Negotiating the Purchase Price
It is a buyer’s market. What does that mean when it comes to negotiating the purchase price? How do you make sure you get a great deal?
Negotiating the Price
Price is property- and vendor-dependent. On one hand, less desirable properties (and properties requiring a quick sale) are consistently selling for 20% below historic values. On the other hand, “hot” entry-level properties in good suburbs appear to be down only about 10%.
First things first. Know yourself. It helps to write down your goals and what you are prepared to negotiate – or not!
How to Use Time
- Put limited time frames on offers.
- You can only have one offer live at a time. Let the agent know that you want to put an offer on another place.
- Be cautious about making unconditional offers (but only if you have finance approved already).
- Do a short settlement. This can be an emotional benefit to seller (they can “move on”).
How to Use Information
Information is all about putting yourself in the vendor’s shoes. Given the vendor’s situation what would you do?
How much equity is sitting in the property value? And how much do you think they would give up? (After all it’s just “paper” profits.)
Sellers will more readily give up profits than suffer a loss. Sellers who have owned for over seven years (and older sellers) are likely to have substantial profits built in. If they are upgrading they are likely to have also got a great deal on their new purchase.
How keen is the seller? Is the house empty? If so, for how long? Is the seller moving? Have they purchased somewhere else? Are they going through a divorce? Has the seller over-committed? Do you think they are in a position to sit out the current market, if they can’t sell?
The clues to look out for are empty houses, incomplete projects, and properties without the necessary building consents (for example an unconsented garage.) Clients that find urgent sellers and sellers with “tricky” properties are buying a full 10% lower than other buyers (so 20% or more below historic values.)
Some properties will be harder to get a mortgage on – so these will have limited potential buyers and are more open to negotiation. These include: bare land, apartments (generally but especially apartments under 50m2), anything leasehold (but be careful!) and properties without a code of compliance.
Sellers who are selling and buying in this market should obviously sell before they buy. Talking with experienced investors, you are best to meet the market quickly and recognize that you’ll win on the other side of the transaction.