How to negotiate the price from an owner seller's perspective
by Graeme Daniel
Fortunately for Australians in the business of buying and selling property, the process of negotiating a fair price is generally a low-key affair, ideally achieved through amicable discussion between vendors and buyers over a cup of tea and a biscuit, or possibly several cold beers and a bag of chips.
However, although some people seem to have a gift for negotiation, it doesn’t come naturally to all of us – indeed, in our culture, some people are inclined to pay the asking price in order to avoid the possible conflicts involved in arguing for a better deal. In these cases, some token to-ing and fro-ing may be acceptable by way of demonstrating that we aren’t absolute pushovers, but serious haggling doesn’t seem to be worth the risk of revealing our inadequate negotiating skills.
It is this common aversion to serious negotiation that third party agents exploit in their bid to sell services and expertise; their promises to negotiate the best price for sellers from a steady stream of cashed-up buyers can be very tempting. Unfortunately their primary interest lies in achieving a quick sale in the interests of turnover, rather than in optimising the seller’s price at sale.
Agents do not need to be good at negotiation, and many aren’t. However we feel about doing our own negotiating, there are many good reasons for giving it a go – most of them may be measured in dollars.
The Stakeholders: Vendors, Agents and Buyers.
As we don’t intend to involve agents in our dealings, there’s not much point in spending much time here; however, it’s always handy to be able to answer the “Why not…?” question.
There are a few different sorts of agents:Real Estate Agents are authorised by owners to present property to the market with a view to achieving a sale – they may claim negotiating expertise, but cannot realistically full fill promises to get the best available price, and are not obliged to work with this as a primary objective. Buyer’s Agents, who usually work for a fee as confidential finder/negotiators on the buyer’s behalf, but also take a share of the listing agent’s commission.
Real estate agent discussion Dual Agents are also legal in some places, including Australia – insofar as they represent both seller and buyer in a given transaction, there’s a real conflict of interest here, and ethical considerations are tricky. This not a preferred option.* Points against the use of agents: Agents present themselves as indispensable to the process of buying and selling property – this isn’t true.They may claim that buyers don’t like face-to-face dealings with owners – an ill founded generalisation.They tend to push vendors to take less, in order to accelerate their turnover rate.They cost a lot of money.
If they have the choice, buyers often prefer to deal directly with vendors because it’s quicker and less complicated.*
Best offers often come from:
- the first buyers to inspect.
- Buyers who want to live in the house (as opposed to bargain hunting investors, who are not as interested in a property’s details, or as committed to outcomes, and will negotiate hard for the lowest possible price, or withdraw).
- Buyers desperate to buy – this may be linked to the state of the market, personal circumstances, or even just an irrational desire to win.buyers who show little initial interest, but come back for another look.
Owner Selling Privately
However, there are also downsides not easily ignored; at the most basic level, the owner-seller is at an emotional disadvantage – after all, the idea of selling the family home probably entails some emotional baggage, which should not be allowed to inflate pricing expectations or colour judgment in negotiation.
And then there’s the process of negotiation itself – you may feel that you’ve had no prior experience in this, though in reality past daily experiences and observations have already provided plenty of real-life examples to draw upon. Maybe some of these ideas just need clarification and a little order to pull them into gear.
Power Factors – developing strong negotiating positions.
Power in negotiation is not achieved by being tough-talking or aggressive; on the contrary, arrogance may put a buyer offside to such an extent that a deal becomes impossible. However, if you project the feeling you are competent to control the process, the assumption of power may be conceded by the other party – just don’t count on the mind-game to carry the perception of power all by itself. There are many factors that operate in combination, A powerful negotiator:
It is sometimes said that the best tools for negotiators are alternatives and information; you have the advantage of possessing detailed information on the property for sale, but you also need to have authentic knowledge of:
‘Market Price’ means that the asking price is as close as possible to an honest assessment of a fair price in line with local market conditions.Some experts advise that your asking price should be about 10% more than what you are prepared to accept, so that there’s a little wiggle-room for offers – and you never know, you could get lucky.
Sellers should resist the temptation to overprice, as this will keep the property on the market for longer than they’d like. Some owners unwittingly overprice by giving too much weight to improvements – generally such costs will not be fully recovered at sale. Others think that overpricing pays off, with the idea that interested buyers will make lower offers from which the best can be accepted. This approach may effectively block many potential buyers from ever seeing the property, as they are looking within the lower price bracket to which the property more properly belongs.
Overpriced properties are also at a disadvantage on the market because:
Vendors might ask themselves these questions about their pricing policy:
Terms and condition
Sometimes a sale hinges on factors other than just the agreed price – for example, Contingency Clauses are designed to protect buyers from possible future problems; the two most commonly encountered are:
Knowing the buyer
It’s important in any negotiation for the two parties to understand and appreciate what each wants from the process. It’s generally considered to be more productive to work from known interests and desires rather than from stated positions, as this approach allows negotiation to remain flexible enough to entertain a wider range of alternative possibilities. In this instance, the owner-seller should try to understand these sorts of things about potential buyers:
Attempts to find out about such things should be undertaken in a friendly spirit of give-and-take – no doubt there are plenty of questions buyers will want to ask about the property and your own expectations, and honest answers to these will help develop the empathy required to achieve a conclusion satisfactory to both parties. On the other hand, exchanges of information also have strategic significance – there may be some details which are nobody’s business but your own, and in the interests of maintaining your negotiating advantage these should not be divulged.
Negotiating the Price: an Owner-Seller’s Perspective
In this sort of communication, seeming to be highly articulate may be discounted as gift-of-the-gab salesmanship, and treated with a degree of suspicion. A more down-to-earth approach is less threatening, and likely to put people at their ease. Points to note about communication:
- The reciprocal sharing of information requires some level of trust and a desire to cooperate.
- Courteous communication works better
- A little give-and-take inspires confidence in the process – negotiation doesn’t have to be a zero-sum game, where one side’s win means that the other side has to lose. Outcomes can be win-win.
- Nonverbal communication can be important – this is a large subject beyond our scope here, but worth following up.
- All serious offers and counter-offers must be in writing.
A few hints:
- Never play the sympathy card, i.e., citing marriage breakdown, financial crisis, bereavement, threat of repossession, bad tenants, terrible neighbours. Victims are generally seen to be at a disadvantage and in a weak negotiating position.
- Don’t use phrases such as ‘quick sale’, ‘need to sell’, ‘can’t wait to get the mortgage paid off’, ‘doesn’t flood all that often’ – don’t even joke about it.
- Don’t take offence at unfavourable comments from buyers – they may be trying to talk the price down, or it may be just a nervous case of needing something to say. If they really don’t like it, they won’t be back anyway.
- Beware the overfamiliar stranger – maintain a certain reserve for a better negotiating position. The aim of the exercise is not to make a lifelong friend, though if it happens, so much the better…
- Only accept an offer you are completely comfortable with. Verbally negotiated points of agreement are not legally binding and should be backed up by signed written statements. However, until a comprehensive written agreement is reached, you have every right to be considering other offers as well.
Some questions to ask potential buyers:
- Have you compared values in this area?
- Are you prequalified or pre approved for a mortgage loan?
- What length of settlement period do you hope for?
Questions to expect from buyers:
- How long has the property been on the market?
- Have there been any offers?
- Why is your price higher/lower than others?
- How much commission are you saving by selling privately? (unanswerable: the rate of commission is public knowledge, and the amount will depend on the sale price)
- Is there anything else I should know? – could lead to specific questions about topics such as easements
… and the BIG ONE:
Methods of conducting negotiations, sometimes referred to as ‘negotiation protocols’, range from free telephone, email, and kitchen table events through to more formal encounters; negotiating property prices, terms and conditions tend to occur at the open end of the scale. The first ground rule to be agreed upon between seller and buyer is determining just how and where subsequent negotiation will take place. It suggested that there are no rules in negotiation, but there are certainly many commonly cited procedures, strategies, and techniques to consider.
Sellers tend to have the final say in establishing the protocol:
- Some will ask buyers for their best offer, and try to steer them closer to their asking price from there.When a seller receives multiple offers, the highest bidder may be identified by asking for a ‘final and best’ offer from each. This practice shortens the negotiating period and eliminates the stress of arguing every offer backwards and forwards individually.
- A variation on this strategy is to introduce a deadline as well, with no opportunity for buyers to increase offers after the set time. Deadlines carry the risk of limiting the number of available offers, and you probably can’t try this often for any given property without word getting around about your less-than-final proposal.
- Sellers are generally advised to start with the highest price they think the market will bear, and work down (as opposed to auctions which start from a low price and work up). The same principle operates in negotiating terms and conditions – start with the best possible situation for yourself and be prepared to concede on some points if necessary. On the other hand, buyers’ offers generally start low, and first offers from buyers should not be considered their final word – if they’re serious, they’ll reconsider and make a more realistic bid.
- There’s no rush to consider offers. You may feel the need to consult with family or trusted independent advisors before responding immediately. Again, if a verbal offer appears reasonable, ask for it in writing.
Objectivity is an important principle in negotiation:
Personal considerations are not relevant – you may not approve of a buyer’s style, attitude, appearance or morals, but a lasting relationship is not at issue here.
Use objective criteria appearances are under discussion – average prices for property in a given category and location can be fairly easily found or figured out.
And once again, focus on interests, not positions.The KISS principle, mentioned in the Photography article in relation to design, can also be applied to selling property – in these terms, Keeping It Simple may mean accepting less money as a trade-off against the complexities involved in competing deals which, though offering more money, will mean more headaches. Settlement terms can be a complicated minefield best left alone until the basic negotiation on the transfer of ownership is completed.
Knowledge of a buyer’s timetable can be used to advantage – a better offer may be forthcoming if the buyer’s residence has been sold and the deadline for moving out is approaching; people often make concessions under this sort of pressure. Your property may be the closest fit and the buyer’s best option under the circumstances. However, if you are depending on this sale to finance your move to your next dream house, your time constraints may drive you into the position of being prepared to accept a lower offer – probably a case of ‘Mum’s the word’, though what she’d have to do with it is not yet clear.If you just need to slow things down for a while, perhaps to allow more time for other offers to appear, the claim to need to refer to expert opinion is always handy – perhaps this is where Mum comes in.
Sincerity in the negotiation doesn’t mean absolute exposure; both parties need a Plan B, a clear sense of alternative options which is not divulged to the other party. The ultimate weapon available to either party is the willingness to walk away from an unsatisfactory negotiation; the one most willing has the stronger position, but once the plug is pulled, it’s hard to get the water back.
The KISS principle, mentioned in the Photography article in relation to design, can also be applied to selling property – in these terms, Keeping It Simple may mean accepting less money as a trade-off against the complexities involved in competing deals which, though offering more money, will mean more headaches. Settlement terms can be a complicated minefield best left alone until the basic negotiation on the transfer of ownership is completed.
If you just need to slow things down for a while, perhaps to allow more time for other offers to appear, the claim to need to refer to expert opinion is always handy – perhaps this is where Mum comes in.Sincerity in the negotiation doesn’t mean absolute exposure; both parties need a Plan B, a clear sense of alternative options which is not divulged to the other party. The ultimate weapon available to either party is the willingness to walk away from an unsatisfactory negotiation; the one most willing has the stronger position, but once the plug is pulled, it’s hard to get the water back.
Plans for making concessions should be in place from the beginning, but they need not be seen as set in stone – negotiation is a dynamic process, and both the nature of possible concessions and the way they are implemented can change in response to evolving circumstances. For example, if a buyer evinces a particular passion for the antique garden gnome you’ve always hated, save him up as a concessional item to be used later in the negotiation – but don’t just give him away. If possible, concessions should not be given away, but rather traded one-for-one between seller and buyer. Concessions may be traded as often as is required to keep the negotiation moving forward; larger concessions are typically made as deadlines loom – another case for Mum.
Implementation: Legal Stuff
- may include a date by which it lapses if not accepted.
- may be subject to a finance clause, i.e. bank approval, sale of an existing property or other considerations such as a builder’s inspection.
- may be conditional on certain items being included or excluded from the contract. Any such special conditions must be written into the contract.
Once an offer is made in writing, it is up to the vendor to decide whether or not to accept it, or whether to give other parties the opportunity to increase their original offers. During the time that a vendor is considering offers, the property remains on the market.
An offer is not legally binding on both parties until the buyer and seller have signed a contract.
A Contract contains:
- details of the property (address, legal description)
- the sale price deposit paid settlement terms.
- The vendor is under no obligation until the contract is counter-signed by both parties.
We recommend employing a solicitor or conveyancing officer to help with the legal requirements, as the conveyancing law is complex and changeable; mistakes in this area can cost you the sale.
Patience Is A Vertue
Patience has been a recurring theme in readings for this piece – here are a few examples:
‘Persistence pays. Stick at it beyond the point of boredom.’
‘… listen and require to be listened to…’
‘Don’t be disappointed when things don’t go as well as planned – there’s always another buyer’
‘ Missing out is not a life-threatening situation.’
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