How to Negotiate When Buying a House
Knowing how to negotiate effectively is the key to securing your home at a reasonable price. In this guide, we will teach you about preparation, research, and placing an offer – as well as many helpful tips for winning your dream home, for your ideal price.
There is a psychology of negotiating and having a basic understanding of it, along with being well-prepared, will help you to secure a favourable deal. It is also important to make peace with the fact that you may not secure the deal and need to walk away. By making this clear to yourself before negotiating, you can steer clear of getting into deep water with a price that you cannot afford.
This guide has been updated for 2020.
Negotiation preparation
One of the most important preliminary steps for how to negotiate when buying a new house is your information gathering and preparation. You want to understand the recent sales for properties of a similar style in the same location to ensure that your offers are realistic and fair. When budgeting, you'll also want to take into account some of the hidden costs that can come with buying a house to ensure you are completely covered.
Here are some of the essential points you will want to be aware of when preparing for negotiation:
Research the market you are purchasing in to understand its current state
Plan how you will deal with realtors
Consider the services of a buyer's agent
Research the property you are looking to purchase
Decide on your budget
Plan any special conditions that may be required as part of the deal
Once you have found the right property for you and you are ready to make an offer, you'll move into the negotiation phase. Understanding the market is a crucial element here, and a lot is riding on you negotiating well. Any money you save doesn't stop at the purchase price; it also means less stamp duty and home loan interest. Plus, who wouldn’t like a bit of extra play money when it comes time to deck out your new home or apartment?
Market research
The first step is understanding how much the property you are considering buying is worth. Look at and compare similar properties in the area, specifically ones that have sold in the past few months to determine how the property market is trending in that particular suburb. This is just one of the ways to also ensure that the property you are considering is a good deal.
Once you understand the real value of the property, you will have a level of bargaining power during negotiations.
Dealing with agents
You may be in a position where you have two types of agents involved in your purchase.
The first is the real estate agent, and it is essential to remember that they work for the vendor and are trying to get them the best deal. They are working towards the opposite goal that you are. They want you to spend as much as possible, and this is where it is vital to know how much you are comfortable spending and sticking to it. Keep your budget to yourself and don't give away how much you really love and want the property. Be upfront and communicate clearly with the real estate agent; be easy to deal with and put all offers in writing.
The second agent is on your team. If you decide to employ a buyer's agent, they will work as an advocate for you, not only in finding the right property, but also helping you during the negotiation process. This may even have the benefit of access off-the-market or off-the-plan properties that are yet to be seen by the wider public.
Property research
Along with understanding the market, you also need to understand the specific property, including its features and why the vendor may be looking to sell it.
You'll want to try and gather information on Whether or not the vendor is looking for a quick sale. You should learn how long the property has been on the market for and if there are any issues or building defects.
Understanding the motivation behind the sale can be a very helpful negotiating tip when it comes time to talk to the real estate agent. For example, someone after a fast sale may be more willing to accept a lower price.
Understanding your budget
Whether on your own or with the help of an accountant or financial planner, work out your budget. This may also require a conversation with your financial institution to understand your borrowing capacity and that you are picking the right loan for your situation. You will want to ensure that you have pre-approval before making any offers, or, a condition that states your offer is subject to finance. Once you know this figure, you need to stick to it. This can sometimes be tricky in negotiation situations, so it's important not to let your emotions get the better of you.
There will likely be competition from other buyers and various other pressures. It can be hard to walk away from a property you have decided you want, but if it comes to destroying your budget, you need to know when to fold the cards.
Offer an amount that is less than your maximum, which both allows you room to negotiate and has the potential to provide you with a saving. If you go too high, too fast, the negotiations will result in the price possibly going over and above your limit. Depending on the situation, offering far less than the asking price may very quickly remove you from the list of potential buyers, so you need to keep things reasonable and fair.
Negotiating tips
When it comes time for the big negotiating event, the following tips should be kept in mind:
Set your goal for the negotiation in regards to purchase price, terms of the contract and what a deal that you will be happy with looks like
Understand the motivation behind the sale to help navigate which terms you can include in the agreement and where to land with price
Understand that negotiation, by its very definition, is about give and take and compromise with a desirable outcome for everyone involved
Walk away if you need to, there are plenty of other property options
Make yourself heard but be sure to listen to the other party as well; good negotiations go hand in hand with good communications
Be patient. If you rush, you are more likely to make mistakes
The ability to successfully negotiate is based around the idea that you shouldn't be afraid to ask for what you want. Be assertive and challenge the points that don't align with your goals. As we have mentioned a few times, it is vital to remove emotion, which means being assertive without anxiety or anger.
During negotiations, you are looking to take care of your own interests, but should also maintain respect for the interests of the other party. Remember, they have something you want, and vice versa.
Negotiations can be the make or break in your new property purchase
It is vitally important that you remain cool and calm during negotiations, and completely remove emotion from what is a significant business transaction.
Allowing yourself the ability to walk away means you are negotiating with options. If the only outcome for you is the purchase of the property in question, you lose your ability to say no. If the seller picks up on this, they have you in a corner. Always be willing to walk away and be comfortable with it as an option. If the other party sense desperation, you put yourself at a significant disadvantage.
You may love the property in question, it may be your dream home, but putting yourself into a tricky spot financially will significantly reduce the enjoyment of your new place. Do your research, understand what deal you will be happy with and aim for, knowing that you will walk away if you do not achieve that goal. Being comfortable with the idea of finding another development should this one not work out is essential.
Your plans and budget are the most important things to maintain, plus you will likely feel a lot better with your purchase, knowing that you were able to successfully negotiate a great deal.