How to negotiate the purchase price when buying a house
Part art, part science, negotiation is a tricky business.
Come in too low and you’re left out of the conversation; too high, and you find yourself caged in, with no way to escape.
So, how do you work out an offer that’s just right?
Here’s our guide to negotiating a purchase price.
1. Look at recent comparable sales
The first step towards a successful negotiation is working out the value of the home you hope to buy, and one of the best ways to do that is to look at recent sales of similar local properties on realestate.com.au/sold.
Armed with an understandin of the local market, you can pitch an offer confidently, safe in the knowledge that you have evidence to support your argument for making such an offer.
“It’s like going to court,” suggests Frank Valentic, director of Advantage Property Consulting and star of TV show The Block.
“If you go to court and say, ‘I’m not guilty’ but you’ve got no evidence to back you up, you’re in trouble.”
2. Take into account market conditions
Recent comparable sales data offers a fairly accurate barometer of the local market’s strength, but you should also attend open for inspections and keep an eye on auction clearance rates to determine whether it’s a sellers’ or buyers’ market.
The former requires you to offer a sensible offer right off the bat, as the seller will have plenty of alternatives to consider. But the latter provides a little more wriggle room, according to Valentic.
“You could put in an offer 10-15% lower than what you think the property’s worth, to test the waters and work out the vendor’s situation,” he says.
3. Find out why the vendor is selling
Just like in the sporting arena, knowing the person with whom you have to negotiate is crucial to success, as each vendor brings to the sale a personal history that shapes how they view every offer.
In fact, Valentic says failing to “find out what makes the vendor tick, in terms of non-price factors,” is one of the most common mistakes buyers make.
“Buyers need to think about settlement terms and deposits, as well as price,” he says.
“Just to give you an example, recently we bought a property from quite an old vendor, who had lived in his property for 50 years.
“He wanted quite a long settlement, as he needed to find somewhere else to live, so we offered a 150-day settlement and the chance to lease it back from our client at market rent if he failed to find another property within that time frame.
“It got the deal over the line and it also saved us $40,000 on the sale price.”
4. Submit a “Clayton’s offer”
A Clayton’s offer is a non-legally-binding offer a buyer submits to get a clearer sense of the vendor’s motivation and what type of offer they’re likely to accept.
“It’s an offer that’s not really an offer, just like the non-alcoholic drink Clayton’s,” says Valentic.
As it’s a non-legally-binding offer, Valentic recommends using it when you want to pursue interests in multiple properties, without running the risk of having to pay for a property you don’t actually want.
“I’ll put in a Clayton’s offer by email, so that I don’t commit myself to a contract of sale, because, at this stage, I don’t want to start negotiating the price. I just want to test the water and work out where this vendor is at, compared to where another one is at,” he says.
“If the owner accepts that offer, but you also get another offer accepted, you have the freedom to tell the vendor that you’re going to buy the other property, and that you’re not legally bound to go ahead with the contractors, because you can’t buy or sell a property through an email.”
5. Put in a written offer – and make it “clean”
If you’re serious about the property, the next step is to make an offer in writing, or by contract.
The key to success is to put in a “clean” offer with as few conditions as possible, so that the buyer knows you’re unlikely to drop out at a later date.
“You want to present an offer that is as rosy as possible, which means already having your finance pre-approved and not making the offer conditional on selling your current home,” says Valentic.
“We make all our offers subject to a building report, but we make that condition for under 24 hours, and get our builders out the next day, so that it doesn’t dilute the quality of our offer.”
Valentic suggests submitting an odd-number offer, rather than a round, even number like $700,000, as the odd number makes it look like you’ve extended yourself and can’t go any higher.
“I also like to add the last right of reply into the offer, so that, if a vendor does receive a higher offer from another party, we get a chance to beat that offer,” he says.
6. Talk up interest in another property
Depending on the strength of the market at the time you submit your offer, there’s every chance you’ll hear a ‘no’ before you hear a ‘yes’.
Should you find yourself in this situation, Valentic suggests providing evidence of lower comparable sales, or talking up interest in another property.
“Tell the agent, ‘we like your property, but, if we can’t get it at the price we want, we’re going to go for this one’, and send them a link to the property, too,” he says.
“That creates a bit of fear; it makes the vendor worry they may lose your offer, which can help push the deal over the line.”
7. Top three rules of negotiation
There are many things you should and should not be doing when it comes to negotiating.
Here are three things to remember before you begin negotiating.
- Don’t make assumptions. Go in armed with knowledge and always be prepared.
- Don’t rush. Negotiations take time so make the effort to establish a relationship with the other party.
- Don’t take things personally. It’s easy to let your emotions get in the way. If you feel your emotions are taking over, pull back.