Property negotiation is a strategy game – here’s how to win
If you have a property question you would like Phil to answer, get in touch at [email protected].
The thing that often trips house buyers up when they come to negotiating a price they’re prepared to pay is that they haven’t realised how early the process really starts. Negotiations actually start as soon as you call the estate agent to arrange a viewing.
From the outset, how you present yourself – whether you appear organised, committed and focused, or a bit flippant and loose – is really important. First impressions do matter – when it comes to buying and selling homes, it is rarely just about money. In many ways, it would be simpler if it was.
Even with my years of experience sorting property deals, for myself and others, it is never a process I enter into without doing as much research as possible.
Getting your preparation right is key to going into negotiations confidently – this means getting as much of a read on the local market as possible. As you’re viewing houses, make sure you are building up an understanding of the prices they are selling for and why. Not only is this valuable information for your house hunt, but also for when you come to negotiate.
If you have a clear idea of the average price for the type of home you’re looking for in the area, you will feel a lot more confident in your negotiation strategy when it is time to make an offer.
At the same time, it’s important you present yourself as an attractive buyer. There are big things you can do to make yourself appealing to a seller, such as being chain free or a cash buyer, but often these are out of your control.
However, you can show a willingness to act quickly with the necessary funds available, such as having a mortgage in principle already agreed with a lender. But be careful not to give too much away.
You don’t want to tell the estate agent on your first viewing that it is your dream home – they will see that as a sign you’ll be willing to stretch your budget if necessary. Play it cool, be interested and ask probing questions, find out as much as you can.
Don’t be afraid to take a read of the circumstances of the sale before you start to enter negotiations, as it will help you pitch your offer. For example, are the sellers in a rush or is the property part of probate?
You can play a little bit hard to get if you feel the other side is keener than you are.
Which brings me to where to start your offer. A good rule of thumb I use is assessing the price per square foot in relation to the asking price, and how that compares to other properties in the area. It doesn’t take into account other features of the property, such as which way the garden faces or proximity to a school, but it is a good baseline to work from.
There is also often a bit of a gap between a property’s asking price and its real market value, so it’s up to you to make a judgement on what discount to open with based on your research and assessment of the state of the property.
But don’t push your luck too far, you don’t want to start negotiations off on the wrong foot.
It is usually safe to assume that your first offer is going to be rejected – that’s how these things go. But, equally, the seller may not be expecting to get the full asking price.
Getting a larger discount is more likely if you know they are not overrun with viewings or have yet to receive any offers. In this respect, it pays to be pally with the estate agent. Yes, they work for the seller, but they also want a sale so may be willing to divest more information if they think it will help in brokering a deal.
A friend of mine was once looking for a property in Kent and organised a viewing. Upon arrival, he quickly realised the house was much smaller than the listing suggested and way overpriced.
What was more, the agent agreed with him and suggested waiting a few weeks for the sellers to realise they weren’t going to get the asking price and reconsider. In the end, the agent called him a month later and asked him for his best offer.
You’ve got to come up with a number that you are happy and comfortable to pay, while remembering what it is worth to you – remember, it may not be the same as what it is worth to someone else.
Other things I think about when deciding on an opening offer are the neighbours (can you hear them?), general condition, whether there’s space to build out such as an extension, and how long the property has been on the market. You are unlikely to get yourself a bargain and may have to pay a bit more if you know a newly listed property is the one you want.
Then, assuming your first offer is turned down, my approach is to increase it in increments getting smaller each time. So after you make your first offer you increase it by maybe ￡15,000 and then next time by ￡10,000 and so on until you reach your limit.
At that point, you need to be very clear it is the end of the line and you can’t and won’t offer any more. This could be because your finances won’t stretch any further or because you don’t think the property is worth any more than you are offering – either is valid.
Once you say you’ve reached your limit, don’t go back on it.
A good negotiation is a strategy game. Make sure you know ahead of time what your red lines are and what is more moveable. For example, if the sellers won’t come down on price could you make it work if fixtures and fittings are included?
Other things that can be included in your negotiations are your time scales and exclusivity – whether the property comes off the market or not as you are finalising the deal. As you are increasing your price you can request more strategic asks to be included to support the sale to move forward.
And as these discussions take place, I make sure everything is put down in writing.
It is important for both sides to have a paper trail as at this stage very little is formalised and while this is a business deal there are emotions involved so it is valuable for everyone to be clearly on the same page.
On occasions when I have been acting for a client, I have told an estate agent that the buyer is looking at two properties and, while the agent’s is the favourite, we need an answer soon or else we’ll lose the other, which they are not prepared to do.
It is a bit of a gamble – if they say no you have to walk away – but it has worked on a couple of occasions (even when there wasn’t a second property in the mix).
Finally, don’t get principled or personal.
Buying and selling homes is stressful, emotional and expensive, but it’s not going to help if people get irritated. Stay calm and try to put yourself in the other person’s shoes.
They are likely selling their most valuable asset, where they have brought up their family, and there’s a lot tied up in that.
But also it is the house that you’ve fallen in love with and there’s a lot tied up in it for you, and so it can get fraught. Being prompt and polite never does any harm and could even see you edge ahead of another buyer. It is rarely all about the money.
People often want to know they are selling their home to someone they can trust with it. I’ve heard of people courting their neighbours for years in the hope they are first in line when they come to sell. Cynical, maybe. Effective? Definitely.
Also, don’t shoot the messenger, always try and work with an estate agent rather than against them. A good agent who can broker and hold together a deal is a valuable asset for both sides.
If you happen upon one I’d even suggest pocketing their card for next time.
