Ignore asking prices.
This is a key piece of advice I give all my clients. Asking (also known as “guide”) prices are largely irrelevant when you are trying to value a property.
You need to work out what you feel is fair value based on the research you carry out on what other properties have sold for in the area. The asking price should not influence your thinking in this respect. Once you have carried out your research you should be confident in your valuation.
The asking price is hugely relevant when considering how to approach the negotiation itself.
Of course you should have carried out a lot of research into not only the value of the property but also the owners themselves and why they are selling. But what can the asking price tell you?
Is the price:
Too High? Does this signify that they are not serious and are just hoping that they will find a buyer who doesn’t know what they are doing and will pay too much?
Too Low? Are the sellers desperate so have priced the property to sell quickly?
About Fair Value? Does this mean that they seem sensible and will negotiate accordingly?
It is impossible to tell. Which I admit is not helpful, but I will show you what this has to do with emotions in a second.
First just consider the following:
If it is priced too high, this may have more to do with an overly ambitious estate agent than the owners themselves.
If it is priced too low this may be part of the sales’ strategy. When I advise clients on selling their homes, we sometimes undervalue the property to generate interest to create a bidding war. This has proven to be a very profitable strategy (in the right market conditions).
But let’s take the first instance where the asking price is too high.
Most buyers do one of two things:
- They simply ignore the property assuming that they cannot negotiate a sensible reduction. Instead they keep looking at other properties while monitoring the property for a price reduction
- They go in with an offer below fair value or at fair value. In both cases the buyer provides a coherent, logical justification of the offer in the hope that the seller will follow the logic and agree to their price.
Route 1 obviously won’t work because the buyer is not even in the game. Route 2 is better but still has little chance of success. Why?
Because logic rarely wins a negotiation. And if you don’t believe me, think of the number of times you have tried to reason with other adults and totally failed to get what you want, even when it is absolutely clear that you were “right”.
The reason why many negotiations fail is that neither party considers the emotions of the other side. Now I am not about to pretend that I am a new-age hippie and believe that you should start hugging people into submission/co-operation. Anyone who has met me will know that I am the polar opposite.
Nevertheless if any side of a negotiation is in a heightened, aggressive or defensive emotional state then failure is virtually inevitable because they won’t be listening to what you are saying. And if they aren’t listening even the clearest logic or common sense in the world is useless.
Consider the seller whose home is overvalued. They may not know it is overvalued and have simply taken the advice of an agent who was desperate to win the instruction and put in a high valuation. If you put forward a low offer, then the owner will understandably be quite surprised and will probably think that you are not serious. Alternatively they could be quite upset or angry.
At the same time, you need to consider the estate agent too. How will he or she be feeling in this situation? Embarrassed maybe? Perhaps they will go on the offensive to try to justify their valuation. If so, would that help you in the negotiation? Almost certainly not.
So before you put forward an offer you need to consider how the sellers and their agent will react. Asking for a big price reduction in your first offer is not the best way to start a negotiation.
If you would like to discover how to handle situations like this then you should read Chapters 8 and 9 of my book, The Prime London Property Puzzle.
If you would like to receive a free copy of your book or if you would prefer to have me help you buy your ideal home or investment in London and would like to discover how I can save you not only money but also time, stress and all the unnecessary bureaucracy involved, then please email email@example.com to arrange a consultation.
Good luck with your search for a property in London.