely to accept anything below market value.Back to top
What are some situations where vendors want to sell quickly?
A vendor that has recently divorced will be keen to sell the property quickly if they’re looking for a quick settlement (chances are they’ll want to move on with their lives).
To up your negotiating power, be flexible with settlement terms and consider putting forward an unconditional offer, as these may be appealing to an emotionally drained vendor.
A mortgagee in possession sale takes place when the owner (borrower) defaults on their mortgage repayments and the lender takes possession of the property to sell. A mortgagee in possession sale can result in a reduced price due to the distressed seller.
Although the mortgagee has a duty of care to achieve the highest possible sales price, they are in a weak bargaining position, as they can’t withdraw the property from the market as a normal vendor would. Normally, a bank is just concerned about recouping its losses.
Properties under a mortgagee sale may sell for around 5%-10% below the reserve.
Try to offer a quick settlement of no more than 30 days.
Buying before selling
Some people buy a property before they sell their existing property and later realise they haven’t allowed enough time in between transactions. These vendors normally face the need for bridging finance and can’t afford to take their time with the sale.
These vendors are normally keen to sell, as they need the proceeds for a deposit on their next property purchase. Alternatively, they may be moving interstate or changing lifestyles, such as wanting to get in a new school zone for their kids or moving into a retirement home due to ill health.
Negotiating for an asset under these circumstances can work well if you offer favourable terms such as an unconditional contract or a short settlement.
A deceased estate often leads to the asset being managed by the trust or the executor of the will. In this situation, the property will generally go to auction for market value.
Make sure you do your research if you’re thinking of buying a deceased estate. If the property is in poor condition, you may be required to fork out cash for costly repairs and maintenance.
While a deceased estate can represent a good purchase opportunity, be mindful of the legal process required to complete the purchase. You’ll need to ensure that the probate or letter of administration is organised before going ahead with the sale.
Suburb history or characteristics
Another factor that can motivate a vendor is if the suburb has undesirable characteristics, such as a hostel or brothel up the road, or if the area has experienced a high level of crime.
While some of these factors may be immediately evident, others may require further research to be discovered. For instance, the property may have been the site of a criminal event such as a sexual assault or a murder, which could only be realised through extensive research.
Environmental stigma may also stimulate a vendor to sell quickly. For instance, if the property is within close proximity to toxic or chemical waste, which may not be immediately obvious.
Real estate agents are required to communicate if a criminal event has taken place in a property. However, an agent is not required to disclose information about nearby murders or suicides.
Why is it good to know the motivations of the vendor?
Knowing a vendor’s psyche can help you decide how much to offer, how to negotiate and what terms to include prior to settlement.
Although the real estate agent may not give too much away, it’s worth asking some questions to try to understand the mindset of the vendor.
- Why are they selling?
- What settlement terms do they want?
- How long has the property been on the market?
- How motivated are they to sell?
- What is their timeframe for selling?
- Have there been any reductions in the price?
If your offer is rejected, keep in mind that price may not be the only factor. Ask the agent why your offer was rejected so that you can adjust the terms accordingly.Image source: ShutterstockBack to top