Property negotiation |
A client recently decided to sell her home.
She was in no rush, but the house was surplus to requirements.
So, I arranged for the four best agents in the area to value it and then advised her on which one I thought would achieve the highest price (I only acquire properties for our clients but do give advice on the best agents to use when they are selling and manage the agents for them).
As she wasn’t under pressure to sell and the market was very strong for that particular style of house we decided to test a guide price of £3.9m but despite lots of viewings didn’t receive any offers.
So, after four weeks, we decided to drop the price by 5.7% to £3, 685,000. We received an initial offer of £3,520,000 and within a week had two competing bidders one of whom agreed to pay £3,712,500.
Now, it would be very easy to just assume that the only lesson here is that if an owner puts their property on the market for too much, then it won’t sell. But not only is this not true – I can show you dozens and dozens of examples where buyers have massively overpaid – there is also a lot for buyers to take from this.
What we can learn from this property negotiation example
Firstly, people have varying attitudes to property negotiations. Many sellers won’t reduce their asking prices because they are convinced that buyers always offer way under the asking price, so they stick to outlandish prices despite being happy to accept a significant price reduction.
This is a narrow-minded approach because many buyers are too timid to put forward low offers for fear of offending the seller. Alternatively, they just feel that the owner is not serious about selling, so don’t bother making an offer until the price is reduced to what appears to be a more sensible level.
But this is not wise. Whatever you do, please do not be worried about offending the seller. In 21 years of negotiating property transactions, I can only remember one occasion where the seller was “offended” and they still accepted a significant reduction on their guide price, so they weren’t so offended they wouldn’t deal with us.
If it helps, look at it this way – are you offended by idiotic asking prices? Hopefully not, otherwise you may spend rather a lot of time getting upset…
More importantly, if you put in “low” offers for property, you will actually discover that many sellers are far more flexible than you would have imagined. Not in every case – there are plenty of owners who have an overinflated view of their property’s value – but you will uncover great opportunities.
In the case of my client’s house, the buyers who had both seen the property before the reduction could have offered £3.5m and she would have accepted it. However, because they waited for the price reduction, it meant that they were suddenly in a far more competitive situation and ended up paying more than they needed to. And let’s be honest, the price they agreed was only 5% under the original guide price, so not even a particularly big reduction anyway.
Put forward offers before the price reduction has happened
So, you want to put forward offers before the price reduction has happened. After all, does it take long to put forward an offer? No. So, what is the big deal about doing it? The chances of offending the owner are low (and if they are offended that is their problem – they can simply say no rather than getting upset), while the chance of negotiating a good price before other buyers become involved is rather good.
Of course, there are various things you need to do to make the offer as attractive as possible despite the level being offered, the language you use is important as is how you handle the agent who might be embarrassed about putting forward the offer.
But done correctly, you can save yourself hundreds of thousands, even millions of pounds in the negotiation. So please do not be put off by high guide prices.
Frequently Asked Questions: Property Negotiation
How do you politely ask for a lower price?
There are many people who think that the only way to achieve price reductions is to issue ultimatums, e.g. I will offer you £x. If this is not acceptable then we will simply walk away. This approach can be successful, but research has shown that you are more likely to be successful in a negotiation by using other tactics.
Indeed, there are multiple ways to ask for a price reduction and you need to adapt your approach to each individual situation. So, the most important thing you need to do, is to find out as much about the seller as you possibly can. If you can understand the real motivation for selling, then you will be able to negotiate the lowest price and best terms possible.
Please note, that the main motivation isn’t always price. However, the key is to make the other party feel like they are in control of the negotiation and “winning” even if they aren’t. This is why ultimatums – especially when acquiring a property in prime central London – often does not produce the best results.
When should you walk away from a house negotiation?
One of the biggest mistakes you can make in a negotiation is when you put forward your initial offer (by the way this is not the start of the negotiation which is another mistake people make but that is a story for another day). Most buyers spend huge amounts of time deciding on what their opening offer should be without knowing what their “walk away” price and terms are. This is the wrong way around.
Before you consider making any offer, you must first decide on what your maximum price and terms are, i.e. you must have a target. You can then develop a negotiation strategy around that to achieve that or better. It is possible that your target may change if new information becomes available during the negotiation which makes a material difference, but you should walk away if you cannot agree on a price or terms that work for you.
Can a seller counter a full price offer?
In the UK, agreeing the price is not legally binding until contracts have been exchanged. Consequently, both the buyer and seller can change the price or walk away from the transaction before this point. Of course, this also means that the seller can reject a full price offer if they wish. This is particularly true in very strong markets where there may be multiple buyers for each property. Indeed, some buyers deliberately underprice their properties to generate interest in their properties from multiple buyers to create a “bidding war” to achieve a higher price than they would by having a high guide price.
As always, you need to negotiate according to each individual situation. Unfortunately, most buyers are not experienced at property negotiations and pay far more than they need to or miss out on the best opportunities because they only know one or two negotiation strategies and techniques.
Contact Mercury Homesearch
And if you are planning to acquire a property but are having difficulty finding the right opportunities or have questions you would like answered, you can request a complimentary 15 minute Strategy Call with me. This is a diagnostic consultation where I will look at your requirements to pinpoint the problems and expensive mistakes you are in danger of making to help you avoid them.
Simply email my assistant at dee@mercuryhomesearch.com or call 02034578855 (+442034578855 from outside the UK) to request a Strategy Call.
Please note that this is a diagnostic consultation and you will not be able to discuss the service I offer. We only have 15 minutes so the focus will be on your requirements and the concerns you have.
Simply email my assistant at dee@mercuryhomesearch.com or call 02034578855 (+442034578855 from outside the UK) to request a Strategy Call.
Topics | Property negotiation ; property price negotiation
