We all want to buy our house or our next investment property at the lowest price possible, or at least get good value for our money.
You realise that the asking price quoted by the selling agent will usually be more than the owner is willing to take for their home.
It’s just part of the real estate game – they expect to come down in price as part of the negotiation process.
So how much do you offer?
Where do you start this negotiating game?
If you ask the selling agent what price you should offer, you’re asking the wrong person. Remember, the agent is paid by the seller to represent them and to get the best price possible.
Despite this we would still ask them what they would consider was a ‘fair offer’ and then ask them to justify it with a list of comparable sales.
You are probably thinking that the agent just wants to make a sale, and in most cases you are right. In reality the agent doesn’t get paid unless a sale is made, so obviously he is keen to sell you the house.
I’ve noticed many agents prefer an easy negotiation, knowing that sellers get offended when they receive low offers on their homes. This means they will probably recommend you make an offer close to the asking price.
So unless you use a buyer’s agent to help you negotiate, you are really going to have to rely on your own research to work out what the property is worth.
By the time you end up at the negotiation table, you should have a fair idea of the market price for homes you look at because you’ve done your research, looked at many homes and gotten a pretty good idea of what similar homes in the area have sold for.
Remember, it’s the sale price, not the asking price that you need to focus on when you’re doing your pre-negotiation homework.
In most markets (other than during boom times), houses sell for less than their asking price. There is no standard discount, but as everyone knows there will be some ‘argy bargy’ about the price as agents tend to ‘list the property for sale’ at an asking price usually about 5-10% more than the vendor will accept to sell their home.
So the asking price is just a starting point for the negotiations. If you pay what the seller is asking you could be wasting money. The trick is to know how much less the seller will accept.
Sometimes it’s only a few thousand dollars. Frequently it’s about 10% or more, but in a seller’s market – a hot market, where there are many buyers making offers – vendors may not be willing drop the asking price at all.
Another way to determine the market value of the home is to have a valuation done. Your lender will usually organise a valuation as part of the loan process, but this will occur after the deal has been done.
Some buyers choose to have a valuation done prior to making an offer or make their offer subject to a satisfactory valuation. Not many sellers accept this type of condition and it’s possible you will lose out to somebody else who will buy the property without this type of condition.
The trouble with engaging a valuer is that it usually takes three to four days or even up to week before you get their report, and it may cost you $350 to $450. If you have the time and want a professionally acquired figure, then a valuer may be the way to go. The valuation report may even provide you with ammunition to use in the negotiation process.
While your lender will require valuation on the property as part of your finance application, not all valuers are approved by certain lenders. Each lender only works with a small group of valuers (called their valuation panel.) This means that if you pay for a valuation for your purposes, it may not be accepted by your lender.
And remember that if you ultimately don’t buy the property, you will still have to pay for the valuation.
Make it clear to the agent why you are offering a particular price. For instance you might say something like, “From our research into values for comparable homes, we believe this property is worth X and would like to offer this amount to the vendor.”
This lets them know that you’re no fool and they will be less inclined to try to talk you into making a higher offer.
Five questions to ask the agent before you make your offer:
1. How did the vendor come to the asking price for their home? Was it from the agent’s suggestion or because that’s how much they need to buy their next dream home? Some sellers are unrealistic and unlikely to come down from their asking price if they have to get a certain amount for a particular reason.
2. Have there been any other offers made? This lets you know if you have any competition and how serious the vendor is about selling their home for a reasonable price.
3. How long has the home been on the market? If it’s just been put up for sale, the seller may not be anxious to accept the first offer. If the home has been on the market for several months it’s more likely the seller would be ready to accept your offer.
4. Why is the vendor selling? Are they going through a divorce? Do they have to move interstate urgently? Have they already bought another home that would put them under pressure to sell their current home? This will let you know how motivated the seller is.
5. Has the asking price been reduced during the time the property has been on the market? This will tell you whether the seller is really keen to offload their home and also let you know that you might have a motivated seller on your hands and perhaps greater bargaining power.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.