A home will be the most expensive purchase you will ever make. Negotiating the right price can save you a LOT of money, especially with Australian property prices currently being at record highs.
Read on to find out key tips to help you negotiate property prices, including the importance of:
- Getting your finance pre-approved.
- Researching your local market.
- Identifying multiple suitable properties.
- Finding out why each seller is selling.
- Putting in a dummy offer.
- Starting with a low, clean and time-limited offer on a contract of sale.
- Parking your emotions.
- Sticking to your price limit.
- Being prepared to negotiate non-price issues
- Being prepared to walk away.
Tip 1: Get your finance pre-approved
Getting your finance pre-approved will let you know the maximum property price you can afford. Once you know that number, you can start researching properties priced at that limit or a bit higher. You may be able to negotiate the price down if you follow tips 2 to 6 below.
Tip 2: Research your local market
Knowledge is power. Look at properties in the areas you want to buy that have recently sold within your pre-approved finance amount. That information will help you to identify comparable, slightly higher priced properties for sale where you may be able to negotiate the price down.
It’s easy to do searches on home sales in specific areas online.
Researching your local market involves determining whether it’s a seller’s or buyer’s market. It’s a seller’s market if there are more potential sellers than buyers (and vice versa).
It’s much easier to negotiate prices down in a buyer’s market (when there are more sellers than buyers) than in a seller’s market.
Over the past couple of years, the Australian property market has been a seller’s market with prices rising strongly, though many analysts are tipping that this situation will soon end.
Tip 3: Identify multiple suitable properties
Identifying as many suitable properties as possible will increase your chances of negotiating a good price deal. You may be able to play one seller off against the other with the offers you make.
It’s the opposite of ‘having all your eggs in one basket’ (i.e. having your heart set on buying one property).
Tip 4: Find out why each seller is selling
This information is crucial. A seller may be highly motivated to sell by a certain date due to a relationship breakdown or the need to finance their next home. If you know that they are, you can use that information to your advantage by following tip five below.
Tip 5: Put in a low, dummy offer
A ‘dummy’ offer isn’t submitted to the seller for consideration on a contract of sale. Instead, you might submit it verbally or via email to the real estate agent. It’s not legally binding on you, but it will give you an idea of how motivated the seller is to sell. If the agent won’t even put the dummy offer on a legally binding contract of sale for the seller to consider, you know it’s too low. But if they do, you know you’re in the ballpark.
Always remember that real estate agents are hired by sellers to get them the best possible price. They don’t work for buyers.
Tip 6: Start with a low, clean and time-limited offer on a contract of sale
Starting with a low offer gives you room to move up in price if necessary. You can’t do that at your maximum pre-approved finance limit.
It’s also important that any offer you make is as ‘clean’ as possible for the seller. A clean offer is one that doesn’t have conditions attached to it, like ‘subject to finance approval’ or ‘subject to the sale of the buyer’s existing home’ by a certain date.
You should always include a satisfactory building and pest inspection report as a condition (even in a clean offer), but make sure you organise for it to be done within 24 hours. This allows you to make a low, clean and time-limited offer.
A time-limited offer is one that expires. 24 hours is a good timeframe. This allows you to get your building and pest inspection done and puts pressure on the seller to make a decision. It reduces the opportunity for a seller to use your offer to drive up the price offered by other interested buyers.
If your building and inspection turns up any issues, you can use that information to negotiate the price down further (assuming the issues don’t put you off wanting to buy the property).
Tip 7: Park your emotions
Even if you’re buying your dream residential home rather than an investment property, it’s important that you treat it like a business negotiation. Park your emotions. If you don’t, you could end up paying more than you should.
Never let a real estate agent know how much you want a property. Let them know you’re looking at multiple properties.
Tip 8: Stick to your price limit
Sellers may reject or make counteroffers to you after you have made your offer. Make sure you stick to your price limit if you want to accept a counteroffer, or make another offer.
Tip 9: Be prepared to negotiate to get the price you want
Price isn’t the only potential negotiation point when buying a property. You might be able to negotiate in other areas to get the price you want. It’s all about give and take on both sides. For example, a seller may want a longer or shorter settlement date. You may be able to accommodate that in return for the seller accepting a lower price.
Tip 10: Be prepared to walk away
Finally, you should be prepared to walk away if the seller won’t accept your final price offer. This will be easier if you have identified other property options.
The bottom line
Be prepared to negotiate on price when you buy real estate. It can save you tens of thousands of dollars if you do it well.