The Art of Negotiation When Buying Your First House .
Most of us are uncomfortable about negotiating a deal, especially on a property. Mastering a few tricks will give you the power to go out and get yourself the best deal.
Ask any salesperson and they will tell you there’s an art to negotiating the best deal possible in any transaction. Buyers don’t generally offer the full purchase price when they make an offer on a property and although many end up paying less than the advertised price, they may have been able to knock the seller down even more had they been armed with the right information and tools before making their final offer.
To be fair, most of us aren’t used to negotiating the price of goods. Some may become embarrassed about offering less than the asking price while others feel uncomfortable bargaining. What buyers need to understand is that while they may not have any luck talking down the price of groceries in a supermarket, it is perfectly acceptable to make a lower offer on a home. The real trick is to know what to offer and how to conduct themselves before the offer is made.
An American article in the Harvard Business Review titled How to Negotiate With Someone More Powerful than You, highlights the feelings buyers often have towards sellers because they believe the seller holds all the cards and as such, they simply have to fall in line and pay whatever the seller is asking.
However, as Jeff Weiss, the author of HBR Guide to Negotiating correctly points out, there is often strength in weakness.
“Having power typically reduces a person’s ability to understand how others think, see, and feel, so being in the less powerful position actually gives you a better vantage to accurately assess what the other party wants and how you can best deliver it. And when you do your homework, you’ll often find you’ve underestimated your own power, and overestimated theirs.”
So exactly what hidden powers do buyers possess and how should they go about using them when buying a home?
The power in any negotiation lies with the person who has the most options. Let’s say the seller of the home you’ve fallen in love tells you he has already received three good offers. In this scenario it’s unlikely that he’ll accept a lower offer than one which has already been presented. Right? Actually, no. People exaggerate all the time, particularly when they are hoping to secure more money for something. What the seller might be attempting to do is force the buyer into making a better offer than is already (supposedly) on the table. In other words, he’s applying what the experts refer to as ‘negotiating pressure points’.
The buyer’s power lies in their ability to convince a seller that they have more options at their disposal than the seller does. They can do this by making it very clear they have seen similar homes which are more reasonably priced and that although they like what they see, there are other properties which have piqued their interest, thereby swinging things around and showing the seller that he is not the only horse in the race.
Knowledge is power
Information is king when it comes to negotiating and those who take the time to find out important, relevant information are probably going to come out tops. There are two sides to this – sellers who know that a buyer has to make a quick decision because he has to buy a home within an allotted period may well hold out for his price because he knows he can. However, a buyer who knows how urgently the seller needs to sell will be in a stronger position to negotiate on price. The more information gathered, the better the chance for successful negotiation. Why has the seller put his home on the market, how long has the home been on the estate agent’s books and has he dropped his price are all questions that need to be answered. Another important aspect is how long the seller has owned the property and how much he paid for it. Attempting to offer the seller less than he originally paid is generally going to fall flat but it will give the buyer an idea of where to start and will show if the seller is chancing his luck by overpricing the home.
Timing is everything
There simply isn’t anything more favourable to a buyer than a seller who is under pressure to sell. This is because someone who needs to move quickly (regardless of the reason) is far more likely to consider lower offers than someone who isn’t in a rush.
Don’t be surprised if a seller turns down what he considers to be a ridiculous offer, but at the same time don’t assume that the negotiations are over simply because the offer has been rejected. There is always a chance that a seller will reconsider his options if the property stagnates on the market and there are no other takers.
Let the seller know, in no uncertain terms, that you will walk away from the deal if he rejects the offer on the table. Again, the power in this instance lies with your options. Have a backup plan and make it very clear to the seller that his isn’t the only home you are interested in buying. Remember, you shouldn’t be forced into buying something that you consider to be overpriced – weigh up your options and make them work for you.