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REALas Australia’s most accurate property price predictions

How to Draw Out Negotiations in Real Estate

How to Draw Out Negotiations in Real Estate
October 20, 2017 David Morrell

How to Draw Out Negotiations in Real Estate

Private sales or private treaty negotiations are the simplest form of buying real estate. The vendors nominate a price at which they would be prepared to sell the property or a price at which they would be prepared to move. This is usually committed on an agent’s authority with a price stated, typically decided in conjunction with the agent’s advice as to values, or may simply be what a greedy vendor wants to name as their price; the price stated on the agent’s authority does not represent the market price but is merely a figure that the agents can work to with respect to earning a commission. Vendors will usually commit at that point to a budget for advertising. The agent and vendor then agree to a period of time for which the agent has authority to sell the property, usually about 12 weeks.

The property is then advertised through the media and the Internet, describing its merits and encouraging prospective purchasers to inspect the property; the ultimate goal is to get buyers to put forward offers to purchase the property. The negotiation and games begin with a ‘ping-pong’ approach of offers and counter-offers being made, with negotiations concluding with a figure at which the purchaser and the vendor are prepared to have a meeting of minds. This is the market price as opposed to the asking price of the vendor. Purchasers usually go up in negotiations and vendors lower their expectations, with the final ping-pong being the date of settlement and whether or not any terms or conditions are applicable to the negotiation or contract of sale.

Thinking outside the square can make or break any private sale negotiation and it is fundamentally what ultimately saves you money. More importantly it makes the deal happen. You have to always be one step ahead of the estate agent, which in turn makes you one step closer to the owner. For example, you need to focus parts of your negotiation on what you think are some of the vendor’s needs, and marry these up with your own needs to secure a better deal.

Draw out Negotiations

The longer you can draw out negotiations during a private sale, the more information you will be able to get, and the more desperate the estate agent will become to sell the property.  They will be concerned about losing their commission on a sale or having a rival agent sell the property.

My client was very keen to buy a unique Victorian home.  The value of the property was hard to evaluate, as it was on an unusually large piece of residential land and there was nothing to compare it to locally.  A situation like this can provide a great opportunity for buying a property at a good price because inspections are extremely limited and the agent is greatly restricted in how they can market the property.

After two weeks of negotiations the asking price had been reduced, but was still unrealistically high.  I had not made an offer for my client at this stage and let the time between negotiations increase.  We continued to lengthen the time of negotiations to the point where the agent pleaded to have a meeting with us so the negotiations could move forward at a greater pace.  At the meeting, I told the agent that my client had seen another property in the last 24 hours that represented better value and unless his vendor could reduce the asking price substantially, my client was no longer interested in the property.  This was an expression of interest, not an offer to buy, so the agent was extremely frustrated, obviously he had already spent the commission!

However, after getting instructions from his vendor, he indicated they were prepared to keep negotiating.  I offered four different prices with four different settlement dates, leaving it to the owner to choose his preferred option.  The agent and his vendor believed my client was prepared to walk away.  This allowed us to buy the property at a good price.

– David Morrell

 

 

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    The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of REALas.