Submitting offers on houses and negotiating with agents are arguably some of the most important parts of buying a property. If you do this successfully, it could save you thousands.
Why property negotiation skills matter for buyers
So what we’re going to be going through is basically why they matter – why making an offer and negotiations matter. We’re going to talk about the different types of sales, both private treaties and auctions.
We’re also going to be discussing some common tactics that real estate agents use to drive prices up. There’s very common tactics with negotiating and ways that you can structure an offer which is going to outperform the market, and you’ll be able to save on purchase price every day of the week.
Getting started with making an offer on a house
Making an offer obviously happens once you’ve found a house. You’d go out, you’ve got pre-approval sorted, you find a place that you really like and you’re going to make an offer. Now, that offer has to be taken back to the vendor from the real estate agent, doesn’t it?
Understanding different types of property sales: Private treaty vs auction
There’s different types of sales which will result in different types of offers. You’ve got your private treaty, your auction and expressions of interest.
With private treaties, there’s different ways each agent will look after that sale. It might be open to the market and when offers start coming in, that’s when we start negotiating. Other agents might do a three or four-week campaign and then say “submit your offers” and start negotiating.
Why negotiating starts when you first meet the real estate agent
Regardless of the property sale, negotiating starts when you first meet the agent because real estate agents are qualifying you. When you walk through the door, they’re asking you:
- What’s your budget?
- How long have you been looking?
- Have you bid at auction before?
- Have you got pre-approval?
All of these questions set them up for the future. Real estate agents know that typically it’s 6 to 9 months that a buyer is in the market before they purchase. If you’ve been qualified, they know you’re probably going to be in the market for another couple of months and then they can use you as leverage.
The anchoring tactic in real estate negotiations
The agent bundles people into categories: your window shoppers, your serious buyers and others. Some say nothing – they give them absolutely nothing – others tell them everything, and others are just from up the street having a look.
In terms of negotiating, the anchoring technique is a psychological benchmark for people, whether it’s high or low.
- Low anchoring: If market value is $1.1 million, the agent lists it for $1 million to get more interest in the door. This creates artificial scarcity. They get 100 people interested, but only five are actually interested at $1.1 million.
- High anchoring: An agent might guide $4 million for a property worth $3.5 million. When you submit an offer at $3.5 million, the agent asks if you have any more in it. Even if you increase it by $100k or $200k, you think you’ve saved $300k from the $4 million you were anchored at.
The psychology of selling and buyer mentality
People have that discounting mentality. They think, “Wow, they’ve dropped that from $4 million down to $3.7 million, what a bargain,” when actually it’s worth $3.5 million. If you think you’re getting a bargain, you’re more likely to take action.
Property market tactics: How to handle agents in a buyer’s market
One common line real estate agents use is “Where do you see the value?”
That’s something buyers can use to their advantage because you can anchor the agents back. If there’s a property for $1.5 million and you say, “Look, probably around $1.3 million based on what’s sold recently,” they think you’re not the buyer. Then, when you come in with an offer of $1.45 million, they feel you’ve come up significantly.
Comparing expressions of interest and auction sales strategies
- EOI: If it’s an expressions of interest, most likely the vendor isn’t that motivated and is just testing the market. In a buyer’s market, it’s not a great idea because you’ll get lowball offers or none at all.
- Auctions: Agents like auctions because there are three opportunities to sell: pre-auction (unconditional), auction day and post-auction negotiations.
How to use contract terms in your favour
The best way to make an offer to secure a property under value is not just using price, but using terms. Find out the motivations of the seller:
- Are they upsizing or downsizing?
- Do they need a short or long settlement?
- Do they need a release of deposit?
A $1 million offer with better terms (like an unconditional offer or matching their settlement timeframe) might be more valuable to the vendor than a $1.05 million offer with difficult conditions.
The power of silence and walking away in property negotiations
The two biggest things in negotiating are silence and walking away.
- Walking away: Set your budget based on market research and do not go above it. The willingness to walk away is a powerful tool.
- Silence: If you submit an offer and then call the agent that same day, they know they have you hook, line and sinker. If you say nothing, it creates discomfort for the agent.
Why the real estate agent is not your friend
The agent works for the vendor. They might be a nice person, but all they’ve done is figure out how hard they can squeeze you. If you’re not paying the real estate agent, they don’t work for you. Minimise the amount of leverage you give them – every question they ask you is
Top tips for negotiating property prices
- Know the motivations of the vendor
- Complete your pest and building reports and review contracts beforehand
- Understand true market value so you aren’t used as leverage
- Use unconditional offers to beat conditional offers
- Match the vendor’s preferred terms (settlement dates, etc.)